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The state’s attorney general is seeking $810 million from the city to compensate financially struggling taxi medallion owners. New York State’s attorney general on Thursday accused New York City of committing fraud by artificially inflating the value of yellow taxi medallions, and she demanded $810 million from the city to compensate the thousands of cabdrivers who are now saddled with enormous debt.
The city’s Taxi and Limousine Commission marketed the medallions — city-issued permits required to own a yellow cab — as “a solid investment with steady growth” and reaped a profit from the sale of thousands of them at auction at exorbitant prices from 2004 to 2017, according to an investigation by the attorney general’s office. The attorney general, Letitia A. James, said the city must provide financial relief to the debt-ridden taxi medallion owners within 30 days or she would sue for fraud, unlawful profit and other violations of state law. “These taxi medallions were marketed as a pathway to the American dream, but instead became a trapdoor of despair for medallion owners harmed by the T.L.C.’s unlawful practices,” Ms. James said. “The very government that was supposed to ensure fair practices in the marketplace engaged in a scheme that defrauded hundreds of medallion owners, leaving many with no choice but to work day and night to pay off their overpriced medallions.’’Bhairavi Desai, the executive director of the New York Taxi Workers Alliance, which represents cabdrivers, said she welcomed Ms. James’s action and saw it as a validation of the city’s culpability in the taxi crisis. “The devastation that has happened across the taxi industry has been a deep betrayal by the city,” she said. “Not only did they close their eyes to predatory practices and directly engage in inflating the prices but they then allowed in Uber and Lyft completely unregulated.” Freddi Goldstein, a spokeswoman for Mayor Bill de Blasio, said that although the taxi crisis began under Michael R. Bloomberg’s administration, city officials since then have taken steps to provide financial help to taxi drivers and tighten oversight of Uber and other ride-hailing companies. The attorney general began her inquiry in response to an investigation by The New York Times, which found that a handful of taxi industry leaders earned hundreds of millions of dollars by deliberately inflating the price of a medallion to more than $1 million from about $200,000. The Times found that thousands of drivers, many of them immigrants, thought they were safe taking out loans to buy medallions because of the taxi commission’s assurances of their high value. City, state and federal officials exacerbated the problems by exempting the industry from regulations, The Times revealed. The city also filled in budget gaps by selling medallions and running ads promoting the permits as “better than the stock market.” Ms. James said that the city continued to market the medallions at inflated prices even after internal warnings were raised. During the last auction for medallions in 2014, the city sold 350 new medallions at the height of the market, generating $359 million in revenue. Since then, medallion prices have cratered, selling for a fraction of the record $1.3 million price in 2014. In many cases, they are worth far less than what their owners borrowed to buy them. In 2018, New York became the first major American city to adopt a one-year moratorium on issuing new vehicle licenses for Uber, Lyft and other ride-hail services. It came three years after Mr. de Blasio attempted to adopt a similar cap but abandoned the effort after Uber waged a fierce campaign against him. Since then, the city has extended the moratorium. “This crisis has been ours to solve — working tirelessly to clean up the carelessness and greed of others,” Ms. Goldstein said. “If the attorney general wants to launch a frivolous investigation into the very administration that has done nothing but work to improve the situation, this is what she’ll find.” But Ms. Desai said the city’s response has been slow and its efforts so far have generally been underwhelming. She noted that the city waived some small fees for taxi owners even as they drowned under huge debts. “There has been no substantial financial relief — this restitution would be the first,” she said.
The city comptroller, Scott M. Stringer, said Ms. James had made “significant allegations” and that his office “takes these issues very seriously.” The city controls the number of medallions — currently capped at just under 13,600 — to prevent an oversupply of cabs like what happened in the 1930s when concerns over congestion, reckless driving and cut-rate fares led the city to step in. As medallion prices soared, drivers were steered into taking out loans totaling billions of dollars that they could never repay, plunging many into bankruptcy. A spate of suicides by taxi owners and professional drivers in recent years underscored the severity of their plight and has spurred city legislation to try to improve their working conditions. A spokesman for Ms. James said that while Thursday’s action was focused on the city’s role in the taxi crisis, their ongoing investigation continued to examine “all aspects of the taxi industry.” The United States Attorney’s office in Manhattan has also launched a criminal investigation. Taxi industry leaders have denied doing anything wrong, characterizing their actions as normal business practices. They have sought to blame the taxi meltdown entirely on the rise of competing ride-app services such as Uber and Lyft. Last month, a city panel appointed by the New York City Council and Mr. de Blasio proposed a bailout of up to $600 million for taxi drivers, but most of that money would come from private investors. Ms. James is seeking $810 million directly from the city. It is unclear how her demand would affect the bailout plans. City Councilman Ydanis Rodriguez, who was the co-chairman of the panel, said he believed the city did bear some responsibility for creating the taxi crisis, and as a result, it had an obligation to provide financial relief to taxi owners. He added that the city should consider all proposals, including Ms. James’s demand for compensation as well as the private-public bailout proposed by the panel. “What I know is this crisis is so huge and the medallion owners are so desperate that they cannot wait any longer,” Mr. Rodriguez said. Ms. James said the payment from the city would be used to pay restitution to taxi medallion owners, which could include paying off loans, and compensating them for damages resulting from the city’s actions. She also plans to take additional measures to prevent the Taxi and Limousine Commission and the city from inflating taxi prices in the future.Nino Hervias, a taxi owner and spokesman for the Taxi Medallion Owner Driver Association, which represents many immigrant taxi owners, said that it was time that the city was held directly liable for destroying the yellow taxi industry and pushing so many drivers into bankruptcy.
From: nypost.com By: Thornton McEnery
https://nypost.com/2020/02/20/cabbies-worry-as-hedge-fund-snaps-up-taxi-medallions/
From: sfchronicle.com
By: Nanette Asimov
https://www.sfchronicle.com/bayarea/article/Ex-students-blame-for-profit-Academy-of-Art-15061438.php
Wiping out the nation’s student-loan debt could have unintended financial consequences for borrowers
By: Andrew Keshner
From: Marketwatch
By: Annie Nova
From: cnbc.com
photo by CafeCredit
The ironic feature of the bankruptcy system is that a debtor must come up with a lot of money to file a case. Indeed, it costs a lot of money to go broke!
According to bankruptcy law professors Pamela Foohey, Robert M. Lawless, Katherine Porter (now Congresswomen Katie Porter), and sociology professor Deborah Thorne in their 2017 article No Money Down Bankruptcy, the high cost of filing chapter 7 bankruptcy is causing many debtors to file even more expensive, but less successful, chapter 13 cases that can be filed for “no money down.”
Attorneys charge an average of $1,229 to file and represent a debtor in a chapter 7 case and an average of $3,217 to file and represent a debtor in a chapter 13 case.
The study reveals that while 95% of Chapter 7 debtors receive a discharge of their debts, only one-third of chapter 13 debtors obtain a discharge.
Why is this happening? Why are lower-income debtors filing expensive chapter 13 cases instead of the cheaper and more successful chapter 7 cases?
You can fault the drafters of the bankruptcy code and the Bankruptcy Reform Act of 2005 for this mess.
When a debtor files a chapter 7 case, all debts–including fees owed to their bankruptcy attorney–are wiped out. The debtor’s attorney may not accept payment for services performed prior to filing the bankruptcy petition.
That’s a big problem. Attorneys cannot accept payments for their services after the case is filed, so attorneys typically charge ALL their fees up front. And lower-income debtors just can’t afford to come up with the money so they wind up filing chapter 13 for no money down.
So why can’t debtors just save up to file chapter 7? Well, they can and most attorneys will accept payments before a case is filed. In fact, most debtors break the chapter 7 fee into installments.
The problem is that debtors usually hire a bankruptcy attorney after they have been sued and wage garnishments are imminent. They have run out of time to save up to file the less expensive chapter 7 option. So even though they are a better fit for a chapter 7 case, they opt to file the “no money down” chapter 13 case to stop garnishments, repossessions and foreclosures.
Geography & Race Factors:
A very disturbing fact of bankruptcy cases is that the filing of a chapter 13 case has more to do with a person’s location and race than it does with anything else. Debtors in Southern states and African American debtors filed a disproportionate number of chapter 13 cases, suggesting that the decision of which chapter to file has more to due to with the attorney they hire than what is best for a particular debtor.
In some districts as many as 80% of the cases are filed as chapter 13, whereas in 2015 in the Northern District of Iowa only 6.7% of the cases were chapter 13. That difference cannot be explained by determining what was best for the debtor. Rather, the authors suggest that attorneys are doing what is best for their bottom line at the expense of lower income Americans.
Correct observations but wrong conclusions.
Although the authors correctly point out the problems with No Money Down cases, they reach the wrong conclusions much of the time.
The basic problem here is compensation. Attorneys are more than happy to file chapter 7 cases if they can be compensated. The only reason attorneys are pushing chapter 13 cases is so they can get paid. The solution is to figure out how to compensate chapter 7 attorneys.
The professors make the following statements in their report:
- “Given that attorneys facilitate “no money down” bankruptcy, the best way to ensure that all debtors have equal access to bankruptcy is to cabin attorneys’ incentives and role in chapter choice, while still allowing debtors access to this filing option if they so choose.”
- “One solution to combat the effects of the “no money down” bankruptcy is to allow debtors to pay bankruptcy attorneys’ fees in installments during their chapter 7 cases.”
- “Standing orders could provide that only if the debtor has paid twenty-five percent (or some other percentage) or more in attorneys’ fees prior to filing will the “no look” fee apply.”
- “A similar solution would be to revise the requirements for confirmation of chapter 13 plans to include a condition that the plan must contemplate making a substantial repayment to creditors.”
So, the professors suggest that attorneys who steer their low income clients into chapter 13 cases should be denied their fees unless a substantial amount of the creditor claims are paid. Well, that would DRASTICALLY reduce the number of chapter 13 cases filed. But is that a good result?
That is actually a horrible idea. How does this help low income debtors? They can’t afford to file chapter 7 so chapter 13 is their only option. Their paychecks are being garnished so they must do something, but these professors just focus on the low success rate of chapter 13 cases instead of the debtor’s immediate need for relief. Filing chapter 13 does offer IMMEDIATE relief from garnishments, repossessions and foreclosures.
There are two real problems here. First, we have a chapter 7 compensation problem. Second, we have a chapter 13 success rate problem.
How can we compensate chapter 7 attorneys so they will file cases now and not make a debtor wait to file? Well, as the professors suggest, legislative changes to allow that would be great, but when is that supposed to happen?
The Bifurcation Solution:
A current option to help allow debtors to file chapter 7 cases for a small retainer fee is to open up the doors to a bifurcated case. That is, allow attorneys to charge a small payment down to file an incomplete case consisting of nothing more than a debtor’s name and a list of creditors and then allow attorneys to charge monthly payments after the case is filed for completing the remaining schedules.
This solution is available now, but the US Trustee has been extremely hostile to allowing this process even though court decisions say it is allowable. The problem is, those firms attempting this approach have gone too far and have charged high fees and interest rates making the cost similar to chapter 13. But if courts develop Local Rules creating Safe Harbor zones for reasonable fees and payment schedules, this solution could be implemented right now with no Congressional action.
Chapter 13 Success Rate Solution:
The fact that only one-third of chapter 13 cases nationwide result in a discharge is outrageous. In Nebraska the success rate is about 60% and our firm has normally trended towards 70%. If the success rate of chapter 13 were higher nationally I doubt the authors would be complaining about no money down bankruptcies.
Why do some states have such low success rates for chapter 13? That is the key question not addressed by this article–a glaring omission. Success rates depend on cooperation between the courts, the trustees that supervise the case, and the attorneys who file them. Chapter 13 cases require fertile soil created by sensible Local Rules that give the system flexibility.
Sometimes debtors cannot make the monthly payment. They lose jobs or file divorce or suffer health problems. Local rules must allow debtors to suspend payments easily. Attorneys must be properly compensated for keeping the case alive when a debtor encounters trouble, and that means allowing for supplemental fees when amendments to plans or motions to suspend payments are filed. And courts need simple rules that are easy to enforce. Combine all those ingredients and chapter 13 success rates soar.
The professors also fail to mention many of the benefits of those more expensive chapter 13 cases. For example, car loans can be paid off for what a vehicle is worth instead of what is owed and at lower interest rates. That savings can more than offset the higher cost of chapter 13. In addition, new debts incurred after the case is filed–especially ongoing medical bills–may be discharged if the case is converted to chapter 7 later. Income tax debts may be paid off at lower interest rates as well. No mention of these cost savings is mentioned in the article.
Yes, we need reforms to help lower-income debtors file successful bankruptcies. But attacking attorneys–the gatekeepers to the justice system–or attacking debtors by making it more expensive to file chapter 13 is not the answer to the problem.
Image courtesy of Flickr and CafeCredit.com
The Best Way to Use a Credit Card? Treat It Like Cash from New York Times February 12, 2020
Fewer people than ever carry cash these days, it seems. Life can seem ultraconvenient when you don’t have to worry about a wad of bills in your pocket (or even a wallet in your pocket, for that matter).
But it can hurt people with low incomes when businesses go cashless, it can hurt workers who rely on cash tips and — even if you’re not in either of these groups — it can hurt you because it’s easy to get into financial trouble with credit cards.
Studies prove that people spend more when using credit vs. cash, and late payments are on the rise.
“You have an out-of-sight, out-of-mind phenomenon with credit cards,” said Amy Bucher, the director of behavior change design at Mad*Pow, a design consultancy group. “Unless they’re checking their credit card balance on a daily basis, most people don’t have an awareness of how much debt they’re in.”
But if used responsibly, credit cards are a fast way to build credit without paying a dime of interest. Good credit scores can save you money down the road, typically qualifying you for lower mortgage or auto loan interest rates. Credit card rewards can make things you buy a little cheaper.
The good news: Mental tricks, apps and tools can make spending with credit cards similar to cash, giving you the best of both worlds.
Editorial note: The assessments of financial products in this article are independently determined by Wirecutter, a New York Times company that reviews and recommends products, and have not been reviewed, approved or otherwise endorsed by any third party.
Make credit card purchases feel tactile
Cash requires you to shop at a physical store, grab your physical wallet and hand over physical money. Giving a cashier a $20 bill in exchange for an $18 item is a tangible transaction. In exchange for a $20, you now have $2 left and a physical bauble.
But a credit card looks the same before and after the transaction, obfuscating what was actually given up for that bauble. Add online shopping to the mix, and you might not even think about your credit card or where the money is coming from.
Grab a receipt. Beverly Harzog, a credit card expert and consumer finance analyst for U.S. News & World Report, always takes a receipt. “It’s just one more thing to help you keep a grip on reality,” she said. “When they ask if you want a receipt, just say yes so you have that feeling of payment in your hand.”
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Remove payment information from your computer. Consumer psychologists refer to creating friction — meaning barriers to doing something — as an effective way to stop an impulse buy. “If you’re sitting on your couch, you’ve had two glasses of wine, you see rain boots on sale, and your credit card information auto-populates, you’re probably going to buy it, because you really only needed to hit two buttons to make that purchase,” Ms. Bucher said. “If you had to get off your couch, pull out your credit card and type in the numbers, that’s friction. You have to commit a little more to make the purchase.” In contrast, digital payments like Apple Pay offer convenience when you’re at the cash register, but they take cash and physical cards out of the equation. If you’re nervous that holding your phone next to the scanner to complete a transaction could turn you into a spendthrift, don’t partake.
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Set spending limits
You can’t buy $300 headphones if your wallet contains only $100. But you can if you’ve got a card with a credit limit over $300 (even if $300 exceeds your budget).
Let robots count your money. Budgeting apps like You Need a Budget ($84 a year) or Mint (no fee) track balances across all your accounts, giving you a clearer picture of your actual balance even if you have multiple cards and accounts from different banks. Some banks, such as Bank of America, also let you sync other accounts, even if those accounts are with competing banks. Check your balance in the app to ensure your next purchase fits your budget.
Try “action planning.” Determine your budget, then implement measures that prevent you from exceeding it. The Uber Credit Card has a feature that lets you create a self-imposed spending limit for certain categories or merchants, which could remove the temptation to stop at Starbucks on the way to work. Other companies, like Discover, allow you to set up alerts if your credit card balance exceeds a certain amount or you near your credit limit.
Section 108 of the Internal Revenue Code Relief of Indebtedness Income and WorkoutsOne of the most overlooked areas of the law when doing a workout is Section 108 of the Internal Revenue Code (“IRC”). Section 108 is a trap for the unwary and unless the attorney or lawyer is aware of this tax code section, it can upend a workout or result in a taxpayer having to recognize, report, or pickup unknowingly a significant amount of taxable income. This could ruin the attorney-client relationship or worse yet a malpractice lawsuit by the client against the attorney.
Let's begin this post with an explanation of Section 108 of the IRC.
IRC § 108 provides that if an individual or an entity that owes money (the “Debtor”) is relieved of indebtedness, then that indebtedness is deemed to be ordinary income to the Debtor. The Debtor must report that income on their tax return and the Creditor is required to file a 1099 with the IRS. There are two exceptions to this rule: first, if the Debtor files for bankruptcy protection, then the relief of indebtedness income is not picked up; and second, on a balance sheet basis, if the individual’s liabilities exceed their assets and they are insolvent, then they do not have to pick up the income.
The goal of a workout from the perspective of the Debtor (the person who owes money) is to pay less than the balance due to the Creditor (person or company owed money).
An example of the application of IRC § 108 will help to explain the above. Let’s assume that an individual owes a financial institution $1,000,000. The individual is unable to pay the $1,000,000, so the parties enter into a workout (an out of court settlement) in which the individual repays the financial institution $600,000. According to IRC § 108, the taxpayer must pick up the $400,000 differential between what he or she owed and paid as ordinary income.
Unless the client is made aware of this fact in advance of or during a workout, the client may walk away from the workout. If not told at all, when the client receives the 1099 from the Creditor or worse gets audited by the IRS, they will point a finger at the attorney or sue the attorney for malpractice.
Many clients and some lawyers assume that the $400,000 of income is capital gains, but it is ordinary income.
Another question raised by clients is how does the IRS find out about this relief of indebtedness income? The answer is that the Creditor is required to file a Form 1099-C with the IRS reporting the relief of indebtedness income for more than $600 of forgiven debt.
Yet another question asked by clients is whether the Creditor will file the 1099 with the IRS? The answer is that the Creditor is legally required to do so and most institutional investors will do the 1099 filing.
Section 108 of the IRC comes up in almost every workout, but is currently most prevalent in taxi medallion and restaurant workouts. Both of these industries are struggling and are areas we are doing a lot of workouts.
Clients should review all workouts with their CPA’s or accountants.
At Shenwick & Associates, we are not tax lawyers, but we are familiar with the IRC and James Shenwick has an LLM in Taxation from the NYU School of Law.
Clients who are doing or contemplate doing a workout, are encouraged to consult with James Shenwick to discuss their strategy. Jim Shenwick 212 541 6224 [email protected]
The 8th Circuit Court of Appeals has affirmed a Bankruptcy Appellate Panel’s opinion regarding whether a retirement account awarded to a spouse in a divorce case is exempt in a bankruptcy proceeding.
Last year the BAP court ruled that a retirement account awarded in a divorce case was not earned by the debtor and was therefore not protected in a bankruptcy case under federal exemption laws. (See Lerbakken decision 2019). This opinion came as a shock to many since funds in a retirement account are traditionally protected.
The BAP court explained that although funds earned and saved in the debtor’s retirement accounts are protected, retirement funds awarded to an ex-spouse are not earned by that debtor and are therefore unprotected under federal exemption laws. (State exemption laws, however, may extend such protection.)
Although the 8th Circuit has now affirmed the BAP’s Lerbakken opinion, it appears that the 8th Circuit is being careful to narrowly limit the scope of that opinion.
The 8th Circuit Court underscored the fact the debtor had failed to transfer the retirement accounts into his own seperate account prior to filing bankruptcy. The BAP opinion mentioned this fact but did not emphasize it. So, had the funds been fully transferred to his own account, would the funds be protected? The 8th Circuit seems to suggest that.
Secondly, the 8th Circuit Appeals Court pointed out that true retirement accounts are not subject to creditor claims but the Lerbakken account was subject to a lien for unpaid attorney fees. So, if the funds were not subject to a lien of a current creditor, would they have been protected as an exempt retirement account? That fact seemed to make a difference to the appeals court.
Lerbakken’s interest in the IRA was a sum of money in his ex-wife’s IRA, not an account “set aside for the day when an individual stops working.”
The Takeaway:
First, it appears that had Lerbakken delayed filing his bankruptcy until after the retirement accounts were transferred to his own separate account, the funds might have been protected under federal exemption laws.
Second, had Lerbakken satisfied the claim of his divorce attorney prior to filing bankruptcy, the court may have viewed the accounts as retirement savings.
Nebraska Exemption Laws May Protect Retirement Accounts Awarded in a Divorce
The Lerbakken case was filed in Minnesota where the debtor was using federal bankruptcy exemption laws. However, Nebraska has opted out of the federal exemption scheme and uses a different exemption law to protect retirement accounts.
Nebraska Statute 25-1563.01 protects retirement accounts in bankruptcy cases, but what about accounts awarded to a debtor in divorce? Are those accounts protected?
In an unpublished opinion the Nebraska bankruptcy court did rule that a retirement account awarded to a debtor pursuant to a divorce decree was exempt under Nebraska statute 25-1563.01. (See In re Reohrs, Case No. 18-41831).
Until there is a written opinion issued in Nebraska, debtors should be careful about filing chapter 7 cases if they own substantial retirement funds received in a divorce case.
Image courtesy of Flickr and Michael.
Chapter 13 bankruptcy can be used to save your home or investment property from a mortgage or association foreclosure. The filing of a chapter 13 case generally stops the foreclosure case and gives you the opportunity to propose a plan to reorganize your mortgage or association payments. The chapter 13 case though must be filed before the foreclosure sale.
Cure Mortgage Arrearages
One typical Chapter 13 Plan provides for the catching up-to-date of your past due mortgage or association payments. The Chapter 13 Plan usually involves paying off the mortgage or association arrearages over a 3 to 5 year period in addition to making your regular ongoing monthly mortgage or association payments.
The Bankruptcy Court's Mortgage Modification Mediation Program
The Bankruptcy Court in Miami started a new mortgage mediation program on April 1, 2013. Under this program a mediator is appointed by the Bankruptcy Court to assist in the process and documents and communications are exchanged over a special internet portal.
Avoid Second Mortgage
If your home has decreased in value, sometimes you are able to wipe out or "avoid" your second mortgage. For example, if you owe $300,000 on your first mortgage and $100,000 on your second mortgage and your home has gone down in value to $250,000, there is no equity or value to "secure" the second mortgage. Under these circumstances, the Chapter 13 Plan may provide to wipe out or avoid the second mortgage lien. The $100,000 debt owed on the second mortgage will be wholly unsecured and usually only receive a small dividend together with other general unsecured creditors.
Jordan E. Bublick - Miami Bankruptcy Lawyer - North Miami & Kendall Offices - (305) 891-4055 - www.bublicklaw.com
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