Blogs
This story, Landlords Jump the Gun as Eviction Moratorium Wanes. https://www.nytimes.com/2020/07/23/business/evictions-moratorium-cares-a...) originally appeared on New York Times on July 23, 2020.
The CARES Act temporarily protects millions of renters from being kicked out of their homes for nonpayment. Filings aren’t supposed to resume until after Friday.
Legal Aid lawyers say a tenant received an eviction notice from this apartment complex in Tucker, Ga., even though she’s protected under the CARES Act.
Legal Aid lawyers say a tenant received an eviction notice from this apartment complex in Tucker, Ga., even though she’s protected under the CARES Act.Credit...Melissa Golden for The New York Times
By Matthew Goldstein July 23, 2020
The four-month pause that has protected millions of Americans from eviction cases is set to expire at the end of this week. But that hasn’t stopped landlords across the country from trying to get a head start forcing renters out.
Landlords in Tucson, Ariz., filed dozens of eviction cases last month despite the federal moratorium, which was put in place because of the coronavirus crisis. Legal aid lawyers had to go to court to stop the eviction of a San Antonio renter who had lost her job during a citywide stay-at-home order. And in Omaha, a court found that a struggling renter’s attempted eviction had violated the emergency law.
As the number of Covid-19 cases has surged across the country, a disturbing trend has emerged: landlords commencing eviction proceedings even though the CARES Act relief law currently protects about 12 million tenants living in qualifying properties.
Yolanda Jackson, a special-education paraprofessional in the DeKalb County schools outside of Atlanta, lost her job in March when the schools shut down. Ms. Jackson, a mother of two, has yet to receive an unemployment check, despite confirmation that she was approved, and hasn’t been able to pay her rent. A charitable organization agreed to cover her missed payments, but so far the manager of her complex, LaVista Crossing Apartments, hasn’t sent the necessary documentation to accept it.
“I have tried everything in my power not to get to this point,” Ms. Jackson said. “I’ve been here seven years, and they will not work with me. I am just stressed out and trying to hold it together.”
She received an eviction notice in late June, and the manager said in a court filing that the property wasn’t covered by the federal moratorium. But on Tuesday, lawyers for Legal Aid in Atlanta decided to take her case after finding that the complex is in fact listed as having a federally backed mortgage — making it covered by the CARES Act moratorium.
Yolanda Jackson, still waiting for unemployment benefits after losing her job during the pandemic, is trying to fend off eviction from LaVista Crossing.Credit...Melissa Golden for The New York Times
Lawyers for LaVista Crossing did not respond to messages seeking comment.
At least two other residents of the apartment complex have been served with eviction notices for nonpayment, said Lindsey Siegel with Atlanta Legal Aid. “Many Legal Aid clients are facing evictions simply because their unemployment benefits haven’t come through,” she said.
State and local governments have also issued eviction moratoriums, but the CARES Act is the furthest reaching, covering as many as 12.3 million renters living in an apartment complex or single-family home financed with a federally backed mortgage. But like other moratoriums, it’s about to expire: After Friday, landlords can begin filing eviction notices for failure to pay rent. It will be at least 30 days after that before any tenants are kicked out.
The moratorium has been a lifeline for millions of unemployed people, allowing renters waiting on slow-to-arrive aid to stay in their homes and make up the payments later.
But the far-ranging and hastily assembled CARES Act — which, among things, had provisions for direct relief payments, a temporary expansion of unemployment insurance and hundreds of billions of dollars in small-business aid — does not penalize landlords who violate the moratorium.
Paula Cino, a vice president for policy and government affairs at the National Multifamily Housing Council, a landlord group, said there had been some legitimate confusion at the outset with the federal moratorium and local and state eviction pauses.
“That said, I wouldn’t minimize the fact that there is the potential for bad actors in this space,” she said. “Even if they weren’t initially taking advantage of the system, they have the responsibility to better understand.”
Once an eviction case enters the legal system, it can have lasting consequences: Even a wrongfully filed action can be difficult to remove from court records and keep turning up when renters go through background checks.
“An eviction judgment stays on a tenant’s credit report for seven years, is grounds for wage garnishment and makes it more difficult for a tenant to find future housing,” said Stacy Butler, a law professor at the University of Arizona who has been tracking violations of the CARES Act.
Even with a moratorium in place, landlords have been serving eviction notices in places across the country, housing advocates say.
Even with a moratorium in place, landlords have been serving eviction notices in places across the country, housing advocates say.Credit...Melissa Golden for The New York Times
The moratorium bars the start of evictions for nonpayment for about 12 million renters in properties that have federally backed mortgages.
The moratorium bars the start of evictions for nonpayment for about 12 million renters in properties that have federally backed mortgages.Credit...Melissa Golden for The New York Times
The scope of the problem is elusive. Wrongly evicted renters might not bother trying to challenge their landlords, sometimes because of their immigration status, or because they do not know they have the right.
But wrongful evictions have been reported across the country. The Private Equity Stakeholder Project, a consumer advocacy group, found more than 100 filings in apparent violation of the CARES Act in Arizona, Texas, Florida and Massachusetts.
And in a survey of 100 legal aid lawyers in 38 states, by the National Housing Law Project, all but nine said they knew of attempts at illegal evictions in their cities. The problem prompted the group to create a draft complaint to challenge a violation of the CARES Act moratorium.
Judges have been troubled, too. The Texas Supreme Court issued a statewide order on Tuesday requiring landlords to certify whether the CARES Act applies to an eviction case, and Arizona’s Supreme Court took a similar action earlier this month.
Lawmakers in Washington are debating another relief law — including possible stimulus payments, aid for governments and schools, and a decision on what to do about the extra $600 weekly unemployment benefit — and housing advocates want it to have more help for renters.
The landlord group is in favor of help for tenants, too. The National Multifamily Housing Council said it favored the creation of an emergency rental assistance program of up to $100 billion. But the organization opposes a “protracted extension of a federal eviction moratorium.”
If the moratorium is extended in another relief bill — it is part of the $3 trillion package passed by House Democrats — there are calls from housing advocates to give it enough teeth to keep landlords from trying to skirt the rules.
“There should also be clearly delineated enforcement mechanisms and steep penalties for landlords who flout the law,” said Diane Yentel, president of the National Low Income Housing Coalition, which has set up a webpage to help tenants determine if their rental is covered by the CARES Act.
With some forms of aid slow to arrive, the eviction moratorium has allowed struggling tenants to stay in their homes.
With some forms of aid slow to arrive, the eviction moratorium has allowed struggling tenants to stay in their homes.Credit...Melissa Golden for The New York Times
Nelson Mock, an attorney with Texas RioGrande Legal Aid, said lawyers across Texas had seen “landlords trying to sidestep the issue.”
Juanita Herrera DeLeon, 57, who lost her job in March during San Antonio’s stay-at-home order, had to fend off an eviction attempt despite the CARES Act moratorium.
Soon after Ms. DeLeon lost her job, the manager of her apartment complex, the Olmos Club Apartments, tried to lock her out by installing a device on her doorknob. It was removed after she complained to the police, but she said the complex had tried other tactics to get her to leave, like posting on her front door a three-day notice to vacate the premises.
That was when she sought help from RioGrande Legal Aid. In a statement filed with her lawsuit, she said the property manager “did not leave me anything in writing about locking me out” before the first attempt.
The suit was recently settled; Mr. Mock said he was not permitted to discuss the terms.
Jason Adelstein, a lawyer for the Olmos Club Apartments, said, “The dispute was settled between the parties, my client denies any wrongdoing, and due to the terms of the settlement agreement between the parties there can be no further comment.”
The issue of CARES Act violations may be worst in Arizona.
In June alone, at least 80 eviction proceedings that were started in the local courts in Pima County appeared to violate the CARES Act, according to research by a team that included Ms. Butler, the law professor in Tucson. Many were filed by small landlords, and it’s hard to know whether the filings were intentional or a mistake, she said.
One property owner, however, was responsible for filing more than a dozen cases against residents of the Cordova Village apartment complex on Tucson’s south side.
The landlord, Equilibrium Properties, which operates several apartment buildings in Tucson and Washington, D.C., said in an emailed statement that the eviction filings had been made in error. The company, which received at least $150,000 under the Paycheck Protection Program established by the CARES Act, said it had moved to vacate the proceedings and was “rescinding all notices for nonpayment that have been given to tenants.”
“Moving forward,” the company said, “we will take every effort to comply with the CARES Act.”
COVID-19 is a wrecking ball destroying small Nebraska businesses, but at some point the medical crisis will end and the debt crisis will take off.
So far the damage has been mitigated by programs such as the Paycheck Protection Plan, but business revenues have dropped dramatically and consumer spending is not likely to return any time soon. Emergency funds have been depleted, worker layoffs have been instituted, but fixed expenses for rent and loan payments remain.
At some point a business just needs to start over. Assuming the core business model is valid and revenues will return when the health crisis ends, how does the owner address the overwhelming debt?
Is it better to file a Chapter 11 and restructure the debt or should one abandon the insolvent entity and incorporate a new debt-free company?
It is my general preference to abandon the old company and to start fresh with a newly incorporated entity. Why? Because resurrecting a debt-ridden company in Chapter 11 is darn expensive and, in most cases, unsuccessful. So one must question why they want to keep the old entity alive.
Why can’t an owner just incorporate new company? The cost of incorporating a new company is relatively cheap, but filing Chapter 11 is a massive and expensive process fraught with complexity and litigation. Only a very small percentage of companies emerge from Chapter 11 with a discharge of their debt. Most cases fail and are dismissed, leaving the owner worse off than when they started.
So, it is important to evaluate the facts that tend to support or not support filing Chapter 11 instead of just walking away from the old company and starting a new debt-free company to resume business affairs.
Factors favoring restructuring the existing company in a Nebraska Chapter 11 Case:
- Assets owned by the company. Some companies own very special assets that cannot be abandoned. Assets that produce current and future revenue. For example, if a company owns McDonalds franchise rights, you wouldn’t want to abandon that property right. In cases where a company owns a special property right that is hard to duplicate or transfer, it may be wiser to restructure the existing company than to start up a new company.
- Leasehold Rights. When it comes to real estate, it’s all about location, location, location. A restaurant or store with a long-term lease in a high demand area of town may need to protect that leasehold right in Chapter 11.
- Accounts Receivables. Even though new revenue may have dropped in recent months, a company may have substantial receivables that will be paid out over a long period of time. Receivables owed to the existing company cannot be transferred or collected by a newly incorporated company without fair consideration being paid to the former. So it might make sense to file Chapter 11 to protect and preserve the cash flow provided by unpaid receivables to finance current operations and employee salaries.
- Equipment. A business that has a lot of industrial equipment and machinery may not be able to function or provide new services without that equipment. Unless a new company can acquire replacement equipment quickly, it may be best to file Chapter 11 to protect the equipment that generates revenue.
- Unfinished Work and New Contracts. Perhaps a business is in the middle of a large contract and payment depends on completing the project. Perhaps a business has signed several new contracts with work to commence in the near future. Abandoning the old company may not be the best option in these situations.
Factors favoring abandoning the old company and incorporating a new one.
- You are the company and the company is you. Customers of a popular hair stylist are likely to follow them no matter where they are located, and such a business has few hard assets or receivables. It makes little sense for such a business to file chapter 11.
- The company has few receivables. Restaurants and hair stylists and car washes have few receivables. Future cash flow is not dependent on collecting unpaid accounts but rather is based on new work in the future.
- The company has few fixed assets. Consider a drywall installer. Business assets consist of a few hand and power tools and perhaps a work van. It is not much of a burden to replace those assets, and it makes little sense to pay substantial bank loans even if they are secured to the business equipment. It is far less complicated and expensive to start a new corporation and to buy replacement equipment.
- The company needs to downsize and relocate. Reducing overhead and paring back leasehold square footage to more manageable levels is the order of the day. Consumer spending is likely to stay at lower levels for years to come. Do you really need all that warehouse space? Is a cheaper venue available? Will employees start working from home? When current leasehold commitments are excessive, abandoning the old company may make greater sense.
Personal guarantees and liability of the owner.
Regardless of whether the business files Chapter 11 or simply opts to form a new corporation, the business owner may face a personal debt crisis for company debts due to loan guarantees. Most bank loans and lease agreements require a Personal Guarantee from the owner, so in addition to a restructure of the company’s debt, the individual owner may need to look at bankruptcy options as well. A bankruptcy filed for the business corporation does not relieve the personal liability of the owner for loan or lease guarantees.
For help, contact a qualified Nebraska Chapter 11 attorney.
Image courtesy of Flickr and Haldane Martin
If you find yourself in the situation where you have to go through bankruptcy proceedings, there is no better persons that Diane and Jay. She treats you as if you were her only clients, and shows compassion for your circumstances. She will not lead you astray. The one thing that sets her apart in my mind, is that she encourages you to move forward; that bankruptcy is not the end and you can use the lessons learned from this challenge to do better. She even gifted us a Dave Ramsey book, Starting Over. That was back in early 2015. Boy, was she right! Since then, we embarked on a journey of becoming debt free and paying off the remaining debts. Never again do we want to go through that process again. Now more than five years later, my husband and I have one more month and we will finish paying off our last remaining debt. No one wants to go through bankruptcy. But if you do find yourself in that position, it’s not the end of the world. If you need someone to help you get through the bankruptcy process, choose Diane. She won’t let you down.
L. A.
.fusion-body .fusion-builder-column-2{width:100% !important;margin-top : 0px;margin-bottom : 20px;}.fusion-builder-column-2 > .fusion-column-wrapper {padding-top : 0px !important;padding-right : 0px !important;margin-right : 1.92%;padding-bottom : 0px !important;padding-left : 0px !important;margin-left : 1.92%;}@media only screen and (max-width:1024px) {.fusion-body .fusion-builder-column-2{width:100% !important;order : 0;}.fusion-builder-column-2 > .fusion-column-wrapper {margin-right : 1.92%;margin-left : 1.92%;}}@media only screen and (max-width:640px) {.fusion-body .fusion-builder-column-2{width:100% !important;order : 0;}.fusion-builder-column-2 > .fusion-column-wrapper {margin-right : 1.92%;margin-left : 1.92%;}}.fusion-body .fusion-flex-container.fusion-builder-row-3{ padding-top : 0px;margin-top : 0px;padding-right : 0px;padding-bottom : 0px;margin-bottom : 0px;padding-left : 0px;}
The post If you find yourself in the situation where you have to go through bankruptcy appeared first on Diane L. Drain - Phoenix Arizona Bankruptcy Attorney.
The COVID-19 virus has caused millions of Americans to file unemployment claims, and the federal government has increased state unemployment benefits by $600 per week though July 2020.
May a creditor garnish unemployment benefits in Nebraska?
Nebraska Statute 48-647 states that “benefits received by any individual, so long as they are not mingled with other funds of the recipient, shall be exempt from any remedy for the collection of all debts, except debts incurred for necessaries furnished to such individual or his or her spouse or dependents during the time when such individual was unemployed.”
Two things stand out in this exemption law.
First, if unemployment funds are mixed in an account with other funds, the protection may be lost. Second, judgments for new necessaries (i.e., medical debts) incurred after unemployment begins may garnish unemployment funds.
MAINTAIN A SEPARATE BANK ACCOUNT FOR UNEMPLOYMENT BENEFITS
The key thing to protecting unemployment benefits in Nebraska is to keep those payments in a separate bank account. It appears that many Nebraskans now receive benefits on a debit card called a “ReliaCard.” Since the funds on this account are not mixed with other funds, the account funds are exempt. But, if your unemployment funds are deposited into your regular checking account that contains other funds or deposits, you may want to open another account to hold the unemployment funds. When unemployment funds are comingled with other funds, the exemption protection is lost.
WHAT SHOULD YOU DO IF A CREDITOR SENDS A GARNISHMENT SUMMONS TO YOUR BANK?
What happens if garnishment summons is sent to the bank holding your unemployment benefits? Since the funds are exempt under Nebraska statute 48-647, is the garnishment automatically denied?
No! Even though an exemption law exists to protect unemployment benefits, you must claim your exemption rights and demand a hearing on the garnishment. Nebraska’s exemption laws are not self-executing. They exist, but you must file an application with the court to assert those rights.
STEP #1: REQUESTING A GARNISHMENT HEARING
If your bank receives a garnishment summons, use this form to request a hearing. Check off on this box: “(1) the funds asked for are exempt from garnishment.” This form must be filed with the Clerk of the Court. The address of the court should be on the top of the garnishment summons. The form must be signed and you should enter the case number on the form. You can mail this form to the court or bring it directly to the courthouse.
STEP #2: CLAIM YOUR EXEMPTION
At the same time you file the Request for Garnishment Hearing form, you should also file a form to claim your exemption. Requesting the hearing is not enough. You must also tell the court what law protects the unemployment benefit. This Claim of Exemptions Form will should be completed, signed and filed with the Clerk of the Court at the same time you request the hearing. On that form you will need to write in “Unemployment Benefit Exemption, Nebraska Statute 48-647”.
OTHER FUNDS ARE PROTECTED BY THE WILDCARD EXEMPTION
If you have other funds in a bank account being garnished, the Nebraska Wildcard Exemption of 25-1552 protects account funds of up to $5,000. Regardless of the source of the deposit–wages, gifts, tax refunds, unemployment, etc,–the Wildcard exemption protects a bank account funds up to $5,000. For most people that exemption law is all they need.
The problem with Nebraska’s exemption scheme is that it is too complicated to apply. Yes, we have very good exemption laws, but almost nobody understands how to apply them, and Nebraska judges are often confused and surprised that bank account funds can be protected. They rarely conduct exemption hearings and frequently deny exemption requests when the funds are clearly protected. When your local judge does not know how exemption laws work you have a problem.
Are unemployment benefits exempt? Yes, if you apply for a garnishment hearing and assert your exemption rights.
Image courtesy of Flickr and Sarah Mirk
My husband and I wanted to begin the process of starting our bankruptcy, but it’s really scary not knowing who you can trust and who would step up to bat for you. Diane and Jay really did that, if felt like we had some friends who cared about us and took their time to walk us through each step with compassion and no judgment what so ever! I would refer them to any and all of my closest family and friends if they were in need of a bankruptcy! Thank you both for taking care of us and taking the time!!
D.K.
Thank you both for taking care of us and taking the time!!
.fusion-body .fusion-builder-column-3{width:100% !important;margin-top : 0px;margin-bottom : 20px;}.fusion-builder-column-3 > .fusion-column-wrapper {padding-top : 0px !important;padding-right : 0px !important;margin-right : 1.92%;padding-bottom : 0px !important;padding-left : 0px !important;margin-left : 1.92%;}@media only screen and (max-width:1024px) {.fusion-body .fusion-builder-column-3{width:100% !important;order : 0;}.fusion-builder-column-3 > .fusion-column-wrapper {margin-right : 1.92%;margin-left : 1.92%;}}@media only screen and (max-width:640px) {.fusion-body .fusion-builder-column-3{width:100% !important;order : 0;}.fusion-builder-column-3 > .fusion-column-wrapper {margin-right : 1.92%;margin-left : 1.92%;}}.fusion-body .fusion-flex-container.fusion-builder-row-4{ padding-top : 0px;margin-top : 0px;padding-right : 0px;padding-bottom : 0px;margin-bottom : 0px;padding-left : 0px;}
The post D.K. Thank you both for taking care of us and taking the time!! appeared first on Diane L. Drain - Phoenix Arizona Bankruptcy Attorney.
Thank you both for taking care of us and taking the time!! D.K.
My husband and I wanted to begin the process of starting our bankruptcy, but it’s really scary not knowing who you can trust and who would step up to bat for you. Diane and Jay really did that, if felt like we had some friends who cared about us and took their time to walk us through each step with compassion and no judgment what so ever! I would refer them to any and all of my closest family and friends if they were in need of a bankruptcy! Thank you both for taking care of us and taking the time!!
.fusion-body .fusion-builder-column-4{width:100% !important;margin-top : 0px;margin-bottom : 20px;}.fusion-builder-column-4 > .fusion-column-wrapper {padding-top : 0px !important;padding-right : 0px !important;margin-right : 1.92%;padding-bottom : 0px !important;padding-left : 0px !important;margin-left : 1.92%;}@media only screen and (max-width:1024px) {.fusion-body .fusion-builder-column-4{width:100% !important;order : 0;}.fusion-builder-column-4 > .fusion-column-wrapper {margin-right : 1.92%;margin-left : 1.92%;}}@media only screen and (max-width:640px) {.fusion-body .fusion-builder-column-4{width:100% !important;order : 0;}.fusion-builder-column-4 > .fusion-column-wrapper {margin-right : 1.92%;margin-left : 1.92%;}}.fusion-body .fusion-flex-container.fusion-builder-row-5{ padding-top : 0px;margin-top : 0px;padding-right : 0px;padding-bottom : 0px;margin-bottom : 0px;padding-left : 0px;}
The post Thank you both for taking care of us and taking the time!! appeared first on Diane L. Drain - Phoenix Arizona Bankruptcy Attorney.
This story, Federal Aid Has So Far Averted Personal Bankruptcies, but Trouble Looms
Once federal benefits dry up, highly indebted consumers could be forced to file.
originally appeared in the New York Times on July 17, 2020 at
https://www.nytimes.com/2020/07/17/business/personal-bankruptcies-corona...
----------------
Federal Aid Has So Far Averted Personal Bankruptcies, but Trouble Looms
Once federal benefits dry up, highly indebted consumers could be forced to file.
Credit card debt piled up for Jess Brown, and the $600 federal unemployment supplement has kept her afloat. That benefit ends this month.
Credit card debt piled up for Jess Brown, and the $600 federal unemployment supplement has kept her afloat. That benefit ends this month.Credit...Eamon Queeney for The New York Times
Mary Williams Walsh
By Mary Williams Walsh
July 17, 2020
The United States went into the Great Lockdown with the most household debt in history, stagnant incomes for all but high earners and armies of people telling pollsters they were living paycheck to paycheck. Then, for millions, their paychecks stopped.
But instead of a stampede to the bankruptcy courts, personal bankruptcy filings — a useful, if extreme, indicator of the financial health of the American consumer — dropped sharply from April through June, even as unemployment soared, according to calculations by the American Bankruptcy Institute based on data from Epiq Global, a legal research and analytics firm.
Bankruptcy Filings and Household Debt
American households had more debt than ever when the pandemic sent unemployment soaring this spring. But bankruptcy statistics have yet to reflect the struggle to manage that debt; personal bankruptcy filings are in sharp decline.
“Filings have just gone through the floor,” said Henry E. Hildebrand III, a consumer bankruptcy trustee in Nashville. Such trustees supervise the finances of people who have declared bankruptcy and agreed to pay creditors over three to five years. Mr. Hildebrand usually gets 350 to 400 new cases a month, he said, but last month he added just 107. Nationwide, the drop in personal bankruptcy filings is the biggest in 15 years.
One reason for this counterintuitive picture: The federal government’s stimulus package, which, beginning in April, has put cash into unemployed people’s hands on a weekly basis, allowing them not just to buy groceries and pay rent, but to pay down existing debt.
As of mid-June, the Treasury Department had issued nearly $270 billion worth of stimulus payments to some 160 million people. Unemployment benefits, which normally average about $340 a week, were temporarily increased by $600 a week. Some unemployed people now have more income than when they were working.
But those benefits are set to expire this month. Congress will take up the issue of whether to extend them, along with other emergency aid, when the Senate returns next week, but if no more aid is forthcoming after July — given the double-digit unemployment rate and a resurgent virus in many parts of the country — a far more dire portrait of the financial pain of millions of Americans is set to emerge in the coming months. Bankruptcy experts say consumer bankruptcy filings will then start to rise.
The banking industry is already gearing up for a wave of defaults on everything from mortgages to credit card debt. Several of the nation’s biggest banks, including JPMorgan Chase, Wells Fargo and Citigroup, said in their second-quarter earnings reports that they had added tens of billions of dollars to their reserves to cover losses they expect to incur on business and consumer loans.
Jess Brown, 42, quit her marketing job two years ago to start a small house-sitting business, but ended up crushed under more than $40,000 of credit card debt. The card companies offered her rehabilitation plans, but only if she let them automatically withdraw the payments from her checking account. That led to overdrafts and bank penalties.
Not knowing what else to do, last October she dropped out of those plans, moved in with relatives in North Carolina, changed her phone and avoided the debt collectors. She went online to learn about budgeting and compound interest and tried to research consumer bankruptcy, too, but got mostly spam from debt-consolidation companies.
Then came the pandemic. With her patchy recent earnings record, Ms. Brown was eligible for just $135 a week of regular unemployment compensation. But the supplementary $600 has kept her afloat and given her the means to keep looking for work. Ms. Brown tries not to think what will happen if the federal relief stops.
“It only brings me emotional distress,” she said.
For the economy as a whole, which is driven by consumer spending, that extra $600 a week has been “nothing short of a game-changer,” said Matt Schulz, chief industry analyst for LendingTree, the online credit marketplace. The company recently reviewed a large sample of credit card data from 800,000 users and found that unpaid balances, late payments and usage all fell from February to May, as the federal money began to flow.
“Instead of just squeaking by, that extra money has allowed many Americans to actually pay down debt and increase savings in ways that would be unimaginable under normal terms of unemployment,” Mr. Schulz said.
But even if Congress extends the relief measures, they are a temporary salve that will do little to change the long-term patterns of income stagnation and indebtedness that have left American households so vulnerable to a financial shock. Total household debt reached $14.3 trillion in the first quarter of this year, according to the Federal Reserve Bank of New York — a record.
ImageHenry E. Hildebrand III, a consumer bankruptcy trustee in Nashville. His caseload has plunged.
Henry E. Hildebrand III, a consumer bankruptcy trustee in Nashville. His caseload has plunged.Credit...Brett Carlsen for The New York Times
Most of the economic gains from the last 30 years of economic growth, except for the Great Recession, have been going to top earners, leaving the bottom half of wage-earning America struggling — and highly indebted. Research from Gabriel Zucman and Emmanuel Saez, professors at the University of California, Berkeley, showed that in 2018, those in the bottom half carried debt that was 219 percent of their income. And that’s who was hit first and hardest by the economic shock this spring.
Nearly 40 percent of households earning less than $40,000 a year had already lost at least one job by May, according to the Federal Reserve, which has been analyzing household finances closely. That compares with just 19 percent of households earning $40,000 to $100,000, and 13 percent of households earning more than $100,000 a year.
A survey done in May by the Census Bureau showed further that younger households, and those with less education and lower earnings, were likeliest to be losing income in the shutdowns. They were also likelier to say they could not make their rent or mortgage payments and had sought forbearance.
Jenny Doling, a consumer bankruptcy lawyer in San Diego, said consumers whose debts started to snowball were generally better off seeking protection in bankruptcy right away. That’s because bankruptcy automatically halts creditors’ collection efforts, giving insolvent consumers a safe place to work out their three- to five-year repayment plans, and possibly save important assets like a house or a car.
But for many, the idea of bankruptcy comes with the threat of a stigma.
“Filing bankruptcy, for consumers, is sort of an admission that you’re a financial failure, and people just can’t admit that,” said John Rao, a lawyer at the National Consumer Law Center in Boston. “They still think that they can pull out of it somehow.”
People also get sticker shock when they hear that the cheapest consumer bankruptcy case, a liquidation, is likely to cost about $1,500. In 2005, amid concerns that spendthrift consumers were abusing the bankruptcy system, Congress tightened the laws, increasing the cost of a case and requiring legal fees to be paid upfront. The next year, the number of cases fell to around 600,000 from more than two million in 2005, but began climbing again in the aftermath of the 2008 financial crisis. Last year, 752,160 cases were filed; this year, if filings continue at their current rate, there will be 590,854 by the end of December.
While consumers struggle, they often turn to their credit cards to make ends meet, thinking they will pay down the balance when they’re called back to work. In the meantime, they make just the minimum monthly required payment.
Each month’s unpaid interest, accruing at 20 percent or more, is then tacked onto their principal balance, causing their debt to balloon even if they don’t buy anything.
“It becomes completely unmanageable,” Mr. Rao said.
That’s what happened to Ms. Brown. She had good credit when she quit her job in early 2018, and lined up a series of house-sitting gigs in Europe, using her credit cards for airfare and food as she moved from country to country. She was stunned to see how fast the interest compounded. But she also found that when she hit the maximum on one card, other issuers would give her new ones. Sometimes they came with offers of a gift card if she spent a lot more money quickly.
Realizing she had no way out, she returned to the United States.
“I had a wall of credit card debt that was waiting for me,” she said. She kept trying to make a go of her house-sitting business. Then the economy went into shutdown, and people stopped traveling. “In one day I had six cancellations,” she said.
For now, Ms. Brown said, the debt collectors have been leaving her in peace. But any day, she said, she may open the door and find a process server standing there with the papers for a bank’s lawsuit.
“It’s not a question of ‘if’ but ‘when,’ and it weighs on me heavily,” she said.
A reader of our blog asked a very good question regarding guarantees and our post regarding the use of bankruptcy to terminate commercial leases. Our response is below.
Our blog can be found at http://shenwick.blogspot.com/ and the post titled Commercial leases in New York City, COVID-19, Recent Protests and a Strategy to End or Terminate Commercial Leases, dated SUNDAY, JULY 12, 2020 can be found at https://shenwick.blogspot.com/2020/07/commercial-leases-in-new-york-city....
First, if a commercial lease has a guarantee, terminating the lease without addressing the underlined guarantee, is of no value to the commercial tenant.
Second, there are two types of guarantees with respect to commercial leases, there is a general guarantee (“Guarantee” ) which generally requires that the principal of the tenant guarantee the payment of base rent, additional rent and the performance of any requirements under the lease by the tenant.
Third, the second type of guarantee is known as a Good Guy Guarantee (“GGG”), which requires the principal of the tenant to pay rent or additional rent until the tenant vacates the space, returns the keys to the landlord and leaves the space in a broom clean condition. Many GGG have a term limit, in which the good guy guarantee expires after a certain number of years, such as 2 to 3 years if there is no default under the lease.
Fourth, after being retained to terminate a commercial lease with a guarantee, we request a copy of the guarantee and review its terms to determine if it is a guarantee, a GGG or a guarantee that has terminated for some reason such as time.
Fifth, we then ask for financial statements from the guarantor, including a balance sheet and income statement.
Sixth, we then engage in asset protection planning for the guarantor to make it more difficult for the landlord to obtain possession of the guarantor's assets if there is a default under the lease or no settlement with the landlord.
Seventh, we then begin negotiations with the landlord, providing the landlord with the pro forma bankruptcy petition for the tenant and financial information regarding the guarantor. Often times we will also prepare a pro-forma bankruptcy petition for the guarantor, although a bankruptcy filing by the guarantor is always a last resort.
Eighth, we aim to convince the landlord that by doing a workout and releasing the tenant and the guarantor, the landlord will regain possession of its premises sooner, the landlord will save on landlord tenant and bankruptcy legal fees. The exercise is similar to that which we do when there is no guarantor, but with a guarantor there is another degree of difficulty or complexity, which is not insurmountable. Additionally, based on the time value of money, a dollar paid to the landlord today has greater value than the landlord being paid over three years and a bankruptcy filing by the guarantor.
Ninth, if we are unable to do a work out with the landlord, then the tenant can file a Chapter 7 bankruptcy and the guarantor can file either a chapter 7 bankruptcy ( liquidation) or Chapter 13 bankruptcy where the landlord will be paid back over three to five years or a Subchapter V Chapter 11 bankruptcy for the guarantor (the landlord would be paid over 3 years).
While we cannot guarantee success, we have used these strategies successfully in the past and for the right tenant and guarantor they are a very effective way to terminate a commercial lease. Jim Shenwick 212 541 6224 [email protected]
IRS Means Never Having to Say….Anything The IRS is not like most creditors. (Your probably knew that.) The IRS in bankruptcy is not like most creditors in bankruptcy, either. Knowing what debts have been cleared (discharged) by your bankruptcy is easy for most debts. For credit cards, loans (including payday loans, who want you to […]
The post IRS Means Never Having to Say…. by Robert Weed appeared first on Northern VA Bankruptcy Lawyer Robert Weed.
IRS Means Never Having to Say….Anything The IRS is not like most creditors. (Your probably knew that.) The IRS in bankruptcy is not like most creditors in bankruptcy, either. Knowing what debts have been cleared (discharged) by your bankruptcy is easy for most debts. For credit cards, loans (including payday loans, who want you to […]
The post IRS Means Never Having to Say…. by Robert Weed appeared first on Northern VA Bankruptcy Lawyer Robert Weed.