1 week 2 days ago

June 25, 2020

There are increasingly urgent signs that an unprecedented wave of student loan defaults could be arriving within a matter of months. A cratering economy and expanding pandemic are about to collide with the expiration of critical temporary student loan relief programs, and the end result could be catastrophic.

Here’s what’s going on.
The Economy Continues To Stagnate Unemployment remains at levels unseen since the Great Depression, with no signs of dramatic improvements. Last week, yet another 1.5 million Americans filed for unemployment benefits. Nearly 50 million Americans have filed for unemployment benefits over the past three months, and while this week’s numbers are far lower than initial jobless claims filed in March, the economy is not showing any signs of dramatic or rapid improvement. The Federal Reserve recently indicated that it expects unemployment to remain high through the end of the year and beyond.
The Pandemic Appears To Be WorseningWhile the stay-home orders of March and April were successful in slowing the spread of the Coronavirus, those trends have now been reversed. Several states with large populations — Florida, Texas, and California — are seeing record increases in daily confirmed cases of Covid-19. Those three states contain over a quarter of the entire population of the United States. And Coronavirus cases are also increasing in two dozen other states, as well. Hospitalizations are also increasing in many localities. It is becoming quite clear to health experts that the pandemic is far from over, and we may be entering a new, even worse phase of the outbreak.  
Federal Student Loan Relief Under The CARES Act Ends SoonIn the wake of the pandemic and economic collapse, Congress passed the CARES Act. Although the implementation of the CARES Act has been hugely problematic, the stimulus bill has provided critical relief to student loan borrowers in the form of an automatic suspension of payments and interest for all government-held federal student loans.

That suspension, however is scheduled to expire on September 30, 2020 — less than 100 days from now. Over 40 million student loan borrowers will be hit with student loan bills by October, and many will be unable to afford their payments. Others who may be directly impacted by Covid-19 may not be able to manage the act of making a payment, even if they could afford to do so. 
Temporary Private Student Loan Relief Expires ImminentlyCongress limited the student loan relief under the CARES Act to government-held federal student loans. This effectively left millions of private student loan borrowers without any relief at all. However, several states stepped in to negotiate voluntary relief programs with dozens of private student loan lenders and servicers. The resulting multi-state pact provided millions of private student loan borrowers with temporary relief in the form of suspended payments and a cessation of negative credit reporting.

That temporary relief, however, was typically limited to 90 days. Private student loan borrowers who took advantage of those relief options in March or April may have no other options when that relief imminently expires. Since private student loans are not eligible for income-driven repayment programs or long periods of hardship-based forbearance, defaulting will be an inevitable outcome for many borrowers.  
Bottom LineAll signs point to a looming catastrophe for millions of student loan borrowers. To avoid disaster, Congressional action is likely required. 

The Democratic-controlled House of Representatives recently passed the HEROES Act, which would extend the CARES Act’s student loan provisions by a full year to September of 2021. But Senate Republicans have rejected this bill. A coalition of over 60 organizations have also called on Congress to extend the CARES Act for student loan borrowers and forgive a substantial amount of student loan debt, although Senate GOP leaders have shown no interest in such broad relief to date. 

Without a bipartisan solution, student loan borrowers will start falling into default at an ever-increasing rate. Time is running out.

1 week 3 days ago

…But the Car Still Has to Pay. When you file Chapter 7 bankruptcy, that means you don’t have to make the car payments. But that does not mean you get a free car. You don’t have to make the car payments, but the car still has to pay. That’s because the car finance company is […]
The post After bankruptcy….the car still has to pay! by Robert Weed appeared first on Northern VA Bankruptcy Lawyer Robert Weed - .

1 week 5 days ago

…But the Car Still Has to Pay. When you file Chapter 7 bankruptcy, that means you don’t have to make the car payments. But that does not mean you get a free car. You don’t have to make the car payments, but the car still has to pay. That’s because the car finance company is […]
The post After bankruptcy….the car still has to pay! by Robert Weed appeared first on Northern VA Bankruptcy Lawyer Robert Weed - .

1 week 5 days ago

…But the Car Still Has to Pay. When you file Chapter 7 bankruptcy, that means you don’t have to make the car payments. But that does not mean you get a free car. You don’t have to make the car payments, but the car still has to pay. That’s because the car finance company is […]
The post After bankruptcy….the car still has to pay! by Robert Weed appeared first on Northern VA Bankruptcy Lawyer Robert Weed - .

1 week 5 days ago

The federal government has finally offered some clarity on how mom-and-pop businesses can avoid repaying their bailout loan—a major sticking point in the Paycheck Protection Program.

In the past month officials in the Small Business Administration and the Treasury Department have worked with Congress to make much-demanded changes to the law, which culminated in the PPP Flexibility Act signed by President Donald Trump on June 5.

With all remaining PPP loan applications expiring next week—June 30 is the last day to apply—here are the changes small-business owners need to know to receive forgiveness on current or future loans.

 Read this week’s issue of Crain’s New York Business online
FAQ: A guide to SBA's disaster loans
 Here's why the $349 billion PPP ran out of money
The amount one is required to spend on payroll has shifted

The first iteration of the PPP loan required small-business owners to spend 75% of the loan money they received on employee payroll before it could be considered for forgiveness. After an outcry from small-business owners, who considered the stipulation restrictive in light of a host of other operating costs, the revised PPP loan shifts that requirement to 60%.

Furthermore, even if a borrowing small-business owner uses less than 60% of the loan amount on payroll, he or she will still be eligible to have a portion of the entire loan forgiven. The other expenses that can be funded from the remaining 40% of the loan money and still be forgiven are rent, mortgage payments, utilities and interest on loans. Expenses outside this realm are not forgiven.

There is a new PPP loan forgiveness 'safe harbor' rule

This change in the loan terms protects businesses that were unable to hire employees back to Feb. 15, or pre-Covid-19, levels from being penalized on their loan amount, as payroll is tied directly to the employee amount an owner can or had hired before the shutdown. Businesses have been given an extension to Dec. 31 to hire back employees they had on staff before February of this year. Basically the "safe harbor" rule applies to those small businesses that are still shut down. They can apply for a full PPP loan and not feel forced to hire back staff when they are not open. 

The rule has a second component. Businesses that hire employees back on salaries lower than before the pandemic—because of a decline in business activity or a lack of revenue—will not be penalized on their loan amount as long as they can document their drop in full-time employee salary was related to Covid-19 restrictions.

The requirement to use funds within eight weeks of receiving the loan has been moved to 24 weeks

This is another important change to the program that could have ramifications on how much forgiveness is allocated to small-business owners. Borrowers who applied for and received PPP funds after June 5 will have 24 weeks (six months) until they need to spend the money. Those who received money before June 5 will still have eight weeks from the start of the loan to spend the money if they choose so, as they might find it advantageous to get it off their books. These borrowers are offered the flexibility to receive the 24-week extension. 

The repayment terms have been extended too

Small-business owners who received PPP money on or after June 5 will now have five years to repay the amounts of the PPP loan that are not turned into a grant through the forgiveness provisions. Those borrowers who received PPP money before June 5 must pay their nonforgiven portions of the loan back within two years, although they can work with the bank that provided the loan to get an extension.

PPP Forgiveness Application 3508EZ ( Revised 06.16.2020) by Janon Fisher on Scribd

Furthermore, the SBA has amended the law to allow deferments on payments on principal, interest and fees associated with PPP loans to the date the SBA remits the loan to the bank. Previously the period was six months from the date of the loan. This amendment extends the clock from ticking too quickly on when a borrower is expected to pay back these costs.

SBA offers 'EZ-Application' for eligible small- business owners

This three-page PPP loan application simplifies the paperwork process and is available to small-business owners who are either self-employed or have no employees, did not reduce the wages of their employees by more than 25%, or can prove they experienced a drop in business activity because of Covid-19 and did not reduce their business wages by more than 25%.


1 week 6 days ago

June 3, 2020
International Business Times
By Amy Fontinelle 

Declaring bankruptcy is never pleasant, but for small businesses it's often been disastrous. Filing under chapter 11 -- the method that allows a firm to re-organize -- was designed for large corporations. Technically, a small firm could do it, but the process was lengthy, costly, and creditor-friendly. As a result, insolvent small businesses often had to file for chapter 7, which meant closing shop entirely.

But now there's a new way to declare bankruptcy, a more debtor-friendly alternative: subchapter V. Created by the Small Business Reorganization Act (SBRA) of 2019, it became effective February 19, 2020. And then, a month later, it got even better, thanks to the CARES Act, which tripled the qualifying debt limit under this option.

Now, if you're a small business owner with less than $7.5 million in debt, and if you can demonstrate that staying open will generate enough money to repay your creditors over three to five years, you'll have a better chance at continuing to support yourself and serve your customers. 
Subchapter V: Are You Eligible?The SBRA originally made subchapter V -- so-called because it's a clause under chapter 11 -- available to small businesses whose secured and unsecured debts combined totaled no more than $2,725,625. When the CARES Act became law on March 27, 2020, that limit increased to $7,500,000. This higher limit is set to expire after March 26, 2021. At least half of the debt must be business (not personal) debt.

One requirement to file for subchapter V is that the debtor (that is, you) be currently engaged in commercial or business activities. However, if your operation closed down when pandemic-induced stay-at-home orders went into place, here's the good news: Courts so far have taken a liberal view, ruling that businesses in similar situations are eligible to file.

When you file, you'll incur a $1,167 case filing fee and a $550 administrative fee. The court may allow you to pay in installments within 120 days of filing (roughly $430 per month) or 180 days of filing (roughly $286 per month). You may also incur fees for professionals such as attorneys, accountants, appraisers, and auctioneers.
How Subchapter V Works: Creating Your Reorganization PlanSubchapter V is unlike a regular chapter 11 case in that it doesn't require an impaired class --like a creditor who won't receive everything you originally owed them -- to accept your reorganization plan. The bankruptcy court can approve it without their acceptance as long as your plan is fair and equitable.

"Fair and equitable" means your plan must provide for all of your disposable income to go toward repaying your creditors over the next three to five years. You'll be able to use some of your income to support yourself, support any dependents, and operate your business. You won't be taking any vacations, but you won't be homeless and you might not have to lay off your employees.

Your reorganization plan will include the information that would normally be included in a disclosure statement under regular chapter 11. This information includes a brief history of your business operations, a liquidation analysis, and financial projections for your business showing how you'll repay your creditors.

A liquidation analysis is a good faith estimate of what your business assets could be sold for in a chapter 7 bankruptcy where you closed your business. The court will want to see that if you choose subchapter V, your debtors will be better off than if you liquidated under chapter 7.

Unsecured creditors can really lose out in a liquidation bankruptcy, and even secured creditors may not recoup what they owe since it can be challenging to get the full value for assets sold in a distress sale. That said, if your business continues to struggle during your three to five years of payments, you may end up liquidating certain assets to pay your creditors, or even converting your case to chapter 7 and liquidating everything.
Filing for Subchapter V: Trustee SupervisionFiling for any type of bankruptcy provides an automatic stay that requires creditors to leave you alone. Once the bankruptcy court discharges your debts., creditors cannot try to collect them. You can't be sued or held personally liable for them. Discharge occurs either upon confirmation of a consensual plan -- before you start making payments to creditors who have agreed to your plan, or after you make all your payments under the plan, for a nonconsenual plan.

After you file, the U.S. Department of Justice will appoint a trustee to supervise your bankruptcy process. You'll give the trustee copies of your most recent tax return, statement of operations, cash flow statement, and balance sheet. They will help with your reorganization plan and attend your key court hearings.

If your creditors approve your plan, the trustee's job ends there. If not, the trustee will oversee the entire three- to five-year repayment process. The trustee will not take control of your assets and cannot sell your assets, but the trustee will collect your payments and distribute them to your creditors. They may also inspect your business premises, books, and records if they give you reasonable advance notice.
Who Should File Subchapter V?Subchapter V offers many benefits to small businesses that are struggling under too much debt. Of course, if you can work something out with your creditors without filing for bankruptcy, that's always the preferable course, saving you a lot of money. Subchapter V is for when your creditors won't budge, because the court can approve your case against their will. It's also for when you've pledged your home as collateral for a business loan you can't pay and you don't want to lose your home.

If you think your business has a good chance to become profitable again and you don't want to close down for good, talk to a bankruptcy attorney about opening a subchapter V case.

1 week 6 days ago

June 12, 2020
NY Post

A large number of small US business could fail during the coronavirus recession, the Federal Reserve said on Friday, slowing recovery and creating lasting damage to the world’s largest economy.

“The nature of the economic recovery that follows the COVID-19 crisis will depend in part on the survival of small businesses,” the Fed said in its biannual monetary policy report to Congress on Friday. “The pandemic poses acute risks to the survival of many small businesses [whose] widespread failure would adversely alter the economic landscape of local communities and potentially slow the economic recovery and future labor productivity growth.”

Congress has extended some help, including $660 billion to cover payrolls and overhead. About three-quarters of small businesses with employees have applied for the aid, with many getting funding, the Fed said. Still, “some industries may face an ongoing need” after the program expires this summer.

Meanwhile, job losses have been steeper at small businesses than large ones, with many small firms stopping paychecks entirely, the Fed said. Some 30 percent to 40 percent of small firms in sectors most affected by social distancing have gone inactive since February.

Spending at small restaurants was down 80 percent by April during the height of the nation’s shutdowns and was still down by half in early June, the Fed said, citing data from credit card transaction processor Womply.

Small businesses account for nearly half of jobs in the private sector, and new business formation fell steeply in the early months of the crisis, data from the Census Bureau shows.

Small business failures not only destroy jobs but “erase the productive knowledge within the firms, deplete the assets of business owners, alter the character of communities and neighborhoods, and, in some cases, deprive the country of innovations,” the Fed said.

1 week 6 days ago

June 22, 2020
NY Post
by: Priscilla DeGregory

Fashion brand Valentino wants to break the lease on its chic Fifth Avenue location — because the coronavirus is stopping it from conducting “high-end” business, a new lawsuit says.

The Italian luxury retail and design company says even if the Big Apple overcomes the pandemic, “the social and economic landscapes have been radically altered in a way that has drastically, if not irreparably, hindered Valentino’s ability to conduct high-end retail business,” at the primo shopping locale, according to the Manhattan Supreme Court lawsuit filed Sunday.

Valentino is asking a judge to allow it to break its pricey lease with landlord 693 Fifth Owner, LLC by the end of the year, despite a contract that is slated to run through July 2029, the court papers say.

Valentino — which leases four levels at the location — initially signed the contract in May 2013, the court documents say.

Since the state “PAUSE” executive order went into effect closing businesses for months — and which is now only allowing them to open in a very limited way — Valentino cannot “offer in-boutique retail sales, or associated services such as fittings … as the company operated before the COVID-19 pandemic,” the lawsuit claims.

New Yorkers have suffered major financial setbacks, including high unemployment rates, which has led to a major consumer spending decline — while new safety protocols “have severely impacted brick-and-mortar retail sales, and will continue to do so, indefinitely,” the court filings say.

“Even if such restrictions are eased (at some point), continued social distancing, as well as other limitations, will make it impossible for Valentino to operate its boutique as initially envisioned under the Lease,” the court papers say.

After notifying the owner it wanted to break the lease, Valentino was told on June 19 through a lawyer that 693 Fifth Owner, “would not accept such a surrender, and, notwithstanding the COVID-19 pandemic, disputed that Valentino’s obligations under the Lease have been excused, leaving Valentino with no alternative but to commence this action,” the suit alleges.

693 Fifth Owner lawyer Robert Cyruli told The Post, “My client will not choose to litigate this in the media.”

1 week 6 days ago

June 17, 2020

Retailers hit by the economic downturn are considering bankruptcy protections. Perkins Coie LLP attorneys say the CARES Act offers small businesses access to the streamlined Subchapter 5 process and recent rulings from bankruptcy courts provide cash flow relief for certain retailers operating under Chapter 11 through deferral of rent obligations, at least for now.

JCPenney’s bankruptcy filing on May 15 is one of the latest in a string of high-profile retailers, including Neiman Marcus, seeking bankruptcy protection in the wake of the Covid-19 public health emergency. Many other retailers may soon follow suit given the virus’ economic consequences and the industry issues many retailers have long faced.

Fashion, cosmetics, and personal care retailers may be particularly hard hit as they often rely on in-store experiences for sales. Experiences like spritzing fragrances, testing creams, running hands over fabrics are gone in the age of stay-at-home orders, a stagnating economy, record unemployment, and nearly nonexistent foot traffic

However, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and recent bankruptcy rulings may provide retailers, including small businesses, with much needed relief, albeit in certain temporary ways.

Filing for Bankruptcy as Sales FallNeiman Marcus and JCPenney may be the tip of the iceberg as many retailers face plummeting sales. According to the Commerce Department, April retail sales fell by 16.4% year-on-year, far worse than predicted. Clothing stores were particularly hard hit, with sales falling 89% from a year ago.

Bankruptcy can provide relief in challenging times for businesses facing new economic realities. Chapters 7 and 11 are the primary bankruptcy avenues for businesses. While Chapter 7 involves liquidation, businesses may reorganize or sell their assets as going concerns under Chapter 11.

Most often when a retailer commences a Chapter 7 case, it ceases sales and other operations. Often, liquidation results in the business’ termination. An appointed trustee takes control of remaining operations and all assets, which may include accounts receivable and litigation claims. All proceeds not distributed to secured creditors are used first to pay the costs of the bankruptcy process, then to pay other debts, and lastly sometimes to make distributions to equity holders.

Thinking they can keep their doors open, most household-name businesses and others commence Chapter 11, which can keep customers shopping while the business creates and implements a “plan” to pay off its debts and often restructure its operations.
Benefits of the CARES Act for Small BusinessesThe CARES Act has modified previously existing bankruptcy options to create further potential benefits for small businesses filing under Chapter 11.

Effective March 27, 2020, the CARES Act temporarily modified the Small Business Reorganization Act of 2019 (SBRA) to provide certain businesses a faster, less expensive, and more tailored approach to Chapter 11. Previously, the SBRA had crafted a streamlined Chapter 11 process referred to by its legislative location, “Subchapter 5.” However, the benefits of this process were limited to debtors with total secured and unsecured debt up to $2,725,625.

The CARES Act temporarily increased the debt limit for Subchapter 5 to $7.5 million. The result is that substantially more small businesses will qualify for reorganization under Subchapter 5’s new debt cap, allowing these businesses to seek to reorganize in the streamlined fashion that was once only available to companies under the pre-CARES Act cap.

Some benefits of reorganization under Subchapter 5 include:

  • Streamlined reorganization plan submission and confirmation process when contrasted with other Chapter 11 cases.
  • Exemption from quarterly trustee fees.
  • Creditors’ committees are not appointed, and consequently there is less administrative cost.
  • No absolute priority rule, and instead unsecured creditors receive a pro rata share of the business’s income over a three- to five-year period, benefitting existing equity holders.

These changes alone can measurably reduce the time, expense, and reputational impact of small company Chapter 11 reorganization efforts. But the CARES Act changes are expected to be available for a limited time. The temporary increase to Subchapter 5’s debt limit lasts only for one year from the enactment of the CARES Act, March 27, 2021. The debt limit will then return to $2,725,625, unless the nearly tripled debt limit is extended.
Recent Bankruptcy Rulings Support Struggling Businesses During Covid-19Once in Chapter 11 bankruptcy, even if not under the streamlined Subchapter 5 processes, several recent bankruptcy courts have assisted retailers facing severe cash flow pressure during the Covid-19 crisis.

Paying rent is one such pressure. Under the Bankruptcy Code, businesses are generally required to remain “current” on rent in their commercial leases from the date of the bankruptcy case going forward, subject to a possible grace period for the first 60 days of the case.

Yet the bankruptcy court in In Re Pier 1 Imports Inc., relieved the debtors of their obligation to pay rent on a current basis, extending the grace period beyond the 60 days.

The court reasoned that the pandemic made it impossible for the debtors to generate sufficient revenue to pay rent on a current basis, even after reducing costs. Landlords were entitled to accrue administrative expenses for unpaid rent, not to current payment of rent.

The court noted it has not yet decided “whether the government-mandated closures” might excuse performance “due to impossibility, impracticability, or frustration of purpose.” Not surprisingly, the landlords have appealed.

Elsewhere, at least two other bankruptcy courts have granted similar relief. In Re Modell’s Sporting Goods Inc., No. 20-14179 (VFP) (Bankr. D.N.J., March 27, 2020); In re CraftWorks Parent LLC, No. 20-10475 (BLS), Docket No. 217 (Bankr. D. Del. March 30, 2020).

Other retail debtors dependent on in-person customers have likewise asked for similar rent relief. It is expected that the trend of debtors requesting, and courts likely granting, such relief will continue.

2 weeks 21 hours ago

A Moratorium on Evictions Ends, Leaving Thousands of Tenants Fearful
Eviction cases are expected to soar in New York City as housing courts reopen and landlords seek to recoup income lost during the pandemic.

A moratorium on evictions that New York State imposed during the coronavirus pandemic expired over the weekend, raising fears that tens of thousands of residents struggling in the worst economic collapse since the Great Depression will be called into housing courts, which reopened on Monday.

Housing rights groups estimate that in the coming days, 50,000 to 60,000 cases could be filed in New York City’s housing courts. In addition, thousands of cases that were already in progress but were paused in March can now resume.

The number of eviction cases expected to be filed reflects the typical caseload in a three-month period, which was the length of the moratorium. But it does not take into account the fallout from the more than one million city residents who have lost their jobs or were furloughed in recent months and whose federal stimulus payments of an extra $600 per week will soon run out, housing advocates say.

A second order issued by the state that shields tenants directly affected by the pandemic expires in late August and could produce an even bigger wave of eviction cases.

“All levels of government have to realize that they cannot let tens of thousands of people end up in homeless shelters,” said Edward Josephson, the director of litigation and housing at Legal Services NYC. “It’s the most dire thing that we have ever seen.”

But many landlords say they, too, are facing financial calamity, with the loss of rental income leaving them unable to pay their own bills, including mortgages, and invest in building upkeep.

“It is clear that the economic impacts of the Covid-19 pandemic are nowhere near an end,” said Jay Martin, the executive director of the Community Housing Improvement Program, or CHIP, which represents about 4,000 property owners. “There are thousands of tenants and building owners who need help now.”

As housing courts nationwide begin to reopen and federal stimulus checks are about to end, eviction cases are expected to soar. A recent report by Amherst, an analytics and data real estate firm, found that up to 28 million renters are at risk of eviction.

In the days leading up to the first moratorium deadline, dozens of members of the New York State Legislature, as well as many housing groups, urged Gov. Andrew M. Cuomo to extend universal protection to all tenants, even in cases not directly caused by the pandemic.

They also expressed concern that housing courts would reopen physically on Monday, placing tenants and others at risk of contracting and spreading the virus.

But the state’s chief administrative judge, Lawrence K. Marks, decided against that, citing public health concerns. But case filings can be sent online or through the mail, and hearings will be held virtually.

Susanna Blankley, the coalition coordinator for the Right to Counsel NYC Coalition, said it was “unconscionable” for housing courts to restart at all.

“In what world is it good to evict people in the middle of a pandemic?” Ms. Blankley said. “Who are you opening for? It has to be for the landlords.”

Even though the courthouses were closed on Monday, people protested the virtual reopening outside the Brooklyn location, holding signs that read, “EVICTION FREE NYC.”

The past three months have been extremely difficult not only for tenants, but also for smaller landlords.

About 25 percent of renters have not paid rent in May, April and June, according to a survey by CHIP. About 20 percent of the landlords represented by the group said they were concerned about losing their properties.

Lincoln Eccles, who owns a 14-unit apartment building in Crown Heights, Brooklyn, said the closing of housing courts in March delayed two cases he had against separate tenants who have not paid rent in years. Together, the tenants owe tens of thousands of dollars in rent, he said.

He said he collected full rent payments from only nine of his 14 units this month; some of the tenants have not paid because of the pandemic, he said.

“If it’s a choice between me being solvent or the tenant staying in place, I have no choice but being solvent,” said Mr. Eccles, who said he was operating in the red this year.