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More owners are permanently shutting their doors after new lockdown orders, realizing that there may be no end in sight to the crisis.
Gabriel Gordon shuttered his popular barbecue restaurant in California after the state saw a resurgence of coronavirus cases and imposed new restrictions.Credit...Horatio Baltz for The New York Times
By Emily Flitter
July 13, 2020
On the last Friday of June, after Gov. Greg Abbott of Texas said that bars across the state would have to shut down a second time because coronavirus cases were skyrocketing, Mick Larkin decided he had had enough.
No matter that Mr. Larkin, an owner of a karaoke club in Wichita Falls, Texas, had just paid $1,000 for perishable goods and protective equipment in anticipation of the weekend rush. No matter that the frozen margarita machine was full, that 175 plastic syringes with booze-infused Jell-O were in place, or that there were masks for staff members and hand sanitizer for guests.
That day, June 26, Mr. Larkin and his partner dumped what they had just bought into the trash and decided to close their club, Krank It Karaoke, for good.
“We did everything we were supposed to do,” Mr. Larkin said. “When he shut us down again, and after I put out all that money to meet their rules, I just said, ‘I can’t keep doing this.’”
It was harrowing enough for small businesses — the bars, dental care practices, small law firms, day care centers and other storefronts that dot the streets and corners of every American town and city — to have to shut down after state officials imposed lockdowns in March to contain the pandemic.
But the resurgence of the virus, especially in states such as Texas, Florida and California that had begun to reopen, has introduced a far darker reality for many small businesses: Their temporary closures might become permanent.
Nearly 66,000 businesses have folded since March 1, according to data from Yelp, which provides a platform for local businesses to advertise their services and has been tracking announcements of closings posted on its site. From June 15 to June 29, the most recent period for which data is available, businesses were closing permanently at a higher rate than in the previous three months, Yelp found. During the same period, permanent closures increased by 3 percent overall, accounting for roughly 14 percent of total closures since March.
Researchers at Harvard believe the rates of business closures are likely to be even higher. They estimated that nearly 110,000 small businesses across the country had decided to shut down permanently between early March and early May, based on data collected in weekly surveys by Alignable, a social media network for small-business owners.
Christopher Stanton, an associate professor at Harvard Business School who was one of the researchers, said it was difficult to accurately gauge how many small businesses were closing because, once they shut their doors for good, the owners were hard to reach. He added that it could take up to a year before government officials knew the true toll the pandemic was taking on small businesses.
At the moment, 39 states continue to record growing numbers of new cases daily.
It is not clear how many of the businesses Yelp is tracking count as “small” — defined by the Small Business Administration as those with 500 or fewer employees. But the company found that, among the tracked businesses — which include restaurants, retailers and other independent, consumer-facing operations — retail businesses, led by beauty supply stores, have been closing at the highest rate since the pandemic began. Restaurants are the next hardest-hit group.
ImageNick Muscari decided to permanently close Nick’s Sports Grill and Lounge in Lubbock after Texas’s second round of virus closures.Credit...Dylan Cole for The New York Times
Small businesses account for 44 percent of all U.S. economic activity, according to the S.B.A., and closures on such an immense scale could devastate the country’s economic growth. If they were grouped together, small businesses would be among the country’s biggest employers, said Satyam Khanna, a resident fellow at the Institute for Corporate Governance and Finance at New York University School of Law who has written about the effects of the pandemic on small businesses.
So when small businesses close en masse, an entire sector of the economy suffers, Mr. Khanna said. There is lower cash flow, higher debt and more unemployment. “That leads to a big drag on the eventual recovery,” he said. “Because they are such an important source of jobs, losing them the way we are losing them now is going to make things far worse than they otherwise need to be.”
Because small businesses depend heavily on foot traffic and operate on thin margins, they are especially vulnerable to the ripple effects of a widespread shutdown.
For nearly two decades, Rich Tokheim and his wife sold sports memorabilia — hats, T-shirts, coffee mugs and other trinkets — to fans in Omaha at their store, The Dugout. Since 2011, The Dugout has occupied prime real estate across the street from the city’s 24,000-seat baseball stadium, which usually hosts the College World Series each spring.
The 2020 World Series was canceled in March. In the weeks that came after, other sporting events were scrapped — starting with college sports and extending to professional leagues that have struggled to relaunch their activities.
Mr. Tokheim, 58, watched his business fall off with growing unease, but it was only after a friendly chat with a retired college athletic director in May that the gravity of his situation hit home. He was already worried about the state of the virus in Nebraska, and whether there was enough tracking. Then the athletic director predicted that if college football was canceled for the year, it would be the end of Division I sports as a whole.
“That really put me in overdrive,” Mr. Tokheim said. He negotiated an early exit on his store lease and announced a clearance sale at the store. The Dugout closed for good on June 30.
The government’s Paycheck Protection Program, rolled out in April and administered by the S.B.A., earmarked $660 billion of aid for small businesses, but stipulated that a loan would be forgiven only if most of it was used to pay employee wages for eight weeks. The rules were later relaxed, but in a sign of how many small-business owners did not feel confident that they would be on steady ground by the time repayment was due, roughly $130 billion of aid money remained untapped when the program ended in June.
Even for those who took a P.P.P. loan, survival is no guarantee. Nick Muscari, a 38-year-old restaurateur in Lubbock, Texas, received one. His restaurant, Nick’s Sports Grill and Lounge, had been the culmination of Mr. Muscari’s life’s work — his years of toil as a waiter, pizza cook and manager at restaurants and bars beginning in his teenage years. Three years ago, he bought out the two partners who helped him start the restaurant in 2010. He considered it a crowning achievement, but to do so, he had to borrow money. He still owes a bank $80,000.
ImageMr. Muscari still owes a bank $80,000 on his now-shuttered restaurant.Credit...Dylan Cole for The New York Times
Image
Nick’s Sports Grill and Lounge is now up for rent.Credit...Dylan Cole for The New York Times
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“We never had anybody catch the virus in our establishment,” Mr. Muscari said.Credit...Dylan Cole for The New York Times
Mr. Muscari tried to ride out the spring lockdown that temporarily shuttered his restaurant with the help of the P.P.P. money. But when the state’s second closure order took effect on June 26, he decided to close for good.
“It had been in the back of our minds, just like, you know, if this happens again, can we make it?” Mr. Muscari said. “We were following all the rules and people were spread out. We never had anybody catch the virus in our establishment."
Mr. Muscari, with the business closed and its 30 employees jobless, has nothing left but his house and his car. He also expects his landlord to try to sue him for the eight years’ worth of rent he is contracted to pay on his defunct restaurant’s space.
Many small businesses are also finding it onerous keep up with constantly changing local guidelines, while others are deciding that no matter what their local officials say, it just is not safe to keep going. Gabriel Gordon, the owner of a tiny but popular barbecue restaurant in Seal Beach, Calif., decided to close permanently after studying the restaurant’s layout. He had determined that the kitchen would never be safe for multiple staff members to occupy at once while the virus was still active in the area.
“It’s essentially two hallways that are 11 feet wide,” Mr. Gordon said, describing the shape of the restaurant, Beachwood BBQ. “There are food trucks that are larger than my kitchen.”
Whatever the specific reasons may be for each closure, Justin Norman, Yelp’s vice president of data science, said that the federal government should offer small businesses more help. Mr. Norman said Yelp was concerned about the effects of small-business closures, especially those owned by people of color, on society. Yelp, however, also has a financial interest in maintaining a robust small-business environment, because it relies heavily on advertising by businesses on its platform.
“The time is right now to inject more capital or we may lose them forever,” Mr. Norman said. “It’s going to make our economies worse, it’s going to make our communities worse.”
ONE WAY TO REBUILD YOUR CREDIT
CREDIT BUILDER LOAN COULD HELP CONSUMERS BUILD OR REBUILD THEIR CREDIT
(reprint from CFPB) July 13, 2020, the Consumer Financial Protection Bureau (Bureau) released a report indicating that a credit builder loan could increase the likelihood of establishing a credit record for consumers without one, and could help improve the credit scores of those with no current outstanding debt. The Bureau issued “Targeting Credit Builder Loans: Insights from a Credit Builder Loan Evaluation” and an accompanying practitioner’s guide to broaden insight for community-based organizations and financial institutions working toward expanding financial inclusion.
The report, being released during Consumer Financial Protection Week, July 13-17, examines 1,531 credit union members who were offered a financial institution’s credit builder loan (CBL). Highlights:
- For participants without an existing loan, opening a CBL increased their likelihood of having a credit score by 24%. Almost all participants with existing debt already had a credit score, so the CBL had minimal effect on their likelihood of having score.
- Participants without existing debt saw their credit scores increase by 60 points more than participants with existing debt.
- The CBL was associated with an average increase in participants’ savings balances of $253.
Bureau research has found that approximately 26 million U.S. adults, one in 10, lack a credit record and are “credit invisible.” Another 19 million Americans have a credit record but no score because their history is too thin or out-of-date. Without a credit score consumers may face challenges to accessing credit or qualifying for lower-interest rate loans and credit products.
The terms of credit builder loans (CBL) vary across financial institutions, but the central feature is the requirement that the borrower makes payments before receiving funds – opposite of more traditional loans. When a borrower opens a CBL, the lender moves its own funds, generally $300 to $1,000 into a locked escrow account. The borrower makes payments, including interest and fees, in installments typically over a period of 6 to 24 months. These payments appear on the borrower’s credit report.
Other findings of the study, of which enrollment took place from September 2014 through February 2015, indicate that the CBL appeared to cause a decrease in scores for participants with existing debt; and on average, those with existing loans saw their scores decrease slightly, suggesting that these consumers had difficulty incorporating CBL payments into existing payment obligations. The report suggests that financial counseling could be provided, either before a consumer opens a CBL or while they are making CBL repayments.
About 82 percent of participants entered the study with a credit score. Among participants who entered the study with a score, the average score was a subprime 560; nationally, the average score was just under 700 at the time of the study. Sixty-two percent of participants had annual household income under $30,000. The majority of participants were female, nearly 90 percent were African American, the average age was 43, and about one in four had a college degree.
The credit builder loan study can be found here: https://files.consumerfinance.gov/f/documents/cfpb_targeting-credit-builder-loans_report_2020-07.pdf
The practitioner’s report can be found here: https://files.consumerfinance.gov/f/documents/cfpb_targeting-credit-builder-loans_practitioner_guide_2020-07.pdf
Research on credit builder loans, can be found here: https://www.consumerfinance.gov/data-research/research-reports/targeting-credit-builder-loans/
MUSINGS FROM DIANE:
Most folks in the United States believe their lives are controlled by their credit report. For the most part, they are correct. The ability to buy a home, a vehicle, lease an apartment or pay lower insurance is dictated by their credit report. The proper use of credit was never taught in school, which meant it was up to our family to teach us. I never heard the word credit from my parents, how about you? Instead, we learned from life, each making our own decisions – some good and some bad.
My only warning – like with medical advice, beware of the “quick fixes”.
How Can I Help You?
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I had an old debt surprise me the other day by way of a Summons and Diane was kind enough to give me some solid advice. She is very knowledgeable and I highly recommend her if your are looking for any legal council. Thanks again Diane I took your advise and have that old monkey off my back now!
L.M.
I took your advise and have that old monkey off my back now!
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Commercial leases in New York City,
COVID-19, Recent Protests and a
Strategy to Terminate
Commercial Leases
technologies such as Zoom and Google Meet, many
tenants have excess office space/s that they cannot or
do not want to continue to rent and would like to end
or terminate their lease or stop paying rent.
At Shenwick & Associates, we have received many calls
from clients with these issues and we have developed a
strategy to address them.
First, we review the company's financial information
including a recent balance sheet, income statement,
the commercial lease and guaranty, if any.
Second, we determine if the company is a candidate for
a bankruptcy filing, either chapter 7 (a liquidation where the
company closes as a result of the filing), a small business
Subchapter 5 bankruptcy filing, or a full-blown chapter 11
business bankruptcy filing.
In the case of a Chapter 7 filing, the lease will terminate;
however, the Chapter 7 bankruptcy trustee appointed to
the case will also liquidate or close the business. For
businesses that are losing money or do not see a bright
future, this may be a good strategy.
A company that wants to remain in business, but terminate
or reject their lease, should consider a bankruptcy filing
under new Subchapter 5, which is a fast-paced, less
costly chapter 11 business bankruptcy filing. As part of a
Subchapter 5 bankruptcy filing, the lease can be rejected,
and the landlord would be paid their lease rejection
damages and other monies owed over 5 years or less from
disposable income of the business.
If Subchapter V does not work due to the debt limit of
$7,500,000 or for other reasons, a company can consider
a full-blown chapter 11 bankruptcy filing. However, they
would want to consider the cost from a chapter 11 filing,
versus the expected savings from rejecting the lease.
Chapter 11 is a complicated, risky and expensive process
for many companies.
Another strategy that we have been using with
much success is preparing a bankruptcy petition,
without filing the petition (a so called Pro-Forma
Bankruptcy Petition).
This bankruptcy petition would accurately disclose the
assets, liabilities and earnings of the company. Then we
would forward that bankruptcy petition to the landlord
or their counsel indicating that if the tenant and landlord
cannot reach an agreement where the tenant is allowed to
terminate their lease (pursuant to a Lease Surrender
Agreement), then the tenant or company will file for
bankruptcy. The benefit of this strategy is that it is quick,
relatively inexpensive, the landlord gets financial disclosure
regarding the company or tenants finances upfront
without litigation or discovery and we convince the landlord
that releasing the tenant from their lease is a “win-win” for
both the tenant and the landlord.
How is this strategy a win for the landlord? The
landlord keeps the tenant’s security deposit, the
Landlord will also save substantial money on
bankruptcy and landlord tenant legal fees, they
remove an unprofitable tenant from their building,
and they obtain possession of the premises quickly allowing
them to re-let the space.
One of the reasons that we have had much success with this
strategy in these trying times is that we have been filing
bankruptcy petitions for individuals and businesses for
over 20 years and the landlord or their counsel can Pacer
our law firm’s bankruptcy filings, or visit our
website and blog.
Based upon our work and experience in this area
of the law,
landlords realize that bankruptcy is a real option
for the tenant not an idle threat.
Clients or their advisors who would like to
discuss these strategies with Jim Shenwick
or schedule a consultation can reach him at:
phone: 212-541-6224
or email: [email protected]
We look forward to hearing from you
A Chapter 13 bankruptcy plan requires a debtor to satisfy unsecured debts by paying all “projected disposable income” to unsecured creditors over a five-year period. In a recent case before the U.S. Court of Appeals for the Sixth Circuit (the “Sixth Circuit”), the court grappled with whether a Chapter 13 debtor’s wages that are contributed to an employer-sponsored retirement plan are considered disposable income under the Bankruptcy Code.[1] Read More ›
Tags: 6th Circuit Court of Appeals, Chapter 13
A Chapter 13 bankruptcy plan requires a debtor to satisfy unsecured debts by paying all “projected disposable income” to unsecured creditors over a five-year period. In a recent case before the U.S. Court of Appeals for the Sixth Circuit (the “Sixth Circuit”), the court grappled with whether a Chapter 13 debtor’s wages that are contributed to an employer-sponsored retirement plan are considered disposable income under the Bankruptcy Code.[1] Read More ›
Tags: 6th Circuit Court of Appeals, Chapter 13
The bankruptcy process involves a set of federal laws designed to help individual and business debtors who cannot pay what they owe. All 94 federal judicial districts handle bankruptcies. Bankruptcy filings are done with the bankruptcy court in almost all of them. Federal bankruptcy courts have jurisdiction over bankruptcy cases, so they cannot be filed with a state court.
According to bankruptcy laws, filers who liquidate their assets to pay off their debts, or craft and carry out a repayment plan to pay back their creditors in a set period of time can have a fresh start. The Bankruptcy Act also protects businesses in trouble, providing them a means for orderly debt repayment through liquidation or reorganization. Either bankruptcy procedure is covered in the Bankruptcy Code, the three main chapters of which are Chapter 7, Chapter 11, and Chapter 13. The majority of bankruptcy petitions are filed under them.
The bankruptcy law is in place to achieve these purposes:
- To allow a bankrupt but honest debtor to start afresh by eliminating most of his or her debts.
- To make sure that debtors who have an available property for liquidation repay their creditors and do so in an organized manner.
Bankruptcy proceedings typically start with a debtor filing a petition for bankruptcy with a United States bankruptcy court. A bankruptcy filing may be done by an individual, by a married couple, or by a business or organization. Those who file for bankruptcy must also include statements enumerating their income, assets and liabilities, debts, and creditors. Filing for bankruptcy triggers the automatic stay, which stops all collection efforts from creditors, collection agencies, and other debt collectors. While the stay is in place, the debtor is covered with bankruptcy protection, and his or her creditors may not file or continue lawsuits, attempt wage garnishment, or even make a simple phone call to demand payment.
After the debtor has filed a bankruptcy petition, the clerk of court will send notice to the relevant creditors. In many Bankruptcy Chapter 7 cases, very little or no money is available from the bankruptcy estate to give to each creditor. For this reason, they have fewer incidents of dispute and the filer gets a bankruptcy discharge without objection. Once debts are discharged, the debtor is no longer liable for their payment.
When disputes over property ownership and worth, the amount of debt owed, et cetera are raised in a bankruptcy case, they may result in litigation. The bankruptcy court handles litigation in pretty much the same way the district court handles civil cases. This means a process that may include discovery, pre-trial proceedings, settlement efforts, and the actual trial.
Dealing with Bankruptcy Concerns? Contact an Oregon Bankruptcy Attorney Today!
Filing bankruptcy can be a confusing and overwhelming undertaking for a debtor in financial distress. It’s important to take every step carefully and make informed choices. Hiring a bankruptcy lawyer to advise and guide you throughout the experience is the smart move to make. If you’re considering bankruptcy, give us a call at Northwest Debt Relief Law Firm to schedule a consultation with one of our skilled and experienced Oregon bankruptcy attorneys.
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The post How Bankruptcy Works appeared first on Vancouver Bankruptcy Attorney | Northwest Debt Relief Law Firm.
Diane and Jay helped out a family member file a bankruptcy. They were very easy to work with during a their difficult time. Compassionate and very helpful getting through the bankruptcy process. Some firms make you feel like a number and just want you to do the bankruptcy that benefits them more. Not Diane. Reviewed all the info thoroughly to help make best decisions. Always available for follow up questions and really knowledgeable about bankruptcy laws. We were fortunate to find her.
S.E.
Some firms make you feel like a number and just want you to do the bankruptcy that benefits them more. Not Diane.
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Consumer Financial Protection Bureau – pros and cons of Supreme Court decision
The question – can a President remove the Director of Consumer Financial Protection Bureau (CFPB) ‘just because’?
The answer – yes. But then it gets a little more complicated. The bottom line – The director of the CFPB is exposed to the whim of a president who wants everyone to do their bidding, no matter the consequences to the consumer. If the president cares about you and me more than big business, that is good. But, if the president cares more about big business than you and me, that is bad. The goods news – CFPB is still alive and kicking. For those late to the party – the CFPB is one of the few organizations designed to protect you and me (the consumer).
The CFPB core functions:
According to the CFPB website, the CFPB was created to provide a single point of accountability for enforcing federal consumer financial laws and protecting consumers in the financial marketplace. Before, that responsibility was divided among several agencies. Today, it’s our primary focus.
Our work includes:
- Rooting out unfair, deceptive, or abusive acts or practices by writing rules, supervising companies, and enforcing the law
- Enforcing laws that outlaw discrimination in consumer finance
- Taking consumer complaints
- Enhancing financial education
- Researching the consumer experience of using financial products
- Monitoring financial markets for new risks to consumers
Sheila Law v. CFPB: Winners and Losers (a reprint from Credit Slips) July, 2020
posted by Adam Levitin (see some great quotes at the end of Mr. Levitin’s entire post – ‘Read More’)
The Supreme Court’s long-awaited decision about the CFPB’s constitutionality is out. It’s a tricky opinion to parse politically. The Court, in a 5-4 partisan decision, held that the CFPB’s structure violates the separation of powers because of the for-cause only removal provision for the CFPB Director in conjunction with the Bureau’s other features. Accordingly, the Court found that the Director must be removable at will. Here’s my attempt to lay out the winners and losers. As you’ll see, they do not track with the headlines of the CFPB losing—the CFPB was actually the winner here for most purposes.
Winner: The CFPB
The CFPB walks away from Seila Law still standing tall and able to do everything it could the day before the decision. Don’t lose sight of that. You can see this in part by counting the votes. While it was 5-4 (with conservatives in the majority) that the CFPB is unconstitutional, it was 5-4 (liberals + Roberts) on the severability issue, which keeps the agency alive. While the case was a tactical loss for the CFPB, it was actually a strategic victory. If there’s one big picture take away, that’s it. The CFPB functionally won here.
Winner: A Biden Administration
The most immediate practical effect of the decision is that a President Biden can fire CFPB Director Kraninger on Day One of his administration. That’s a good thing for those who want to see a more active CFPB right now. In the short term, the Supreme Court might have given a Biden administration a real gift. Indeed, I found it very strange to see the Kraninger CFPB send out an email scheduling an event for March 2021. That might be optimistic in light of the decision.
Possible Loser: CFPB Independence
While the CFPB did score a general win, the decision might affect how the CFPB behaves in the future. The lack of a for-cause-only removal protection might have a chilling effect on future CFPB Directors. If a future CFPB Director is too aggressive, the financial services industry will surely lobby the President to fire the Director. Whether the industry will have enough pull with a future administration to actually get a Director removed or for the White House to get involved is far from certain, however. In other words, the trade-off here is that there’s a possibility of putting in a more active Director in January 2020, but that such Director and any future Director will face a political constraint of some type going forward.
MUSINGS FROM DIANE:
Politics and politicians can be bullies. “Bullying is the use of force, coercion, or threat, to abuse, aggressively dominate or intimidate. The behavior is often repeated and habitual.” (Wikipedia). As soon as Trump got in the White House he started attacking the CFPB. Why you ask? Because he is not a champion of consumer rights (don’t trust me – look at his history). The CFPB was born out of a group, lead by Elizabeth Warren, who were tired of consumers (that you and me) getting ripped off by big business – such as banks, mortgage companies, credit card companies, payday lenders, shady student loan companies, etc. Richard Cordray was the first Director (under Obama), later Trump put his own shills in as directors – Mick Mulvaney (as Acting Director), then Kathleen Kraninger.
From its creation until 2017, the CFPB “has curtailed abusive debt collection practices, reformed mortgage lending, publicized and investigated hundreds of thousands of complaints from aggrieved customers of financial institutions, and extracted nearly $12 billion for 29 million consumers in refunds and canceled debts.”
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If you are filing bankruptcy, Get Your Money Out of Wells Fargo. People filing bankruptcy get kicked when they are down, if they bank at Wells Fargo. Wells Fargo sees your bankruptcy on your credit report and they freeze your checking and savings account. At least they do if you have more than five thousand […]
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