Hoping To Avoid Filing For Bankruptcy? Take These Steps To Tame Your Debt

By: Kelly Anne Smith Forbes Staff

Advisor Contributor Group

May 5, 2020

https://www.forbes.com/sites/advisor/2020/05/05/hoping-to-avoid-filing-for-bankruptcy-take-these-steps-to-tame-your-debt/#62de0b56e5fe

The long-term financial consequences of the coronavirus pandemic are just beginning to unfold.

America is facing a recession, with higher unemployment numbers and swifter economic destruction than during the financial crisis and Great Recession that began in 2007. This time around, more than 30 million Americans have filed for unemployment due to the coronavirus, and that number is expected to go even higher.

Then combine that with credit card balances reaching a $930 billion high, along with $9.56 trillion in mortgage balances at the end of 2019, according to the New York Fed's Center for Microeconomic Data. It’s anything but surprising to learn that bankruptcy courts are gearing up for a tidal wave of filings in the near future.

Because bankruptcy stays on your credit report for seven or more years after filing, it’s not a decision to be made lightly. In fact, research shows most people struggle financially for two years or more before filing and there are less drastic options consumers should consider before filing for bankruptcy. Here are four steps to consider.

1. Consider Consolidating Your Balances 

If you’re having a hard time keeping track of your debt payments, you could consider consolidating your debt.

Under debt consolidation, a consumer usually takes out another form of credit, whether it be a personal loan, home equity loan or 401(k) loan, and uses it to pay off multiple debt balances. Debt consolidation is beneficial because you’re essentially rolling various sources of debt into one loan with one payment. You also may qualify for a lower interest rate, compared to credit card and other debt. But keep in mind that you’ll need a strong credit score and a source of income to qualify for a debt consolidation loan—so if you’ve recently lost your job, you likely won’t qualify unless you can provide another source of income.

Debt consolidation can take the chaos out of having to pay multiple creditors each month, but it will only work if you’re able to keep up with your monthly payment. If you stop making payments on your debt consolidation loan, you’ll be right back where you started. Only consider this option if you know for a fact you can make the monthly payments.

If you do take out a loan from your retirement account, be aware that the CARES Act does make it easier to borrow from these accounts, but not every retirement plan servicer allows these loans. Participants can borrow up to 100% of their vested account balance, or $100,000 (whichever is less). The CARES Act also gives people an extra year to pay back their 401(k) loans.

Traditional personal finance advice almost always advises against borrowing from a 401(k)—in part because retirement savings, such as a 401(k) retirement account, are protected from bankruptcy proceedings. But in unprecedented times, like a global pandemic, it could be a viable option for some. Keep in mind that an advantage of a 401(k) loan is that you pay back interest to yourself, whereas with a credit card or personal loan, you’ll pay interest back to the creditor. 

2. Prioritize Your Bills

If you’ve only recently started to spiral out of control with debt, there might still be an opportunity to recover. Leslie Tayne, a debt attorney in New York, says taking a step back and prioritizing your bills could be a good start to getting back on track.

“Keep a close eye on spending behavior and only spend on the absolute essentials that you and your family need,” Tayne says. “Prioritize your rent or mortgage, groceries, necessary clothing, and transportation when paying bills. Pay the most important bills first, meaning your rent or mortgage before your credit card.”

No one knows when the economy will fully bounce back from the COVID-19 crisis—some experts say it could be years. But economists are hopeful that employment numbers could start to tick back up in the near future, once stay-at-home orders start to lift and businesses reopen. Until then, paying as much as you can toward your most important bills is key. Only paying the minimum on credit card debt will cost you money in interest, but it can help keep you in good financial standing for the time being.

If you’re completely out of work and can’t afford your credit card or mortgage bills, many servicers are offering temporary hardship assistance for struggling customers. Call your creditors—or go online via their website or app—and ask what assistance they can offer you. Although you may still accrue interest during forbearance periods, this option could tide you over long enough to come up with a strategy for how you might next attack your debt.

3. Try Credit Counseling

Credit counseling offers a handful of services, including help with getting on a debt management plan. Debt management plans are a form of debt relief where a company works on your behalf to reduce your monthly payment, lower your interest rate and get you onto an affordable payment schedule.

It’s important to take notice of any fees a credit counseling agency may charge you to use their service. According to the National Foundation for Credit Counseling (NFCC), any agency should be forthcoming about its fees. Any fees an agency does charge should be reasonable ($50 or less for setup fees and around $25 for monthly fees). Additionally, consumers should do their due diligence in asking how their payments will be used, when they will be disbursed to creditors, how deposits will be protected and if the agency will work with all of your creditors, not just a select few of them.

The NFCC, for example, is a nonprofit organization that staffs member agencies around the country and can help consumers get started with a financial action plan.

4. Negotiate the Debt

If you’ve reached the point where you’ve exhausted forbearance options on your debt, you might stop paying it entirely. Once an account is past due, the creditor will eventually sell it to a collections agency that will then be responsible for collecting the debt.

Many consumers aren’t aware that they can actually settle their debt with collectors, meaning they come to an agreement to pay less than the actual amount owed. Although collectors are known for calling debtors incessantly, consumers should take the opportunity to ask about any settlement options that may be available. Let the collections agency make the first offer—it could be less than the maximum amount you’re actually able to pay, which will save you money.

If you still don’t have money you can throw at the debt after negotiating, ask about going on a payment plan.

What to Know If You End Up Filing for Bankruptcy

If you’ve considered all other options, and none will give you enough financial relief, then filing for bankruptcy could be a viable last resort. If you do go this route, you should have a clear understanding of how the process works and how it will affect your credit.

Here are a few things to know about bankruptcy:

• There are two types of consumer bankruptcy filings. These two filings are called Chapter 7 and Chapter 13 bankruptcy. In a Chapter 7, your assets—excluding certain exempt assets such as your 401(k) or pension, household goods and low value car—are liquidated to pay off debts. Chapter 13 bankruptcy allows consumers to keep more of their assets, including a home,  if they successfully complete a court-ordered plan to repay their debt.
  

• Not all debt can be discharged in bankruptcy. Most debt can be discharged or paid off in bankruptcy, including credit card debt, medical bills, civil judgments and past-due rent and utility payments. But it’s important to know not all debt can be erased in bankruptcy. Debts like child support, alimony, court fees, recent tax debts and most student loans cannot be discharged through Chapter 7 bankruptcy, according to Experian.

• Bankruptcy will stay on your credit report for up to 10 years. The length of time that bankruptcy will stay on your credit report depends on the type you file. Completed Chapter 13 bankruptcies stay on a credit report for seven years; Chapter 7 filings stay on a credit report for 10 years. As time progresses, the impacts of negative marks on your credit report become less severe. 

“The consequences that result from filing can affect your financial future for several years,” Tayne says. “As a result, exploring other debt-relief options first should be your first step to avoid the consequences attached to bankruptcy. Other options available can help you resolve debt without the headache that can come with filing for bankruptcy.”

Bottom Line

Often, there are steps consumers can take to prevent bankruptcy that they aren’t even aware of. These steps, which include negotiating your debt, can prevent you from having to liquidate your assets in a bankruptcy filing or live with a bankruptcy note on your credit report for 10 years. Filing for bankruptcy usually should be the last step consumers take to get back on track with their personal finances.

Small Businesses Counting on Loan Forgiveness Could Be Stuck With Debt New York Times May 5, 2020

Business owners who took out loans under the Paycheck Protection Program thought converting them to grants would be easy. It’s not.


Treasury Secretary Steven Mnuchin  has repeatedly tightened the terms of the lending program to dissuade large companies from taking money.
Treasury Secretary Steven Mnuchin  has repeatedly tightened the terms of the lending program to dissuade large companies from taking money.Credit...Alex Brandon/Associated Press
Alan RappeportEmily Flitter
By Alan Rappeport and Emily Flitter
May 6, 2020

WASHINGTON — The embattled small business lending program at the center of the Trump administration’s economic rescue is running into a new set of challenges, one that threatens to saddle borrowers with huge debt loads, as banks begin the tricky task of proving the loans they extended actually met the government’s strict and shifting terms.

With thousands of businesses preparing to ask for their eight-week loans to be forgiven, banks and borrowers are just now beginning to realize how complicated the program may turn out to be. Along with lawmakers, they are pushing the Treasury Department, which is overseeing the loan fund, to make forgiveness requirements easier to meet.

It is the latest complication for a program that has come under fire for allowing big companies to borrow funds from a finite pool of money aimed at keeping small businesses afloat. More than $500 billion in loans have been approved since the beginning of April, and Treasury Secretary Steven Mnuchin has repeatedly tightened the terms of the Paycheck Protection Program to try and dissuade large companies from taking money. Mr. Mnuchin has said Treasury would review any company that took more than $2 million in loans and would hold firms “criminally liable” if they did not meet the program’s terms.

The Consumer Bankers Association warned on Wednesday that loan forgiveness is the “next shoe to drop” for the program, and the Independent Community Bankers of America raised alarm that struggling borrowers have been misled.

“Virtually every small business borrower believes that this will be forgiven,” said Paul Merski, a lobbyist for the Independent Community Bankers of America. “They took it out assuming that it would be a grant but it’s not — you have to abide by very complex rules and regulations on how this is spent.”

One of the biggest stumbling blocks is a requirement that businesses allocate 75 percent of the loan money to cover payroll costs, with only 25 percent allowed for rent, utilities and other overhead. That has become more difficult as the economic crisis from the virus drags on and as some businesses face a prolonged period of depressed sales, even once they reopen.

Refer your friends to The Times.
They’ll enjoy our special rate of $1 a week.
Some businesses are facing smaller payroll expenses because workers have opted to accept more generous unemployment insurance benefits, while only a handful of states have so far allowed businesses to reopen.

The I.C.B.A., which represents smaller banks, asked the Treasury and the Small Business Administration on Wednesday to require only half of the loans made through the aid program to be spent on payrolls and allow the loans to be split evenly between paying workers and covering rent, which remains a substantial expense for many businesses.

“Now that over $500 billion of these loans have been approved, we’re really focused on the forgiveness phase, and the forgiveness phase could be 10 times more complex than the initial program,” Mr. Merski said.

Mr. Mnuchin indicated last week that while he believed he had the authority to change the payroll requirement rules he was not inclined to do so given that the intent of the program was to maintain ties between businesses and workers while much of the economy was shut down.

“The objective here is to put people back to work,” Mr. Mnuchin said, adding that he did not want to encourage businesses to choose overhead costs over workers.

But that is not how things have unfolded for small businesses. Many laid off their workers to wait out the economic shutdown, intending to rehire as many as possible after it ended.

Douglas Geller, the co-founder of Wittmore, a clothing boutique for men with three locations in Los Angeles, laid off his six employees after closing on March 17. California is allowing some retailers to open on Friday for curbside pickup only, so Mr. Geller may hire one or two of them back, but only if Wittmore’s business seems viable under the state’s new restrictions.

Mr. Geller managed to get a small business loan just a week ago, but he now thinks the money arrived too early, since the rules of the program are forcing him to spend it in the next eight weeks, even though he cannot fully reopen his stores yet. He is counting on the Treasury Department to make changes to the forgiveness terms.

“We’re not alone,” he said. “I’m friends with other retailers, from the department store level down to mom-and-pop small businesses, everyone has these similar concerns: Forgiveness and the pace of reopening.”

Trade groups have been warning Treasury officials for weeks about the coming conflict over forgiveness.

“Since the program first launched, A.B.A. has been urging the S.B.A. and Treasury to provide clear forgiveness guidance as soon as possible,” said James Ballentine, a lobbyist for the American Bankers Association.

The S.B.A. said on Tuesday that 5,411 lenders had approved $181 billion in loans since the second round of the program was initiated last week. The program, which began on April 3, has experienced high demand but has suffered from technical glitches that stalled loan processing and poor optics as big, publicly traded companies reported receiving millions of dollars while smaller businesses have been shut out. Backlash over those disclosures prompted Treasury to rewrite rules on the fly.

The Treasury Department issued new guidance on April 23 urging big companies with the ability to access other financing to rethink whether they really needed the money. Mr. Mnuchin has given those borrowers until May 14 to return the funds, no questions asked.

“Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business,” Treasury said.

Some borrowers believe that in changing the rules after the fact, Treasury has gone against the letter of the law, which waived requirements for businesses to seek funds elsewhere before applying for loans through S.B.A.

This week, Zumasys, a small technology company in California, and two of its subsidiaries, filed a lawsuit against the Treasury Department, Mr. Mnuchin, the S.B.A. and Jovita Carranza, the S.B.A. administrator, claiming that the latest guidance was unlawful. The company, which has fewer than 50 employees, received a $521,500 loan that it used for payroll costs and now it fears that it might have to repay that money. According to the complaint, Zumasys had access to other credit sources but the small business loan was the only option available that would have provided funds that did not need to be repaid.

“This guidance, which essentially imposes new requirements upon PPP borrowers, is not in accordance with the law and damages companies to the extent it jeopardizes their eligibility for PPP loans and calls into question the good faith behind their certifications,” said Mona Hanna, a lawyer at Michelman & Robinson, LLP, who is representing Zumasys and its subsidiaries.

The uncertainty is emerging as lawmakers and the Trump administration begin debating another economic relief bill. While the initial rounds of funding anticipated businesses needing just short-term bridge loans, the economic devastation from the virus shows no signs of abating, suggesting more help is likely needed.

“I think it was the intent to have a short-term boost to small businesses to get them through a short-term problem,” said Ann Marie Mehlum, a former associate administrator of the Small Business Administration’s Office of Capital Access. “I think the problem isn’t as short term as what everyone expected two months ago.”

The next legislation, which will take shape later this month, could include another round of funding for the small business loans but would likely come with changes to the program to reflect the more protracted collapse in business activity.


ImageSenator Marco Rubio of Florida. He said the paycheck program's biggest problem was too little funding.
Senator Marco Rubio of Florida. He said the paycheck program's biggest problem was too little funding. Credit...Gabriella Demczuk for The New York Times
Speaking on the Senate floor this week, Republican Senator Marco Rubio of Florida said that the biggest problem with the Paycheck Protection Program has been that it was underfunded.

“The demand is greater than the supply,” said Mr. Rubio, who last week suggested that Treasury could use its regulatory authority to give borrowers more flexibility in how they use their loans.

Mr. Mnuchin and Ms. Carranza held a briefing on Wednesday with members of the Senate Small Business Committee, whose top lawmakers helped create the new small business program.

“We recognize that when we crafted the program, eight weeks, we thought, would be enough — we now know that our economy is not going to be up and running within that eight-week period in most of the country,” said Senator Ben Cardin, a Maryland Democrat and one of the lead negotiators behind the program’s formation.

On Tuesday, more than 20 bipartisan senators urged Mr. Mnuchin and Ms. Carranza to change the loan forgiveness criteria to allow small businesses, and particularly restaurants, to use the program, saying just 50 percent of the loan should be devoted to payroll, with the rest paying for other overhead.

“If they are unable to cover these expenses, they will have to decide between keeping their doors open, at personal financial risk, or closing shop and laying off employees,” the senators wrote.

Emily Cochrane contributed reporting.

U.S. business bankruptcies jumped in April

By: Howard Schneider | Reuters  May 5, 2020
From: stltoday.com

WASHINGTON — Overall U.S. bankruptcy filings fell in April compared to the year before, a possible sign the massive Federal Reserve and government response to the coronavirus pandemic may have helped stave off economic damage, or at least provided enough hope to families and firms to try to wait it out.

In a potential warning sign, however, filings of the Chapter 11 bankruptcies used by companies to restructure their debts jumped 26% to 560 last month, from 444 in April, 2019, according to data compiled by Epiq Systems and provided by the American Bankruptcy Institute.

The 2,270 Chapter 11 filings through April is the largest four-month total since 2013.

Overall, bankruptcy filings by households and companies fell sharply to 38,428 from 71,303 a year ago, a decline of 46%.

ABI's executive director, Amy Quackenboss, said in a statement that the steps taken by the federal government beginning in March "have likely staved off bankruptcy filings to date."

Those measures included loans to help small businesses stay afloat, one-off emergency payments to families, and unemployment benefits expanded to be both more generous and available for the first time to groups of people like self-employed entrepreneurs and contractors.

Banks have been encouraged by the Fed to give strapped customers leeway with loan payments, landlords urged to do the same by local governments, and many utility firms have suspended disconnections for overdue bills during the crisis — all steps that may help keep family and business finances intact for now.

Like recent economic data, however, the true picture may only emerge over time, as social distancing rules are eased, firms see whether customers return, and laid-off workers have a more accurate sense of whether they will be asked back to their old jobs.

The small business loans, for example, are designed to cover about two months of payroll, though it remains uncertain whether business will be back to normal by then for thousands of restaurants, hotels and others in the hardest-hit sectors.

When does a small business file for bankruptcy? And more questions

From: The Philadelphia Tribune

By: Amy Haimerl

May 4, 2020

https://www.phillytrib.com/news/health/coronavirus/when-does-a-small-business-file-for-bankruptcy-and-more-questions/article_4513950c-b99f-5677-a5a8-6b57526f0b17.html

Chapter 11 Reorganizations for Small Business Corporate Debtors referred to as a “Subchapter V” which can help small businesses such as Restaurants and Retailers Reorganize

 Chapter 11 Reorganizations for Small Business Corporate Debtors referred to as a “Subchapter V”
Subchapter V, which is not a new chapter of the Bankruptcy Code, but a subchapter within Chapter 11 of the Bankruptcy Code, holds the possibility of improving the likelihood of reorganization for a viable small business debtor by reducing the time, the expense and eliminating certain legal impediments to confirmation of a Chapter 11 plan reorganizing a debtor.

1. The purpose of this new section of the Bankruptcy Code is to allow business debtors and certain individuals engaged in business with debts below $ 7,500,000  to reorganize their obligations under Chapter 11 without the need for obtaining the consent of a class of “impaired” creditors as required under basic
2. Subchapter V is for the small business debtor who must be an entity engaged in commercial or business activity with aggregate non-contingent liquidated secured and unsecured debts of $7,500,000 or less, excluding debt owed to affiliates or insiders. Congress increased the cap to $7,500,000 for the next year as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act from $2,725,625.00.
3. Non-contingent debt refers to a debt that is owed at present without any contingent acts needing to occur first.
4. Contingent debt is one in which there is a 'triggering event' or some condition precedent for the debt to exist.
5. United States Trustee Quarterly Fees have been eliminated. Other than the initial filing fee, fees are essentially eliminated, making the process much less expensive to the petitioner.
6. Creditor committee requirement has been eliminated (only formed for cause in Subchapter V cases)
7. Cram Down has been simplified. In Subchapter 5, if the creditors can’t agree on the petitioner’s proposed plan, an application can be made to the Bankruptcy Court Judge to order the plan approved.
-Cram Down standard-The success of the proposed plan need only be more attractive to the unsecured creditors than would a conversion to a Chapter 7 liquidation plan (creditors get $1 more under Subchapter V)
8. Documents needed to file under Subchapter V-the entity will require the business’ most recent balance sheet, statement of operations, cash flow statement, a federal income tax return (or a sworn statement that such a document does not exist).
9. Plan must be submitted for approval within 90 days. However, the Bankruptcy Court may extend this deadline “if the need for the extension is attributable to circumstances for which the debtor should not justly be held accountable.” (in the COVID-19 environment, courts are likely to grant extensions liberally)
10. Disclosure Statement not required. The Act eliminates the requirement that a disclosure statement is filed, thereby reducing costs to the debtor and streamlining the plan confirmation process. However, the debtor must include in the plan certain information customarily included in a disclosure statement, such as a short history of the debtor, a liquidation analysis, and financial projections reflecting the ability of the debtor to make the payments required by the plan
11. Trustee-under Subchapter V, a trustee is automatically appointed, but the debtor retains control of its assets and operations. trustees have the authority to investigate the debtor’s financial affairs. The trustee’s primary function is to facilitate a consensual plan among the debtor and its creditors, almost like a mediator would facilitate a settlement in litigation. [the trustee’s duties will include facilitating the development of a consensual reorganization plan, appearing at major hearings in the case, and ensuring that a debtor commences making timely payments under a plan]
-Under the supervision of the Department of Justice, approximately 250 Subchapter V trustees – mostly attorneys and accountants – were selected out of over 3,000 applicants. Most Subchapter V trustees had recently received their first case assignments when the COVID-19 pandemic hit.
12. Timing of Subchapter V Filing. Small businesses should carefully consider the timing of a Subchapter V filing: the Borrower Application Form promulgated by the U.S. Small Business Administration indicates that applicants presently subject to a bankruptcy proceeding are ineligible for the Paycheck Protection Program (PPP).
13. Requirements to file Subchapter V. To be eligible for relief under Subchapter V, a debtor (whether an entity or an individual) must be engaged in business and one-half or more of the debt must have arisen from business, as opposed to personal, activities. Finally, single asset real estate debtors are ineligible for relief under Subchapter V
Plan Term -Consistent with current practice in Chapter 13 cases, a reorganization plan will customarily be three years in length but may be as long as five.
14. Impaired Class. Under Subchapter V, a plan can be confirmed without the vote of an impaired accepting class, providing that the plan does not discriminate unfairly and is deemed “fair and equitable” as to each class of claims. To meet the “fair and equitable” requirement under the Bankruptcy Code, Subchapter V requires that all of the debtor’s projected disposable income during the length of the plan be applied to plan payments.
15. Disposable Income. Subchapter V defines “disposable income” as income received by a debtor and that is not reasonably necessary to: (1) maintain and support the debtor or a dependent; (2) satisfy domestic support obligations that first become payable after the bankruptcy case is filed; or (3) continue, preserve, or operate the business.
16. Elimination of the Absolute Priority Rule.  Subchapter V  eliminates the Absolute Priority Rule, under which a debtor cannot retain an ownership interest in its assets unless all creditor claims are paid in full or the debtor contributes new value to fund the Plan. Under Subchapter V no “new value” contributions are required as a condition of the debtor’s asset retention.
17. Modification of Loans Secured by the Principal Residence Under existing law, loans secured by a debtor’s principal residence may not be modified under a bankruptcy plan. Under Subchapter V if the proceeds of a business loan were used to finance a debtor’s business, the loan may be modified.  However, the claim of a secured creditor who loaned money to a debtor to acquire the debtor’s residence, may not be modified
18. Discharge. If the Bankruptcy Court confirms a consensual plan, a debtor is entitled to a discharge upon confirmation. If the Bankruptcy Court confirms a nonconsensual plan, a debtor receives a discharge after completing all payments due within the first three years of the plan, unless otherwise ordered. If all such payments are made, the debtor would be relieved of liability except for future payments due under the plan.
19. Single Asset Real Estate Cases (“SARE”)-if a debtor elects to file a bankruptcy case as a SARE, then they cannot also elect Subchapter V treatment. Single asset real estate is defined by the Bankruptcy Code as a single property or project that generates substantially all of the debtor's gross income (§ 101(51B), Bankruptcy Code). If the debtor's only business is operating the property and the property generates substantially all of the debtor's income, a SARE typically includes the following types of properties: Shopping centers, Office buildings, Industrial and warehouse buildings and Apartment complexes.
20. Automatic Stay. In Subchapter V, upon the debtor's chapter 11 bankruptcy filing,  the automatic stay comes into effect stopping all pending federal and state litigation against the debtor.


Subchapter V Bankruptcy Provisions can be found at:
11 U.S. Code SUBCHAPTER V—SMALL BUSINESS DEBTOR REORGANIZATION BANKRUPTCY CODE CITES
§ 1181. Inapplicability of other sections
§ 1182. Definitions
§ 1183. Trustee
§ 1184. Rights and powers of a debtor in possession
§ 1185. Removal of debtor in possession
§ 1186. Property of the estate
§ 1187. Duties and reporting requirements of debtors
§ 1188. Status conference
§ 1189. Filing of the plan
§ 1190. Contents of plan
§ 1191. Confirmation of plan
§ 1192. Discharge
§ 1193. Modification of plan
§ 1194. Payments
§ 1195. Transactions with professionals


                                                                                     JHS

10 Changes In Consumer Bankruptcy Since COVID-19 And The CARE Act

April 29, 2020
From: JD Supra
By: Kathleen Muthig; Haynsworth Sinkler Boyd, P.A.

As the COVID-19 pandemic marches on, more homeowners than ever are seeking assistance from their lenders.

The American Bankruptcy Institute reported on April 24, 2020 that over 3.4 million homeowners have entered into COVID-19 related mortgage forbearance plans. This is a significant increase since April 3, 2020, when just over one million homeowners were utilizing COVID-19 related mortgage forbearance plans. Undoubtedly, COVID-19 and the resulting Coronavirus Aid, Relief and Economic Security (CARES) Act have changed the landscape of consumer bankruptcy cases, especially with regard to the treatment of mortgage debt. Below are 10 changes that Creditors should be aware of in Chapter 13 and Chapter 7 cases.

1. COVID-19 relief payments are excluded from definition of “income.”
Payments made under federal law related to COVID-19 are excluded from the disposable income requirement of confirmation in the Bankruptcy Code and the income calculation for eligibility under Chapter 7.

2. Chapter 13 plans may exceed five years.
If the Debtor is experiencing hardship due to COVID-19, then a Chapter 13 Plan confirmed before March 27, 2020, may be modified to extend the repayment period up to seven years after the first payment was due under the Chapter 13 Plan after confirmation. Under the Bankruptcy Code, Chapter 13 Plans are limited to a length of five years. If a plan is modified from five years to seven years, and a Creditor’s arrearage is paid over those seven years, the Creditor will receive less monthly arrearage payments in the modified plan than under the original confirmed plan.

3. Second Moratoriums.
Some Chapter 13 Trustees have agreed to consent to second moratoriums and longer time periods in order to bring cases current, even without the existence of a qualifying hardship under the CARES Act provisions.

4. Practical changes to Bankruptcy Court procedures.
U.S. Bankruptcy Court for the District of South Carolina Judges Duncan and Waites entered an Operating Order 20-08 setting forth procedures in light of COVID-19. The Order includes a requirement for Debtors to make all mortgage payments to the Trustee on claims secured by a first priority security interest in the Debtor’s principal residence. Chapter 13 Plans in which mortgage payments are paid to the Trustee, instead of directly to the Debtor, are called “Conduit Plans.”

5. Payment deferments due to COVID-19 in conduit plans.
Chapter 13 Creditors will need to work with the Chapter 13 Trustees and the Debtors to agree upon and seek Court approval for modifications to the Plan due to COVID-19. Creditors should be mindful to file a timely Notice of Payment Change if the loan payments due are modified under Bankruptcy Rule 3002.1.

6. Payment deferments due to COVID-19 in plans where Debtor is paying mortgage payments directly to the Creditor.
Chapter 13 Creditors will need to work directly with Debtors to agree upon a loan modification, forbearance, or deferment. Again, Creditors must file a timely Notice of Payment Change pursuant to Rule 3002.1.

7. CARES Act foreclosure relief for federally-backed loans.
A servicer of a federally-backed loan may not initiate any foreclosure process, move for a foreclosure judgment, order a sale, or execute a foreclosure-related eviction or foreclosure sale for sixty days from March 18, 2020. Note that this stay is separate from any state-mandated stay of foreclosures, like the one currently in place that prohibits foreclosures until May 1, 2020, in South Carolina.

8. CARES Act forbearances.
Borrowers with federally-backed mortgage loans can request a forbearance from mortgage payments for up to 180 days if they have been affected by COVID-19. The Act also provides for separate forbearance rights for owners of multi-family property (five or more units) and provides protection for tenants from eviction if the owner applies for a forbearance.

9. CARES Act eviction relief.
A Landlord of a “covered dwelling” may not file an action for eviction or charge additional fees for nonpayment of rent during a 120-day period beginning on March 27, 2020. A covered dwelling is one where the building is secured by a federally-backed mortgage loan or one that participates in certain federal housing programs. Note that this stay is separate from any state-mandated stay of evictions, like the one currently in place that prohibits evictions until May 1, 2020, in South Carolina.

10. CARES Act student loan relief.
For covered student loans, the CARES Act suspends payments and waives interest from March 13, 2020, through September 30, 2020. Many Chapter 13 Plans provide for the Debtor making student loan payments outside the Plan, so the CARES Act relief is vital to Chapter 13 Debtors, because a moratorium or deferment in the Plan would not affect those payments owed outside of the Plan.

When Does a Small Business File for Bankruptcy? And 8 More Questions New York Times May 1, 2020

When Does a Small Business File for Bankruptcy? And 8 More Questions

The coronavirus is expected to permanently shut millions of small businesses in the next several months. Here are issues for owners to consider.


Jerry Stetina, chief operating officer of A to Z Total Heating and Cooling outside Detroit. The firm filed for bankruptcy protection under a new law for small businesses.
Jerry Stetina, chief operating officer of A to Z Total Heating and Cooling outside Detroit. The firm filed for bankruptcy protection under a new law for small businesses.Credit...Sylvia Jarrus for

The New York Times
By Amy Haimerl
May 1, 2020, 5:00 a.m. ET


All the forecasts point in the same direction: A wave of small-business bankruptcies is coming.

More than 40 percent of the nation’s 30 million small businesses could close permanently in the next six months because of the coronavirus pandemic, according to a poll by the U.S. Chamber of Commerce.

“It’s a crisis that will impact our economy for generations,” said Amanda Ballantyne, executive director of Main Street Alliance, an advocacy group for small business. “We’re going to lose so much of the small-business sector.”

Commercial bankruptcies in the first quarter of 2020 ticked up 4 percent from a year earlier, according to data from the American Bankruptcy Institute. But many of those filings were made before the pandemic, when the economy was healthy. Right now, some owners are waiting to find out if they will receive federal stimulus aid before deciding whether to file for bankruptcy protection.

Many of them may just disappear. But for others, a bankruptcy law that took effect in February, the Small Business Restructuring Act, could help them survive the pandemic.

Before that law, if a struggling small business wanted to restructure its debt, its only option was Chapter 11, which is the commercial bankruptcy code. It allows a company to negotiate with creditors for better terms — a process known as debt restructuring — and in some cases dismiss debt. The goal is for the company to get a fresh start.

But the Chapter 11 process is long and expensive, and a recent report by the Brookings Institution found that it is better suited to large firms. The new rules, known as Subchapter 5 because they are part of Chapter 11, give firms with less than $2.73 million in debt the power of reorganization with a few key simplifications. Two main changes: A judge can enforce a restructuring plan even if creditors don’t like it, and the owner can continue running the business.

Congress recognized that this tool could be a lifeline to small businesses trying to get through an economic shutdown. So as part of the federal stimulus program, it expanded eligibility to firms with up to $7.5 million in debt. That change means Subchapter 5 could help up to 70 percent of all businesses that might file for bankruptcy, Brookings estimated.

“A number of small businesses who are prone to just giving up could be saved,” said Bob Keach, who leads the bankruptcy practice at Bernstein, Shur, Sawyer & Nelson, a law firm in Maine.

A to Z Total Heating and Cooling in suburban Detroit was one of the first companies in the country to file for bankruptcy protection under the new rules. The family-owned firm has been operating for nearly four decades, but business really took off in the past few years. The company struggled to manage the growth.

Its primary problem? Labor. The company’s two dozen employees weren’t enough to keep up with demand, and Jerry Stetina, A to Z’s chief operating officer, said it couldn’t find additional workers. That meant the firm got bogged down paying overtime on top of the typical $35 hourly wage — and tapped out cash reserves.

Latest Updates: Economy
Wall Street tumbles as tech stocks take a hit.
Exxon Mobil lost money for the first time in decades.
The center of the U.S. oil boom is now the center of its demise.
See more updates
Updated 58m ago
More live coverage: Global U.S. New York
“I know it sounds really crazy, but the process of growing put us in the situation we’re in,” he said.

Then a mild winter hit Michigan this year, and fewer customers called for new furnaces or repairs. What little work the employees did have was shut down by the coronavirus. But they didn’t want to give up: Mr. Stetina could see a strong summer season; A to Z just needed a bridge to get there.

“People will live without heat, but they won’t live without air-conditioning,” he said. “Our phones are ringing now with questions about A.C. start-ups to get ready for summer.” When A to Z exits bankruptcy, the company plans to hire a controller to better handle its finances.


ImageA to Z said it had needed a bridge to get to what it expected to be a busy summer season.
A to Z said it had needed a bridge to get to what it expected to be a busy summer season.Credit...Sylvia Jarrus for The New York Times
Here are some of the main questions to consider if you are thinking about a bankruptcy filing for your small business.

How do I know when to call it quits?
Business owners must search their hearts and assess their balance sheets.

“The first question to ask is: ‘Do the owners want to keep this going?’” said Kimberly Ross Clayson, whose firm, Clayson, Schneider & Miller in Detroit, advises small-business clients.

If your heart isn’t in it, call a lawyer to help you wind down operations. But if you still think your business can become viable, a Chapter 11 bankruptcy might be the right call.

Sign up to receive an email when we publish a new story about the coronavirus outbreak.
Sign Up
Initially, Mr. Stetina of A to Z was scared to call a lawyer. He knew the stigma around bankruptcy and was worried what clients might think even though A to Z planned to restructure, not discharge, debt. Once he did call, he said, he wished he had done it earlier.

“A lot of big businesses have been doing it for years, and it’s some of the reason that they are in business still,” Mr. Stetina said.

How do I know if restructuring would help?
Write a business plan for a post-pandemic business world. How will your business operate? Where will revenue come from? What new expenses — for marketing, infrastructure and more — will you incur to help your business pivot? If you can write a business plan that shows a positive balance sheet after bankruptcy, restructuring might work.

“Chapter 11 bankruptcy is designed to fix people’s balance sheets,” Mr. Keach, the Maine lawyer, said. “It allows you to restructure some debt, eliminate other debt. It doesn’t generate revenue for you.”

Should I take out a loan or file for bankruptcy?
Every business owner’s situation is different. But a general rule is: If you can’t identify enough future revenue to pay off the debt, borrowing may make matters worse. Some business owners no longer have any personal resources to draw on and may not receive federal stimulus funding.

“Don’t borrow blindly and say, ‘It will all work out,’” said Ms. Clayson, who is a federal trustee for Subchapter 5 claims. “If you are thinking a credit card is how you will open your doors and bridge yourself to the next stage, then you really need to be thinking about how viable your business is.”

If you find yourself considering nonbank lenders with high interest rates, it’s time to call a lawyer, she said.

Do I have to file for bankruptcy to close my business?
No. If you can pay off your creditors or negotiate a deal with them, you don’t need to file for bankruptcy protection. But you will want a lawyer to draft agreements.

Also: Don’t forget about withholding taxes. When times are tight, many small-business owners who manage their own payroll dip into that pot of money they set aside at each pay period and use it for other expenses.

“If you have unpaid withholding taxes, the business owner becomes personally liable,” Ms. Clayson said.

Should I file for Chapter 7 or Chapter 11?
Think of Chapter 7 as a funeral and Chapter 11 as a do-over.

Chapter 7 is used for both individual and business bankruptcies when the goal is to wipe out debt. The debt can go away, but you may also lose your assets.

If you wanted to restructure your business debt, you would consider a Chapter 11 bankruptcy and, more specifically, Subchapter 5 for small businesses. But you can always try to negotiate with creditors outside of a formal bankruptcy.

“The only reason you need to use Chapter 11 at all is to deal with recalcitrant creditors,” Mr. Keach said. “If creditors won’t negotiate with you, bankruptcy allows you to cram down a plan of restructuring.”

There are other forms of bankruptcy filing: One, Chapter 13, is used for personal reorganizations, when you want to try to keep your assets and renegotiate the terms of your debt. Another, Chapter 12, oversees businesses in farming and fishing.

Will I lose everything in bankruptcy?
It depends on what personal guarantees you made. Most small-business owners put up their home or some other asset as collateral for start-up loans. In fact, the Small Business Administration requires that as part of its non-Covid-related lending.

If you used your house as collateral, it’s possible you would be forced to sell it as part of a Chapter 7 settlement. Under Chapter 11, you may have more luck.

Must I file both personal bankruptcy and business bankruptcy?
Possibly, but not necessarily. It depends on whether you are closing the business or trying to restructure, and what liabilities you have.

If you are trying to restructure, the goal is for your lawyer to negotiate with your creditors and create a plan that lets you avoid a personal bankruptcy. But if the creditors don’t like the deal, they could come after you for any debts you personally guaranteed. In that case, you might be forced to file for personal bankruptcy.

How does the new Subchapter 5 work?
Here is the main thing to know: Like all bankruptcies, it has a magic power called the “automatic stay.” Filing for bankruptcy stops creditors from collecting from you.

“It buys you time,” Mr. Keach said.

And time is everything. For example, take a restaurant that was having its best year before the pandemic, but then its revenue disappeared. A Subchapter 5 bankruptcy could help the company by halting creditor collections and allowing owners to renegotiate terms.

“What it might allow is, with a couple of exceptions, a built-in moratorium on rent,” Mr. Keach said. “You could propose a plan where you could literally not pay anything toward old debt for four to six months as long as your projections show that you have positive projected income after that.”

In exchange, business owners will need to use their net operating income — what’s left after the usual expenses like rent, payroll, cost of goods — to pay creditors for the next three to five years.

Can I ever open another business?
Yes. Securing funding may be more challenging, but it’s not impossible.

“My favorite clients have always been those who are already on to their next idea,” Ms. Clayson said. “This is the American way. You can start over. This isn’t a black mark.”

Garnishment of SS for student loan default suspended

Published: April 28, 2020


From: Overton County News

The Trump Administration has put a timely halt on the ability of the government to garnish Social Security benefits to pay for defaulted student loans for an indefinite period during the COVID crisis, reports Association of Mature American Citizens [AMAC].

Seniors are the fastest growing segment of the population with outstanding student loan debt. Research conducted by Consumer Financial Protection Bureau [CFPB] shows that, “In 2018, Americans over the age of 50 owed more than $260 billion in student debt, up from $36 billion in 2004, according to the Federal Reserve. Nearly 40% of borrowers aged 65 and older are in default.”

Bob Carlstrom, president of AMAC Action initiative, said, “Forty-five percent of unmarried Social Security recipients and 21% of married couples rely on their benefits for at least 90% of their income. Garnishing that fixed income for student loan debt can have a particularly devastating impact on their lives.”

In a statement issued Wednesday, March 25, Carlstrom expressed AMAC’s appreciation for the decision to suspend the garnishment of Social Security benefits.

“We commend the administration and the Secretary of Education for suspending the ability of the federal government to garnish the Social Security income of beneficiaries for payment of student debt during this challenging time,” Carlstrom stated. “The Secretary has indeed responded to the concerns and pleas of many members – and non-members – of AMAC. This action is a good first step on this issue.”

Social Security benefits are off limits to nearly all creditors, but not the federal government, which can garnish Social Security benefits for certain debts, including federal student loan debt cosigned by retirees.

According to the Federal Reserve, Americans over 50 hold $260 billion in student loan debt. Benefits can be garnished for court-ordered child support or alimony, or for debts owed to the government. For many seniors, however, their monthly Social Security check is both a critical part of, and indeed the safety net, of their income and financial situation.

“We believe Social Security benefits should be protected permanently from student loan default garnishment by any party, including the federal government,” Carlstrom said.

What happens to your credit when you file for bankruptcy?

Updated October 24, 2019
From: creditkarma.com
By:  Kim Porter

https://www.creditkarma.com/advice/i/what-happens-when-you-file-for-bankruptcy/

Do I have to pay back my $1,200 stimulus check?

Don’t fall for these five myths about the stimulus payments

 Published: April 21, 2020

From: MarketWatch

By: Andrew Keshner

https://www.marketwatch.com/story/do-i-have-to-pay-back-my-1200-stimulus-check-dont-fall-for-these-five-myths-about-the-stimulus-payments-2020-04-18

Can Debt Collectors Steal Your Stimulus Check?

The CARES Act neglected to protect people from creditors, but some lawmakers are working to correct that.

April 16, 2020
From: The Motley Fool
By: Dan Caplinger

The coronavirus crisis is causing severe financial pain across the U.S., where tens of millions of people have lost their jobs and filed for unemployment benefits in just the past month. For those who have lost income, a federal stimulus check could be vital to their financial well-being right now.

Unfortunately, many people who were already having money troubles before the COVID-19 pandemic hit are now running into a new challenge with their stimulus payments. Debt collectors are rushing in to try to grab up those stimulus checks in order to satisfy people's past debts. Because of the way that lawmakers set up the stimulus check program, what those debt collectors are doing appears to be legal -- but it also threatens to undermine the entire point of the program, which was to rush cash to hard-hit Americans so that they could cover their current expenses during this crisis.

Despite the best of intentions

The Treasury Department has worked hard to try to get stimulus money to people rapidly. For those who included direct deposit banking information with their 2018 or 2019 tax returns, the Treasury is using that data to send stimulus payments directly into people's bank accounts. For most people, that's the fastest way to get the money where it needs to go.

However, millions of people owe certain kinds of debt for which creditors can garnish bank accounts. That includes just about any type of debt on which collection proceedings have advanced far enough for creditors to get a court judgment. When debt collectors present banks with garnishment orders, banks follow procedures that often include freezing accounts. To regain access to their funds, banks require account holders to provide proof that the money that's come into the account is somehow exempt from garnishment. Most people in debt don't know how to respond effectively to such demands even in the best of times -- let alone when they are stuck in their homes, when bank branches are closed to the public, and when courts aren't functioning at anywhere near normal capacity.

Lawmakers could have specifically designated the stimulus payments as exempt from garnishment or debt collection proceedings. However, they didn't include such clear provisions in the CARES Act, which leaves the matter up to legal interpretation. That ambiguity set the stage for debt collectors to act -- and they're acting quickly.

Fixing the problem

Now that they've identified the problem, legislators at the state level are working fast to address it. State laws govern much of the legal framework around debt collection, so in some states, those receiving stimulus checks already had some protection. Other states are moving to pass emergency legislation that exempts the stimulus payments from debt collection proceedings.

Congress could also take action, although it might be difficult for it to do so quickly enough to make a difference. Passing a federal law that reclassifies stimulus money into the same category as other exempt payments would offer everyone across the nation protection.

What you can do

If you're already aware that your bank account might be subject to a garnishment order, there are some things you can do to try to protect yourself. They include:

• Having your stimulus payment sent to a different bank account. Often, garnishment orders will apply to all bank accounts, but if you know that debt collectors have only identified one of your accounts, then having your stimulus money deposited into an account at a different institution might protect it.
• Getting a physical stimulus check. The IRS is seeking banking information for many Americans through its Get My Payment tool, with the goal of expediting those stimulus payments. However, if you anticipate problems, getting a physical check and cashing it will help keep it from getting locked up in a frozen bank account.

With the coronavirus pandemic wreaking havoc on all our lives, the last thing any of us need is for our stimulus checks to get taken away. If you think debt collectors might be looking to take your stimulus payment, don't wait for lawmakers to help you out -- do what you can to protect yourself and your finances.

Something big just happened

I don't know about you, but I always pay attention when one of the best growth investors in the world gives me a stock tip. Motley Fool co-founder David Gardner and his brother, Motley Fool CEO Tom Gardner, just revealed two brand new stock recommendations. Together, they've tripled the stock market's return over the last 17 years.* And while timing isn't everything, the history of Tom and David's stock picks shows that it pays to get in early on their ideas.

What Really Happens When You File for Bankruptcy

April 17, 2020
From: twocents.lifehacker.com
By: Kristin Wong and Lisa Rowan

Bankruptcy is a last resort for people and businesses alike. Many companies file for bankruptcy and continue business as usual; the lesser-known reality is that individuals can file for bankruptcy and emerge in one piece, too.

Bankruptcy is poorly understood, so let’s talk about how it affects your finances.

The differences between chapter 7, 13, and 11

In general, people file for bankruptcy when there’s no way in hell they can meet their debt obligations. Popular assumption is that those people are bad with money and take out too much credit card debt. Sure, that happens, but often, people file bankruptcy after a major financial blow. It might be a lawsuit debacle or an unexpected illness.

A lot of people think bankruptcy wipes out any and all debt obligations, but that’s not the case. You still have to pay up, and how you’ll pay up depends on what kind of bankruptcy you file: chapter 7, chapter 13, or chapter 11. There are other types of specific bankruptcies, too (chapter 12 is for farmers and fishermen, for example), but these three are the most common.

With chapter 7, you may have to liquidate certain assets (like a car or a second home) to pay off at least some of the debt. Most of your assets are probably exempt, but it depends on your state, your financial situation, and whether or not that asset is deemed “essential.” You have to meet certain eligibility requirements to file, and income is perhaps the most important one. As legal site Nolo explains, there’s a whole set of criteria to determine your income eligibility, but generally, you have to have little to no disposable income.

With chapter 13, you get a plan to pay off your debts within the next three to five years, but you get to keep your assets. After it’s all said and done, some of those debts will likely be discharged. You have to qualify, though, and that means your secured debts can’t be more than $1,184,200 and your unsecured debts cannot be more than $394,725. Secured debt is debt that’s backed by collateral, like your house or car.

Chapter 11 bankruptcy works kind of like chapter 13, but it's typically reserved for businesses. Businesses can file for chapter 7 bankruptcy, too, but again, that means a liquidation of assets, so chapter 11 is usually a more attractive option. Companies get to keep their stuff and keep their creditors at bay while they continue their operations, but they have to come up with a plan to pay off at least some of their debt, or get it forgiven.

What happens when you file

When you file for bankruptcy, you get an automatic stay. Basically, this puts a block on your debt to keep creditors from collecting. While the stay is in place, they can’t garnish your wages, deduct money from your bank account, or go after any secured assets.

Ironically, bankruptcy isn’t free. The filing fee alone is between $300 and $350 for chapters 7 and 13. And then there are the attorney fees. You can file without a lawyer, but it’s not recommended since bankruptcy laws can be tough to navigate. Attorney fees for chapter 7 average around $1,500, while chapter 13 fees tend to be in the $2,000-$3,000 range. With many attorneys, the more complex your situation, the more you’ll pay.

There are ways reduce the legal costs of filing for bankruptcy. Nonprofit Upsolve, for one, helps you generate your bankruptcy filing forms for free if your case is a simple one. Or, your local legal aid society may be able to connect you with low-cost legal services.

You’ll also have to take a class or two. The government requires individuals to get credit counseling 180 days before you file, and you also have to take a debtor education course if you want your debts discharged.

A couple of weeks after filing, you’ll have to attend a “creditors meeting,” which is basically what it sounds like: a court meeting between you, your bankruptcy trustee, and any creditors who want to attend. They’ll all ask you questions about your financial situation and decision to file bankruptcy.

Your assets get liquidated with chapter 7

Nolo says that in most cases, chapter 7 debtors don’t have to liquidate their property (unless it’s collateral) because it’s usually exempt or it’s just not worth it. They explain:

If the property isn’t worth very much or would be cumbersome for the trustee to sell, the trustee may “abandon” the property — which means that you get to keep it, even though it is nonexempt...Most property owned by Chapter 7 debtors is either exempt or is essentially worthless for purposes of raising money for the creditors. As a result, few debtors end up having to surrender any property, unless it is collateral for a secured debt…

After the creditors meeting, your trustee will figure out whether or not to liquidate your stuff. If it does get liquidated, that means you’ll have to either surrender it or fork over its equivalent cash value to pay back your debt.

You get a payment plan with chapter 13

With chapter 13, you get a plan to pay off your debts, and some of them have to be paid in full. These debts are “priority debts,” and they include alimony, child support, tax obligations, and wages you owe to employees.

Your plan is based on how much you owe and what your income looks like, and it will include how much you have to pay and when you have to pay it.

What happens to your credit

Your credit score will plummet with a bankruptcy. The higher your score, the more it’ll fall. FICO notes that the more accounts are involved in your bankruptcy filing, the greater an impact you’ll see to your score.

In general, chapter 7 bankruptcy remain on your credit report for 10 years, and chapter 13 stays on for seven.

After bankruptcy is all said and done, most debts are discharged, but not all of them.

In some cases, student loans can be discharged after a bankruptcy, but you have to pass a federal test for hardship.

Other difficult-to-discharge debts include:

• Tax debts
• Alimony and child support
• Divorce-related debts, including property settlement debts

Bankruptcy is usually a desperate remedy to a helpless situation. But knowing how it works and what to expect can help you navigate some of the misconceptions and figure out what the process actually entails.

This post was originally published in 2016 and was updated on 4/17/2020 by Lisa Rowan. Updates include: Checked links for accuracy; updated formatting to reflect current style; revised article to focus on bankruptcy methods for individuals; updated monetary requirements and averages.

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), signed by President Trump on March 27, 2020

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), signed by President Trump on March 27, 2020

We hope that all are safe and doing well in these uncertain times. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), signed by President Trump on March 27, 2020, contains several changes to the Bankruptcy Code, which are detailed below.
1) a) With respect to personal bankruptcy, the CARES Act amends the definition of “income” in the Bankruptcy Code for Chapters 7 and 13 cases so that coronavirus-related payments from the federal government will be excluded from being treated as income.   b) Coronavirus-related payments made by the federal government under the CARES Act will be excluded from the disposable income calculation for purposes of confirming a Chapter 13 Plan.          c) Finally, chapter 13 debtors will now be able to extend their plan payments for up to seven years instead of five years (under the prior law).

2) A. The Small Business Debtor bankruptcy provisions were modified such that small business debtors with debt up to $7.5 million will now be eligible to file for bankruptcy, rather than the old limit of $2,725,625 in debt.

B. Under the chapter 11 reorganization plan, small business debtors can now retain their equity or member interests in an LLC even if creditors are not being paid in full. The law requires a small business debtor to pay their “projected disposable income” over the next 3 to 5 years to creditors who were owed money at the time of the bankruptcy filing. Under the new law, a creditors’ committee is not formed, but the small business debtor will only have 90 days to file a reorganization plan, with very limited right to extend. Additionally, a “standing trustee” will be responsible for oversight of the small business debtor instead of a creditor committee. The standing trustee will be selected by the U.S. Department of Justice from a list of preapproved turnaround professionals.


People with questions about the CARES act should contact
Jim Shenwick   212-541-6224    jshenwick@gmail.com

NYC taxi fleet founded in the 1970s files bankruptcy amid coronavirus

April 1, 2020
From: NY Post
By: Thornton McEnery


A Brooklyn taxi operator who got his first medallion in the 1970s has filed for bankruptcy as the coronavirus ravages an already struggling industry, The Post has learned.

Joe Pross, who started driving a taxi in 1975 and now runs a fleet of 42 cabs, filed for Chapter 11 bankruptcy protection for his Crown Heights-based medallion company, Walker Service Corp., on March 27, court papers show.

Pross, 75, declined to be interviewed for this story. But his Brooklyn federal court bankruptcy filings underscore how vulnerable taxi operators were prior to the coronavirus crippling tourism and forcing thousands of New Yorkers inside.

Walker Service Corp. appears to be the first medallion owner to file for bankruptcy protection since the pandemic shut down the city, but it’s not likely the last, industry experts say.

 “This industry was on the brink before this happened, and this virus has just pushed it totally over the edge,” said Matthew Daus, a former TLC commissioner who’s now a lawyer with Windels Marx. “I hope we don’t see more bankruptcies, but I’m afraid a lot of people might go under and file for bankruptcy protection. This will be worse than 9/11 economically, especially for the black cars and luxury livery.”

In an affidavit filed with his bankruptcy papers, Pross says his medallions — “once worth millions” — plummeted in value as ride-hailing apps and Uber and Lyft grew in popularity, leaving him and his wife struggling to pay off loans they took out on their medallions to build the business.

By 2019, before the coronavirus even hit, Pross’ fleet was pulling in $29,400 a month — far short of the $105,610 a month he needed to repay $18.7 million in medallion loans, court papers show.

In late February, his lender, Virginia-based Pentagon Federal Credit Union, issued notices of default on six loans and demanded $158,186 within 30 days to rectify the situation.

Pross says he tried to negotiate repayment. Then the coronavirus hit — slamming the brakes on taxi revenue even as drivers and operators continue to face expenses for parking, dispatchers, mechanics and administrative workers.

“The current COVID-19 pandemic has now rendered the debtors with virtually no income to operate its businesses as the debtors have recently suspended operations during the COVID-19 pandemic for March, April and possibly May 2020,” Pross’ filing says.

As The Post reported on March 15 - before Gov. Cuomo even ordered restaurants shut down and non-essential workers stay home — taxi drivers were making as little as $50 a week as people afraid of contagion avoided public spaces.

“The drivers are coming back asking if I can pay their gas because their fares didn’t even cover it. We can’t go on like this,” a taxi operator who asked not to be named told The Post on Wednesday.

Pross’s affidavit also blames Walker’s debt holder, PenFed, saying it has been playing hardball by “shockingly” refusing to extend its 30-day payment deadline.

PenFed acquired $290 million worth of medallion loans, including Pross’s, as part of its 2019 merger with New York-based Progressive Credit Union, according to reports at the time.

The credit union declined to comment on how many medallion loans it currently possesses, but insisted its working hard to keep taxi operators in business.
 
The credit union declined to comment on how many medallion loans it currently possess, but insisted it’s working hard to keep taxi operators in business.

“PenFed actively works with our members experiencing financial hardships, including taxi medallion borrowers who have requested relief,” a PenFed spokesperson said in a statement. “PenFed has an extensive team in New York working to help members who need assistance during this challenging time.”

Pross is hoping to come out of bankruptcy with reduced loans so he can continue to run the business through his main business, Utica Taxi, which operates the cars and garages and employs the dispatchers and other workers, filings show.

But with coronavirus deaths in New York nearing 2,000 and growing, the main business also faces the threat of going under.

“The proliferation of ride-sharing apps such as Uber and Lyft … combined with the economic devastation associated with the COVID-19 pandemic, may eventually render Utica Taxi bankrupt as well,” Pross’ affidavit said.

Coronavirus Decimates N.Y.C. Taxi Industry: ‘The Worst It’s Ever Been’ New York Times March 25, 2020

There are so few travelers left at Kennedy International Airport, one of the world’s busiest airfields, that taxis wait six hours or more for a single passenger.

Taxi companies can no longer find enough drivers for their fleets because there is so little business.

And some cabdrivers are so fearful of being exposed to the coronavirus they are staying home with no way to pay mounting bills.

All this at a time when many of New York City’s taxi owners are already in financial ruin after taking out reckless loans to buy medallions — city-issued permits required to own a yellow cab — at artificially inflated prices, with the reassurance of the city’s taxi commission of their high value.

Their industry has increasingly lost riders to the boom in Uber, Lyft and ride-app services, and been shaken by a spate of suicides by desperate taxi owners and for-hire drivers.

Now taxi owners and drivers who were barely holding on said their livelihood had evaporated as the city all but shut down to try to slow the spread of the coronavirus.

“When you have to wait six or seven hours to get one passenger, it’s really bad,” said Mario Darius, 66, a taxi owner who was camped out at Kennedy Airport after picking up just three fares in three days.

Though citywide taxi ridership numbers for March are not yet available, some taxi companies, cab owners and drivers said their rides had plunged by two-thirds or more.

The city’s largest taxi group, the Metropolitan Taxicab Board of Trade, which represents the owners of 5,500 yellow cabs, said rides had dropped nearly 91 percent to a total of 20,596 trips over this past Friday, Saturday and Sunday. That is compared with 217,540 total trips for the same three days three weeks ago.

Coronavirus Decimates N.Y.C. Taxi Industry: ‘The Worst It’s Ever Been’ from New York Times March 25, 2020

Coronavirus Decimates N.Y.C. Taxi Industry: ‘The Worst It’s Ever Been’

There are so few travelers left at Kennedy International Airport, one of the world’s busiest airfields, that taxis wait six hours or more for a single passenger.

Taxi companies can no longer find enough drivers for their fleets because there is so little business.

And some cabdrivers are so fearful of being exposed to the coronavirus they are staying home with no way to pay mounting bills.

All this at a time when many of New York City’s taxi owners are already in financial ruin after taking out reckless loans to buy medallions — city-issued permits required to own a yellow cab — at artificially inflated prices, with the reassurance of the city’s taxi commission of their high value.

Their industry has increasingly lost riders to the boom in Uber, Lyft and ride-app services, and been shaken by a spate of suicides by desperate taxi owners and for-hire drivers.

Now taxi owners and drivers who were barely holding on said their livelihood had evaporated as the city all but shut down to try to slow the spread of the coronavirus.

THE LATESTRead our live coverage of the coronavirus outbreak in the New York area.
“When you have to wait six or seven hours to get one passenger, it’s really bad,” said Mario Darius, 66, a taxi owner who was camped out at Kennedy Airport after picking up just three fares in three days.

Though citywide taxi ridership numbers for March are not yet available, some taxi companies, cab owners and drivers said their rides had plunged by two-thirds or more.

The city’s largest taxi group, the Metropolitan Taxicab Board of Trade, which represents the owners of 5,500 yellow cabs, said rides had dropped nearly 91 percent to a total of 20,596 trips over this past Friday, Saturday and Sunday. That is compared with 217,540 total trips for the same three days three weeks ago.

Latest Updates: Coronavirus Outbreak in New York
White House emphasizes how hard New York is being hit.
New York police report a drop in crime and a rise in infection among officers.
Governor Cuomo becomes the politician of the moment.
See more updates
Updated 15m ago
More live coverage: Global Markets U.S.
The New York Taxi Workers Alliance, which represents about 21,000 taxi and ride-app drivers, said a detailed survey of seven members who are taxi drivers found they earned an average of $368 — not including expenses, gas or taxes — from March 15 to March 21, a 71 percent drop from $1,260 two weeks earlier.

Bhairavi Desai, the alliance’s executive director, said it had received calls from dozens of taxi drivers who can no longer afford to pay for necessities like groceries and medicine.


ImageSome drivers have seen the number of rides drop by more than 90 percent.
Some drivers have seen the number of rides drop by more than 90 percent. Credit...Chang W. Lee/The New York Times
“They are facing immediate loss of income when they have no savings to fall back on and an uncertain future as to when the economy will begin to recover," she said. “It’s devastating. I thought we had hit a low point already.”

Across the country, taxi and ride-app drivers have seen their business all but disappear in cities like San Francisco, where people have been ordered to shelter in place, as well as other communities, including Chicago, Philadelphia, and Washington.

Taxi owners need immediate help to survive, Ms. Desai said, including making interest-free city loans available and requiring lenders to partially forgive loans for medallions and temporarily suspend collection of loan payments.

And she urged that state unemployment benefits be extended to taxi drivers, who are considered independent contractors and do not qualify.

A spokesman for New York City’s Taxi and Limousine Commission, which regulates the for-hire driving industry, said officials were working with the taxi industry and government agencies “on a number of supportive measures” but declined to give any details, saying discussions were ongoing.

20-Somethings Now Realizing That They Can Get Coronavirus, TooMarch 23, 2020

Density Is New York City’s Big ‘Enemy’ in the Coronavirus FightMarch 23, 2020

Gov. Andrew M. Cuomo was seeking federal disaster assistance that would provide unemployment benefits to contract workers, including taxi drivers.

The City Council speaker, Corey Johnson, a Democrat who is running for mayor, has proposed a $12 billion relief plan for businesses and workers impacted by the coronavirus — which would cover for-hire drivers. The plan includes expanded unemployment benefits and an immediate payout of $550 to every adult and $275 to every child.

“This crisis is unlike anything we’ve ever seen before,” said Mr. Johnson, who has led recent efforts to help the ailing taxi industry. “Every New Yorker is struggling, and for-hire vehicle drivers are among the hardest hit.”

A sample pool of 5,533 for-hire drivers in New York City — most of whom work for Uber and other ride apps — found that they drove significantly fewer hours and miles, according to Nexar, a software company that analyzes data from its network of smart dashboard cameras.

On March 18, they drove an average of 3 hours and 35 minutes, down 39 percent from 5 hours and 50 minutes on a typical Wednesday. They also covered an average of 48 miles, a 32 percent drop from 71 miles.

“This is so massive and so sudden, it’s a shock to the system,” said Eran Shir, Nexar’s co-founder and chief executive officer, who has seen similar drops in other cities. “We’ve never seen anything like that.”

Uber and Lyft declined to release their ride numbers in New York.

But Uber’s chief executive officer, Dara Khosrowshahi, said in a March 19 call with investors that bookings for rides in Seattle and other hard-hit areas had fallen by as much as 60 to 70 percent.

New York City has about 200,000 for-hire drivers licensed by the Taxi and Limousine Commission. The drivers are issued a universal license that allows them to drive yellow taxis, which are capped at nearly 13,600 by the city, and for ride-app services.

The commission, which tracks taxi ridership numbers, has only collected data through January, well before coronavirus reached New York.

Michael Woloz, a longtime taxi industry consultant, said taxi garages had stayed open through some of the city’s worst crises — including the Sept. 11 terror attacks and Hurricane Sandy — but were reeling from the coronavirus fallout.

Many garages, he said, were taking extraordinary steps to get their taxis out on the streets, including reducing leasing fees for drivers by as much as two-thirds.

Other garages were waiving leasing fees altogether, and instead waiting until the end of drivers’ shifts to see if there was any profit to split.

“Right now, it’s the worst it’s ever been,” Mr. Woloz said.

At Kennedy Airport, taxi drivers are stuck in a central holding area for hours before finally being dispatched to pick up passengers at the terminals.

The other day, dozens of taxis were lined up, with some drivers talking on their cellphones to pass the time while others leaned back for a nap.

Edrice Ulysses, 57, of Brooklyn, pounded on his steering wheel in frustration. “Every day one fare,” he said. ”Eight hours, nine hours, ten hours, one fare.”

Marc Petit-Homme, 54, a yellow taxi driver for nearly three decades, said the airport was so slow one day that he finally gave up and drove to Manhattan looking for passengers.

But over five hours, he made just $49 — normally, it would be five or 10 times that much.

So the next day, he was back at the airport. Waiting. “The last two weeks, we suffer,” said Mr. Petit-Homme, as he paced nervously beside his taxi.

Many taxi drivers said their financial worries were compounded by fears of catching the virus and passing it on to their families.

Nino Hervias, a taxi owner who is 61 and had pneumonia last year, has not driven his taxi since March 17.

Mr. Hervias, who has a loan of more than half-a-million dollars on his medallion, said he cannot make the monthly payments on that or on the mortgage on his family’s home in New Jersey, or even cover their everyday living expenses.

“We have food for another two days,’’ he said.

Other taxi owners and drivers are taking their chances, armed with hand sanitizer and disinfectant wipes.

Wilfred Fequiere, 64, who lives in Queens and has driven a cab for 35 years, said he used to average a dozen passengers a day. Now, it is two passengers, if he is lucky, but sometimes none at all.

“Before it wasn’t good,” he said. “Now it’s worse.”

Banks to waive mortgage payments for 90 days

From:Crain's New York Business
By: Gwen Everett

https://www.crainsnewyork.com/coronavirus/banks-waive-mortgage-payments-90-days?utm_source=breaking-news&utm_medium=email&utm_campaign=20200319&utm_content=hero-readmore

Bankruptcy Filings and the Discharge of Taxes

Affluent Taxpayers and the Discharge of Taxes in Bankruptcy 

In these difficult times, many clients have contacted Shenwick
& amp; Associates asking  whether they should file for
bankruptcy and whether the taxes they owe are dischargeable
in bankruptcy. Both bankruptcy law and tax law are code
oriented and the intersection of those two areas of the law
can create complexity and confusion.  

As we have discussed in prior blog posts, “old income” taxes
are dischargeable in a Chapter 7 personal bankruptcy filing.
The term “old” generally means that the taxes must be more
than 3 years old or more than 3 years must have passed
from the date of the filing of the debtor’s tax return and the
date of the debtor’s bankruptcy filing (“3 Year Rule”). This
is a “back of the envelope” analysis for purposes of this blog
post and an actual analysis would include a review of the
Debtor’s account transcript from the IRS and an analysis of
the facts of the case.    

In addition to the 3 Year Rule calculation, the bankruptcy
attorney must also determine if the debtor attempted to
evade or defeat the payment of  taxes  pursuant to section
523(a)(1)(c) of the Bankruptcy Code. If the debtor took
action to evade the payment of taxes, then the taxes are not
dischargeable in bankruptcy notwithstanding the fact that the
taxes are old and have met the 3 year rule discussed above. 

The recent case of  United States v. Harold, No. 16-05041
(Bankr. E.D. Mich. 2020) proves an example of actions by
a taxpayer/debtor that rise to the level of an attempt to evade
taxes, which result in the taxes not being dischargeable despite
the taxpayer/debtor having met the 3 Year Rule. 

Dr. Harold (debtor) was a successful medical doctor with an
OB/GYN practice. The issue in the case was the discharge of 
the  federal tax liabilities for 2004 through 2012 and 2014 that
met the 3 Year Rule. Unless the exception for attempting to
evade the payment of taxes applied, the taxes  would be
discharged in Dr. Harold’s bankruptcy filing.  

Dr. Harold  grossed approximately $500,000 from her practice
during the years at issue.  

Despite owing taxes, Dr Harold had  an affluent lifestyle: 1. She
purchased  a new home in 2005 along the Detroit River
waterfront,  2. She sent her children to private grade schools
and high schools,  3. Her children attended private colleges.
4. The family took multiple family vacations to Mexico,
Alaska, Puerto Rico, Orlando, Washington, D.C., Paris,
Las Vegas, Hawaii, and Dubai and 5 the family drove
expensive cars: a Jaguar, a Mercury Mountaineer, two
Cadillacs, two Lincolns, a Lexus and a Harley
Davidson motorcycle.

In this author's experience, the IRS  will subpoena the
Debtor’s bank and credit card statements for the relevant
years to determine what the Debtor spent their money on. 

The Court found that the facts of the case indicated that
her expenditures were voluntary and  demonstrated that
the Debtor engaged in conduct to evade or defeat the
payment of her tax liabilities for the years 2004-2012
and 2014 pursuant to 523(a)(1)(c) of the Bankruptcy
Code  and the taxes were not dischargeable. 

The case provides a lesson for  high income earners who
file for bankruptcy and had used their money to purchase
luxury goods or services instead of paying their taxes,
the IRS will object to the discharge of their taxes in their
bankruptcy filing  and the IRS will likely prevail.

James H. Shenwick, Esq. has an LLM in Taxation from
NYU Law School and counsels many clients with tax
and debtor/creditor issues.  

James Shenwick
Shenwick & Associates
122 East 42nd St
Suite 620
New York, NY 10168
Bankruptcy & Creditor's Rights
“We always appreciate referrals”
W 212-541-6224
E: jshenwick@gmail.com
Fax 646-218-4600
Cell Phone: 917-363-3391
Website: https://shenwick-associates.business.site/
Website: https://sites.google.com/site/jshenwick/home
Blog: http://shenwick.blogspot.com
LinkedIn:  http://www.linkedin.com/in/jamesshenwick

AG James and Cuomo suspend state debt collection

From: Crain's New York Business
By: Gwen Everett

https://www.crainsnewyork.com/coronavirus/ag-james-and-cuomo-suspend-state-debt-collection

New York will freeze collections on medical and student debt owed or referred to the state, Attorney General Letitia James and Gov. Andrew Cuomo announced Tuesday.

More than 165,000 debts are affected by the decision, the AG and governor said, adding that the freeze will last at least 30 days.

During that time, the attorney general's office will take applications to suspend other types of debt owed or referred to the state, James said, and will decide whether to extend the freeze.

It's an effort to mitigate the mounting financial stresses New Yorkers are facing as the Covid-19 crisis rattles the state's economy. The state shut down restaurants, bars and event spaces Monday.

"In this time of crisis, my office will not add undue stress or saddle New Yorkers with unnecessary financial burden," James said. 

Joe Biden’s effort to heal the breach with Elizabeth Warren on bankruptcy, explained

From: vox.com
By: Matthew Yglesias

https://www.vox.com/2020/3/16/21181500/joe-biden-elizabeth-warren-bankruptcy