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This article originally appeared in the New York Times on August 3, 2020https://www.nytimes.com/2020/08/03/nyregion/nyc-small-businesses-closing...
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One-Third of New York’s Small Businesses May Be Gone ForeverSmall-business owners said they have exhausted federal and local assistance and see no end in sight after months of sharp revenue drops. Now, many are closing their shops and restaurants for good.
William Garfield, the owner of Glady’s, a Caribbean restaurant in Brooklyn, said he decided to close after his landlord told him he would need to start paying his full monthly rent.
William Garfield, the owner of Glady’s, a Caribbean restaurant in Brooklyn, said he decided to close after his landlord told him he would need to start paying his full monthly rent.
In early March, Glady’s, a Caribbean restaurant in Brooklyn, was bringing in about $35,000 a week in revenue. The Bank Street Bookstore, a 50-year-old children’s shop in Manhattan, was preparing for busy spring and summer shopping seasons. And Busy Bodies, a play space for children in Brooklyn, had just wrapped up months of packed classes with long waiting lists.
Five months later, those once prosperous businesses have evaporated. Glady’s and Busy Bodies are closed for good and Bank Street, one of the city’s last children’s bookstores, will shut down permanently in August.
The three are victims of the economic destruction that threatens to derail New York City’s recovery from the financial collapse triggered by the coronavirus pandemic.
An expanding universe of distinctive small businesses — from coffee shops to dry cleaners to hardware stores — that give New York’s neighborhoods their unique personalities and are key to the city’s economy are starting to topple.
More than 2,800 businesses in New York City have permanently closed since March 1, according to data from Yelp, the business listing and review site, a higher number than in any other large American city.
About half the closings have been in Manhattan, where office buildings have been hollowed out, its wealthier residents have left for second homes and tourists have stayed away.
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When the pandemic eventually subsides, roughly one-third of the city’s 240,000 small businesses may never reopen, according to a report by the Partnership for New York City, an influential business group. So far, those businesses have shed 520,000 jobs.
While New York is home to more Fortune 500 headquarters than any city in the country, small businesses are the city’s backbone. They represent roughly 98 percent of the employers in the city and provide jobs to more than 3 million people, which is about half of its work force, according to the city.
When New York’s economic lockdown started in March the hope was that the closing of businesses would be temporary and many could weather the financial blow.
But the devastation to small businesses has become both widespread and permanent as the economy reopens at a slow pace. Emergency federal aid has failed to provide enough of a cushion, people remain leery of resuming normal lives and the threat of a second wave of the virus looms.
The first to fall were businesses, especially retail shops, that depended on New York City’s massive flow of commuters. And months into the crisis, established businesses that once seemed invincible, including some that had ambitious expansion plans, are cratering under a sustained collapse in consumer spending.
One business that will not reopen is Bank Street Bookstore, a nonprofit on the Upper West Side run by the Bank Street College of Education. More than 90 percent of its revenue was in-store sales, mostly to neighborhood parents, the college’s students and elementary schoolteachers.
“We had to keep reinventing the business every week to two weeks, based on new guidelines,” Caitlyn Morrissey, the store’s manager, said about the past months. “Our cornerstone was in-person sales, not web sales.”
Image“Our cornerstone was in-person sales, not web sales,” said Caitlyn Morrissey, the manager of Bank Street Bookstore, a children’s book shop that is closing for good.
“Our cornerstone was in-person sales, not web sales,” said Caitlyn Morrissey, the manager of Bank Street Bookstore, a children’s book shop that is closing for good. Credit...Amr Alfiky/The New York Times
Unlike larger firms, small businesses — bookstores, bodegas, bars, dental practices, gyms and day care centers — typically do not have the financial resources to overcome a few rough days or weeks, let alone months.
There is no clearinghouse for reliable data on the number of small businesses that have closed in New York or nationwide. The actual number of permanent closings in New York is probably higher than Yelp’s tally since it largely focuses on consumer-facing businesses. A small business is generally defined by economists as those with under 500 employees.
From March 1 to the end of April, during the height of the pandemic in New York City, businesses in the city that use the payment company Square saw their revenues drop by half, according to an analysis the company provided to The New York Times. The most significant revenue declines were in the Bronx and Manhattan, the company said.
As part of a $2.2 trillion emergency aid package adopted in March, the federal government set aside about $500 billion in small-business loans to keep workers employed and companies afloat. But business owners said they have spent all or most of their loans, paying salaries and bills, including rent.
More help for small businesses is part of negotiations as the Trump administration and Republicans and Democrats in Congress try to iron out another rescue package.
While the worst of the pandemic in the United States struck New York City first, small businesses across the country have been clobbered.
Between early March and early May, roughly 110,000 small businesses nationwide shut down, according to researchers at Harvard.
In New York, the restaurant and hospitality industry has been one of the hardest hit. More than 80 percent of the city’s restaurants and bars did not pay full rent in June, according to the NYC Hospitality Alliance.
Among those restaurants was Glady’s in Brooklyn. Its revenue plummeted by two-thirds since March, to about $12,000 per week in June. The majority of its sales were from tropical rum drinks served through a side window of the restaurant.
The owner, William Garfield, said he decided to close in June before officials started allowing outdoor dining after his landlord said he had to start paying the full monthly rent, $8,000, starting in July. Mr. Garfield said the healthy revenue from drink sales was still not enough to make ends meet.
“We were thriving,” said Mr. Garfield, 32, said about Glady’s business before March. “I would disagree with the sentiment that if someone had a thriving business they should be able to survive this.”
Mr. Garfield has another restaurant, Mo’s Original, and a bar next door, both of which he plans to keep open. His staff among his businesses has shrunk from 56 to seven.
He has spent almost all of his small-business stimulus loan, known as Payroll Protection Assistance, about $72,000. His insurance company denied his business interruption claim, citing New York State’s order that restaurants were “essential businesses” and could stay open.
“It’s the most frustrating situation because it’s not about passion anymore or the work you put in or the hours you put in,” he said. “It’s all about the mitigating circumstances that are out of your control.”
In recent weeks, “For Lease” signs have started to appear on storefronts on streets throughout New York, evidence that businesses that tried to ride out the initial months or abruptly shift to new online business models could no longer survive.
Business owners said they are at a tipping point. They have exhausted their federal, state and local aid. And while some landlords have offered breaks on rent, some business owners say others have been less flexible.
Owners say they also have to cope with constant uncertainty — not just the threat of a resurgence of the virus but also having navigate shifting reopening plans.
Restaurants in New York City were expecting to restart indoor dining in July. Owners bought food and supplies for what they thought would be larger crowds. But days before the restrictions were to be lifted, officials halted the plans, citing rising cases in other states that had allowed indoor dining.
Nearly a third of the 2,800 businesses in New York City that have permanently closed were restaurants, according to Yelp.
The remaining businesses represent a broad swath of the city’s economy, including small law firms, beauty stores, spas and cleaning companies.
“As a small-business owner, I’m surprised that more businesses have not closed yet,” said Andrea Dillon, the owner of Busy Bodies, a day care she opened on Fulton Avenue in Brooklyn in 2016.
Ms. Dillon said she noticed the ripple effect of the pandemic in late February, a few weeks before the city shut down. Parents and caregivers were canceling upcoming birthday parties and classes.
By early March, she realized that her entire business model — in which up to 70 children and adults cram into a play space with toys and live music — could not coexist with the coronavirus.
She asked her landlord for a break on her $6,000 a month rent, but he refused. Ms. Dillon said she decided in early April to close down.
“The face of New York City storefronts, they will not be forever changed,” she said. “But they will be changed for the foreseeable future.”
While her management company did not offer a break on rent, another landlord, Brian Steinwurtzel, said he was doing just that for some of his roughly 2,000 tenants in New York City, many of them small businesses. Mr. Steinwurtzel, the co-chief executive at GFP Real Estate, said he helped them apply for federal assistance and lowered their rents while business is down.
“It doesn’t make any sense to kick them out or fight with them as long as we are all working together,” Mr. Steinwurtzel said. “We believe we are all in it together, and we all have to help each other out.”
The most vulnerable small businesses in New York City might be those operated by minority or female owners. Recent studies have shown that these were largely shut out of federal aid. There are about 10,500 business that New York City has certified as minority- or female-owned.
A survey of such businesses released by the New York City Comptroller’s Office found that 30 percent of them believed they were likely to fold within the next 30 days.
Among those businesses is ThroughMyKitchen, a catering and snack company owned by Evelyn Echevarria. Before March, she derived most of her income from selling goods at street fairs and catering. Her last event was in March, catering a 120-person wedding in South Carolina.
She is surviving on unemployment benefits, but the largest portion of that, the federal stimulus of $600 per week, expired at the end of July. She also received $2,000 in assistance from the city.
“It’s been very, very hard,” Ms. Echevarria, 58, said. “The small businesses won’t be able to survive this. This, to me and many others, is devastating. It’s devastating.”
Sheelagh McNeill contributed research.
Once a Chapter 7 debtor receives a discharge of personal debts, creditors are enjoined from taking action to collect, recover, or offset such debts. However, unlike personal debts, liens held by secured creditors “ride through” bankruptcy. The underlying debt secured by the lien may be extinguished, but as long as the lien is valid it survives the bankruptcy. Read More ›
Tags: 6th Circuit Court of Appeals, Chapter 7
Once a Chapter 7 debtor receives a discharge of personal debts, creditors are enjoined from taking action to collect, recover, or offset such debts. However, unlike personal debts, liens held by secured creditors “ride through” bankruptcy. The underlying debt secured by the lien may be extinguished, but as long as the lien is valid it survives the bankruptcy. Read More ›
Tags: 6th Circuit Court of Appeals, Chapter 7
A new report entitled Understanding Evictions in Omaha written by Creighton University professors Pierce Greenberg and and Gary Fischer outline the devastating impact evictions have on the Omaha community.
Evictions cause a loss of “social and community capital.” High eviction rates are related to increasing crime rates and cause poor educational performance in schools. They cause a severance of supporting relationships that exist in all neighborhoods and can set off a cycle of social destruction that is difficult to break.
Residential stability begets a kind of psychological stability, which allows people to invest in their home and social relationships. It begets school stability, which increases the chances that children will excel and graduate. And it begets community stability, which encourages neighbors to form strong bonds and take care of their block. – Matthew Desmond, author of Evicted
The report describes Omaha’s eviction scene with many statistics and observations:
- 39,346 eviction lawsuits were filed in 8 years between 2012 to 2019. That equals 410 evictions per month.
- 28,226 of those lawsuits resulted in a family being evicted.
- Omaha has a 3.66% Eviction Rate per 100 rental units per year.
- Omaha ranks 271st out of 274 U.S. cities on a measure of racial inclusion according to data from the Urban Institute.
- Evictions predominately occur in older areas of Omaha with higher rates of low income housing and minority populations.
- Many eviction “hot spots” represent large apartment complexes or public housing facilities.
- The interconnected nature of race, income, and evictions helps illustrate how important housing and residential stability is to reducing racial and economic disparities in Omaha.
- The number of evictions in an elementary school attendance area correlates with student learning outcomes.
- Only 1 out of 394 defendants were represented by an Omaha attorney.
The connection between high rates of evictions and societal problems in education, crime, jobs, income and family stability is overwhelming. And, these Creighton professors have some suggestions to combat that problem.
- Focus on eviction hotspots. Omaha Housing Authority represents 7% of the eviction lawsuits filed in Omaha. Focus should be given to finding alternative dispute resolutions to reduce eviction rates.
- Right–of-Counsel-Programs. New York City initiated a program in 2017 to appoint attorneys to represent low-income tenants in eviction proceedings. 84% of defendants who were provided counsel were able to remain in their residence.
Will filing bankruptcy stop an and eviction in Nebraska?
Filing any type of bankruptcy in Nebraska temporarily stops an eviction.
Chapter 7 bankruptcy cases are short cases completed in roughly 100 days. There is no payment plan associated with these cases and there is no power to cure a rent default, but the filing of a case will temporarily delay an eviction for probably 30 days.
Chapter 13 cases have more power to address eviction issues. In addition to imposing a temporary stay of an eviction lawsuit, chapter 13 plans have the power to cure a lease default.
Section 1322(7) of the Bankruptcy Code allows a debtor’s payment plan to assume an unexpired lease and cure a default, however, this right is subject to Section 365 of the Bankruptcy Code, which provides:
- If there has been a default in an executory contract or unexpired lease of the debtor, the trustee may not assume such contract or lease unless, at the time of assumption of such contract or lease, the trustee—
- Cures, or provides adequate assurance that the trustee will promptly cure, such default . . .
- Compensates, or provides adequate assurance that the trustee will promptly compensate, a party other than the debtor to such contract or lease, for any actual pecuniary loss to such party resulting from such default; and
- Provides adequate assurance of future performance under such contract or lease.
So, an Omaha bankruptcy attorney can help tenants to stop an eviction lawsuit IF they have the ability to cure the default promptly and to make future payments on time. How prompt must the cure payment be? There is no hard rule, but I suspect curing a default over 60 to 90 days is probably considered a prompt payment.
This story originally appeared in the New York Daily News on July 20, 2020 ,
https://www.nydailynews.com/coronavirus/ny-coronavirus-taxi-medallion-re...l
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Coronavirus has left the city’s yellow taxi business gasping for breath.
Ridership was down 92% in June — and just one in five of the city’s 13,500 yellow cabs even hit the streets, according to data the city Taxi and Limousine Commission released Wednesday after months of delays.
When New York became the epicenter of the outbreak in April, the amount of money yellow cab drivers grossed before expenses was down to $54 per day, a decline of 70% from the $176 per day they grossed in February. Their gross rebounded to $105 per day in June, but was still 47% lower than the $195 cabbies took in daily in June 2019.
Uber, Lyft and other app-based car services also hurt — but their drivers’ losses weren’t as steep.
Nearly 50,000 app-based drivers stopped working between February and June, which helped driver pay remain stable.
TLC data shows app-based drivers who kept working through the pandemic earned just 5% less in June than they did the same month last year. In June they were doing roughly 251,696 rides per day, nearly 14 times the 18,325 rides yellow cabs saw.
App-based drivers are still doing more business than the the 217,000 daily rides yellow cabs recorded in February, before the pandemic.
“It’s quite remarkable how Uber and Lyft have bounced back to a degree, while taxis have much less,” said Bruce Schaller, a transportation consultant. “What you see in the numbers is more of the same of what you saw pre-pandemic, with Uber and Lyft doing much better than the yellow taxis both as an industry and for drivers individually.”
A woman wears a face mask near the Port Authority in Midtown Manhattan in March.
A woman wears a face mask near the Port Authority in Midtown Manhattan in March. (Luiz C. Ribeiro/for New York Daily News)
Owners of New York City’s taxi medallions — which give drivers the exclusive right to take street hails in the busiest areas of Manhattan — were in trouble before the pandemic hit.
Medallion owners faced an average debt in January of about $700,000 — a figure that began to balloon in 2014 when the app-based companies Uber and Lyft began to siphon rides away from cabs.
Now the outlook for their business is even worse.
“If this isn’t a wake up call for the city and its leaders, then we will know who was responsible for ending this industry and I still wouldn’t say it was COVID,” said Bhairavi Desai, president of the New York Taxi Workers Alliance and a medallion owner.
More people working from home means fewer people commuting by yellow taxis. And with air travel down 85%, fewer people are visiting New York for business or tourism — meaning cabbies can’t count on fares and tips from out-of-towners.
The pandemic has forced nearly 9,000 yellow taxi drivers off the streets since March, giving them little income to pay off their piling bills.
Medallion owners in January called for the city to help find “mission-driven investors” who could help bring down some debt. Now, with the nation facing a severe recession, that option appears to be off the table.
Yellow Taxis are seen parked on 37th Street and 11th Avenue on April 6.
Yellow Taxis are seen parked on 37th Street and 11th Avenue on April 6. (Luiz C. Ribeiro/for New York Daily News)
App-based drivers who stopped working during the pandemic also face uncertainty.
Varinder Kumar, 47, stopped driving for Lyft in March out of fear for his health.
Kumar said he plans to return to work next month if Congress does not renew the $600 in weekly unemployment benefits he’s received from the federal government since April. The extra money is slated to stop coming on Friday.
Varinder Kumar, a Lyft Driver who left work in March out of fear for his health.
“I was making less with unemployment than I was when I was driving in February,” Kumar said. “But I have a family and I need to keep them safe. I won’t make the same money as I did before the pandemic if I go back to work either.”
“If things don’t work out maybe I’ll move to another state that is not so expensive,” he added.
Schaller expects many more app-based drivers will begin to return to the streets in the coming months, which could lead to a reduction in their average pay.
Unlike yellow cab drivers, if Kumar returns to work he would benefit from the city’s minimum wage and paid sick leave rules. He also won’t face the insurmountable debt that taxi medallion owners are having an even harder time paying off due to dismal ridership.
But Schaller said the crisis could bring an ugly reckoning to the yellow taxi medallion business: It could force many medallion owners who are still hanging on to file for bankruptcy, and effectively reset the entire industry.
“The question is: Does this huge drop end up basically flushing all the bad debt down the toilet?” Schaller said. “The thing about the taxi industry is, it could be healthy if you just started over. Bankruptcy could give you a fresh start.”
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.
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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!!
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