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The U.S. Trustee’s Means Test Figures

Updated Effective April 1, 2021

The U.S. Trustee Program, the division of the Department of Justice that oversees the bankruptcy process in the United States Federal Court, recently released updated median income data for each state. These income figures apply to all bankruptcy petitions filed on or after April 1, 2021. They are used to determine whether the income and expense test in the Bankruptcy Code, often referred to as the “means test,” applies in a consumer bankruptcy case. Debtors with a household income above the median income for their state, who have primarily consumer-based debts, must complete the means test budget calculations to determine their eligibility to file for Chapter 7 bankruptcy.

In a Chapter 7 bankruptcy case, a debtor may quickly eliminate their dischargeable debts and obtain a financial fresh start, as opposed to having to repay at least some of their debts in a Chapter 13 bankruptcy proceeding. The rationale behind the means test is to determine whether a debtor has sufficient disposable income that can be used to repay creditors in a Chapter 13 bankruptcy payment plan. If a debtor fails the means test, they will be restricted to filing for Chapter 13 bankruptcy. The means test is also used to determinea debtor’s minimum monthly payment obligation in a chapter 13 plan.

The bankruptcy means test proports to calculate the debtor’s disposable income using a formula that includes all of the debtor’s household income received during the prior 6-month period. Please note, the Bankruptcy Code factors almost all sources of income into the means test, including short term gig-related work, bonuses, overtime, and commissions. Only Social Security, Veteran’s Administration and Department of Defense, or federal COVID-19 pandemic benefits are excluded from the income portion of the means test. On the expense side, the means test uses a monthly budget incorporating standardized local living expenses provided by the IRS, along with certain other allowed expenses, including secured debt payments.

The newly updated median income figures may enable some additional debtors to qualify for Chapter 7 bankruptcy. Below are the median income figures for New York State that are used in determining whether the mean test applies in bankruptcy cases filed after April 1, 2021:

Household of 1: $60,696

Household of 2: $77,159

Household of 3: $92,508

Household of 4: $112,424

For household with more than 4 people, add $9,000 for each additional individual.

New Post has been published on https://www.debtlawyer.com/new-york-state-court-update/

New York State Court Update

Due to the COVID-19 pandemic, the New York State Court system abruptly closed the courts for most in-person operations in March 2020. On April 19, 2021, Chief Judge DiFiore announced that all judges and court employees will return to in-person operations by May 24. Her announcement stated, “it is time to return to our normal and full courthouse staffing levels in order to support the fuller resumption of in-person operations, including jury trials and other proceedings in our courts.” Given this large shift toward the return of normality to the Courts, we thought we would share a quick update for various types of cases that may be of interest to our clients.

Foreclosure & Eviction: The New York State moratoriums on foreclosure cases and evictions for cases are both set to expire on May 1, 2021. On April 28, 2021, the New York Legislature passed a law extending the expiration date to August 31, 2021. Governor Cuomo has yet to sign this legislation, but he is likely to do so. These moratoriums apply only to cases where a COVID-19 hardship declaration forms have been submitted. In order to be covered by the moratoriums, tenants behind on their rent due to a COVID-19 hardship were required to submit a hardship declaration to their landlord in order to avoid eviction. Similarly, homeowners experiencing a COVID-19 hardship were required to submit a hardship declaration to their mortgage servicer in order to avoid foreclosure.

Personal Injury and Civil Matters: The return to somewhat normal operations means that personal injury cases will hopefully start to resolve in a more expeditious manner than during this past year. The return of jury trials is particularly relevant since not knowing what a jury might do is often a personal injury plaintiff’s best leverage in negotiating a settlement.

Debt Collection Lawsuits: As mentioned below, debt collection lawsuits are now being filed and older, pending cases are able to proceed. In fact, we have been contacted by many New Yorkers who have been recently sued for debt. Our office can help you resolve these lawsuits, either through bankruptcy or debt negotiation.

When court employees return to their buildings on May 24, operations will not immediately return to normal. Instead, Chief Judge DiFiore explained that they are coming up with a plan to keep courthouses less crowded and to physically limit the number of people in the buildings. These goals will likely be reached by the continued use of remote technology when appropriate to support and enhance virtual court operations. With regard to virtual proceedings in the Courts, Chief Judge DiFiore reported that 1,440 online bench trials and hearings were commenced last week, and that judges and staff have remotely conferenced over 24,200 matters. In doing so, 6,000 matters were settled or disposed, and 2,350 written decisions were issued on motions and other undecided matters.

Chief Judge DiFiore cited the availability of vaccinations (New York City’s vaccination rate is 29%, as of April 8), the easing of indoor public health restrictions, and the decline in COVID-19 positivity rates and hospitalizations for the reason for sending employees back to in-person work. Furthermore, the COVID-19 vaccine is now widely available to New Yorkers over 16 years of age, the state is easing public health restrictions on indoor gatherings, and the economy is starting to reopen. She did not address the risk from new strains of the COVID-19 virus.

All visitors to courthouses and other facilities in the New York State Unified Court System are required to submit to temperature screening and a COVID-19 risk assessment inquiry before being granted entrance. This includes parties, attorneys, witnesses, jurors, spectators, law enforcement officers, prisoners, vendors, and all other non-court system personnel. Visitors are required to wear a mask, maintain social distancing, and follow the health and safety instructions of court personnel.

The extensive safety measures that we have implemented to protect the health of everyone working in and entering court buildings, including: COVID screening and temperature checks; disciplined use of face masks and PPE; social distancing protocols; installation of acrylic barriers; and strict cleaning and sanitizing, will continue. With normal staffing levels, they will be able to conduct an increased number of in-court proceedings, including jury trials. Of course, a return to full staffing does not mean there will be a return to the densely crowded courthouses of pre-COVID days.

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The Consumer Financial Protection Bureau Is Set for New Leadership

In July 2010, the Consumer Financial Protection Bureau (CFPB) was created by Congress as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The main purpose of creating the Bureau was to increase the efficiency and accountability of our government by consolidating various consumer financial protection authorities that had existed across several different federal agencies into one entity. Consumer financial services had not been the primary focus of any federal agency, and no agency had effective tools to set the rules for and oversee the whole industry. Through regulation and enforcement, the CFPB attempts to protects consumers from financial services companies use of unfair and deceptive practices. Through their enforcement division, they have already returned billions of dollars to harmed consumers. However, during the Trump era, oversight and enforcement at the CFPB both waned. The agency became more sympathetic to the companies it was regulating. This is about to change.

President Joe Biden has nominated Rohit Chopra to serve as director of the CFPB. Chopra is a consumer advocate who is currently serving as a commissioner of the Federal Trade Commission. On February 13, 2021, his nomination was formally submitted to the Senate for confirmation. If confirmed by the Senate, he will replace the acting director, Dave Uejio. Previously, Chopra was assistant director of the CFPB and he even worked on the implementation team that helped launch the agency. The Confirmation of Rohit Chopra will help pivot the CFPB back to its primary job, protecting consumers.

As the head of the CFPB, Chopra will oversee how lenders service a myriad of financial products, from mortgages to credit cards to student loans. He will help manage the winding-down of forbearance programs implemented in the early months of the pandemic. There is also a potential crisis that is looming as the COVID-related foreclosure moratoriums lapse and long periods of loan forbearance end. This is happening at a time where consumer complaints regarding financial companies, such as banks, credit bureaus and debt collectors, are up by more than 50 percent in 2020 according to a new report from the U.S. Public Interest Research Group. More than half of total complaints to the CFPB were against the three major credit reporting agencies, Experian, TransUnion and Equifax. Overall, the number of complaints about credit reporting doubled in 2020, which demonstrates the concern Americans have for improving their credit. The report recommends remedies to both Congress and the CFPB, which can be summarized in three key points:

Mitigating the financial harms posed by the COVID-19 pandemic;

Rescinding the actions the Trump administration took to weaken CFPB rules against predatory payday lending and

Rolling back Trump-era rules that allow debt collectors to harass debtors and other consumers.

While it may seem obvious, the CFPB actually had to announce that it intends to exercise its supervisory and enforcement authority consistent with the full scope of its statutory authority. The CFPB did this when it recently rescinded a policy statement entitled “Statement of Policy Regarding Prohibition on Abusive Acts or Practices” which was inconsistent with the Bureau’s mission. The policy statement was issued during the last days of the Trump administration and sought to cut back on enforcement of acts considered abusive. For example, the policy statement declared that the CFPB would decline to seek civil money penalties and disgorgement for certain abusive acts or practices. The CFPB deters abusive practices and compensates certain harmed consumers by using penalties, so this was contrary to the CFPB’s mission of protecting consumers.

We look forward to having Rohit Chopra confirmed by Congress and the CFPB needs to be put back on course in its mission to protect consumers. At the Law Offices of David I Pankin PC, we have been aiding consumers with debt-related issues for over 25 years. If you have any questions about New York bankruptcy law, please feel free to contact us at 888-529-9600 or simply reply to this email.

You can find out more about the Consumer Financial Protection Bureau here: https://www.consumerfinance.gov/

More Information:

https://apnews.com/article/joe-biden-donald-trump-charlotte-7ea4d92640eef72ea0cc7c496a937a17

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What Do I Do After Forbearance in New York

During the Covid 19 Pandemic, many homeowners experienced a reduction in income from either job loss, reduced pay, loss of overtime, loss of rental income, or some combination thereof. As a result, they may have fallen behind on their monthly mortgage payments. According to the National Housing Law Project, of all outstanding single-family mortgages, approximately 70% are owned or backed by a federal agency, and approximately 30% (roughly 14.5 million loans) are privately owned and not backed by any federal agency. The mortgage relief available to homeowners may vary depending on who owns their loan, with government-backed loans generally receiving more protection. Many homeowners were able to get relief from from the economic hardships caused by COVID-19 by entering into forbearance agreements with their mortgage lenders or servicers. These forbearance agreements suspended mortgage payments for a fixed period of time. It also should be noted that while the normally required monthly mortgage payments may have been suspended, the monies owed were not forgiven. For many homeowners, these forbearances will end between September and November of this year. Furthermore, the federal foreclosure moratorium is scheduled to end on July 31, 2021. In light of this, homeowners with expiring forbearance agreements should consult with their lender or servicer immediately to find out their loss mitigation options to avoid foreclosure. If your servicer is not properly communicating with you or if you need help understanding your options, please call the Law Offices of David I. Pankin at (888) 529-9600.

Consumer Financial Protection Bureau Issues New Post-Forbearance Loss Mitigation Rules

The Consumer Financial Protection Bureau (CFPB) recently released a new post-forbearance modification rule for loans coming out of forbearance. The 2021 Mortgage Servicing COVID-19 Rule is set to take effect on August 31, 2021 and sets forth guidelines for borrowers who are more than 120 days behind on their mortgage payments. The purpose of the rule is to ensure homeowners have an opportunity to avoid foreclosure. For those who are behind on their mortgage, the CFPB stipulates that loan servicers need to give homeowners at least three options to avoid losing their home:

resume regular payments and move any missed or suspended payments to the end of the mortgage,

modify the term length of the loan or interest rate, or

sell the home.

The 2021 Mortgage Servicing COVID-19 Rule permits servicers to offer certain COVID-19-related streamlined loan modification options. Usually, servicers are required to base their evaluation of loss mitigation options on a completed application. In order to speed the process of review, the Rule contains an exception which allows servicers to offer loan modifications based on the review of an incomplete application. To qualify for this exception, the loan modification program must:

Limit loan term extensions. The loan modification must not extend the loan term more than 40 years from the date the modification is effective.

Limit periodic payment increases. The loan modification must not increase the borrower’s monthly principal and interest payment beyond the amount that was required prior to the modification.

Prohibit interest accrual on delayed amounts. If the loan modification allows the borrower to delay payment of any portion of the amount owed until the property is sold, the mortgage is refinanced, the modification matures, or, for FHA insured loans, until the mortgage insurance terminates, then the loan modification must not allow interest to accrue on those amounts. Such amounts could include, for example, forborne periodic payments.

Be available to borrowers with COVID-19-related hardships. The loan modification must be made available to borrowers experiencing COVID-19-related hardships, although it need not be only available to those borrowers.

End pre-existing delinquency. The loan modification must end any pre-existing delinquency when the borrower accepts the modification offer. If a trial period applies, the loan modification must be designed to end any pre-existing delinquency when the borrower satisfactorily completes any trial period requirements and accepts the permanent loan modification.

Prohibit certain fees. The servicer must not charge fees in connection with the loan. Additionally, they must promptly waive certain existing fees that the borrower owes, such as late fees, penalties, or stop-payment fees, that were incurred on or after March 1, 2020.

As long as loan servicers and lenders, follow these new protocols, the CFPB’s Rule will not prevent servicers from initiating the foreclosure process. Loan servicers need to make reasonable efforts to reach borrowers before starting any foreclosure proceedings. If the homeowner is more than four months behind on their mortgage and unresponsive for more than 90 days, then the foreclosure process can move forward. Additionally, if a loan servicer confirms that a property can be classified as abandoned pursuant to local and state law, then they can commence a foreclosure proceeding.

Please note, there are some circumstances specifically not covered by the procedural safeguards in the Rule. First, when the borrower was more than 120 days delinquent prior to March 1, 2020 (pre-COVID). This includes many loans that were already in pre-foreclosure at the time COVID struck and for those cases that have been on hold in the New York State court system. Second, when the foreclosure referral occurs, if permitted by applicable law, on or after January 1, 2022. This exception is in place to make sure this Rule is only temporary in effect, although this date may be changed in a revision to the Rule. Third, if the applicable statute of limitations will expire before January 1, 2022. This exception is meant to prevent the Rule from providing the homeowner with a defense to foreclosure. It does not seek to deny a note holder’s right to foreclose, only to provide a meaningful opportunity for homeowners to have access to loss mitigation before a foreclosure referral.

New York State and Federal Post-Forbearance Repayment Options

Some lenders and servicers were already required by New York State regulations (if the bank is chartered in New York) or by the Federal CARES Act (if your loan is federally by HUD/FHA, VA, USDA, Fannie Mae, and Freddie Mac) to offer specific options at the end of a forbearance period.

If your loan is covered by New York Banking Law, your servicer must offer you three repayment options:

to extend the term of the loan for the length of the forbearance without additional interest or fees,

to establish a monthly repayment plan in addition to your regular monthly payments for the remaining term of the loan, or if those options are not available, or

to negotiate a loan modification, and if a loan modification cannot be agreed upon, the servicer is required to convert the deferred amount to a non-interest-bearing balloon payment, payable when your loan term ends or upon refinancing or sale. Such a balloon payment is paid in a single lump-sum.

If your loan is covered by the CARES Act, meaning they are federally backed, servicers are required to offer loss mitigation options based on the guidance of the agency that backs the loan. Approximately half of all mortgage loans are backed by the federal government mortgage agencies and are funded through government-sponsored entities (GSEs), including FHA, VA, USDA, Fannie Mae and Freddie Mac. Even though a mortgage is federally backed, it is likely administered by one of the more traditional private lenders, such as JP Morgan Chase or Wells Fargo and may be serviced by another company, such as Ocwen, PHH, Mr. Cooper (a/k/a Nationstar) or Carrington.

The federal mortgage GSEs have instructed their servicers to offer a variety of loss mitigation packages. For example, Freddie and Fannie’s primary loss mitigation plan is the COVID-19 Deferral Program. In this program, if the homeowner is able to resume normal monthly payments, then up to a year’s worth of missed payments will simply be added as a zero-interest lump sum payment due at the time the loan is to be paid off. Homeowners who decline the COVID-19 Deferral Plan or are otherwise ineligible may be offered the Flex Modification, which is similar to the HAMP program. In a Flex modification, the homeowner goes through a three-month trial period where the loan is temporary modified. These modifications can include various methods to achieve a modification including the following: capitalizing the missed interest and escrow payments, lowering the interest rate, extending the loan term, and lowering the amount of principal on which interest accrues.

The FHA will also offer its own menu of loss mitigation options. The COVID-19 Standalone Partial Claim gives the homeowner a zero-interest second mortgage loan payable at the end of the loan term. The COVID-19 Owner-Occupant Loan Modification allows missed payments to be capitalized into the principal, the term of the loan extended, and a partial claim second mortgage may be added. Finally, the FHA is offering the COVID-19 FHA-HAMP Combination Loan Modification and Partial Claim with Reduced Documentation which is similar to the prior plan except that there is no trial period and there is less required documentation.

The VA cannot automatically move missed mortgage payments to the end of the loan. However, it will offer loan modifications that extend the term beyond the original maturity date of the mortgage loan. VA allows modified loans to be extended up to 120 months (10 years) or less from the original maturity date on the mortgage note. Additionally, the VA may, under its discretionary authority, re-fund a loan. The VA may buy and take over servicing from a lender when the lender cannot extend satisfactory options to resolve a forbearance. Please note this option will rarely be offered. In most cases, the VA will only pursue refunding if the homeowner had problems making the payments due to circumstances beyond their control. In addition, the VA typically will only pursue this option when it has proof that the homeowner’s financial situation will improve in the near future.

The USDA issued post-forbearance guidance for lenders and servicers to determine if homeowners can resume making regular payments and, if so, either offer an affordable repayment plan or term extension to defer any missed payments to the end of the loan. If the borrower is unable to resume making regular payments, the lender should evaluate the borrower for a loan modification using measures such as term extensions and capitalization. The USDA also has a Mortgage Recovery Advance (a one-time payment from the USDA to help bring the loan current). The Mortgage Recovery Advance is similar to a partial claim and does not have to be repaid until the earliest of when the loan matures, the title to the property is transferred (by sale or by other voluntary or involuntary means), or the mortgage is paid off.

Mortgages That Are Not Federally Backed or Covered by New York State Banking Regulations

What if a homeowner has a mortgage that is not backed by a GSE or covered by New York Banking Law? Many homeowners with privately-held mortgages have also been provided with forbearance agreements during the Pandemic. A homeowner who is in a forbearance agreement that is about to end, should contact their lender or servicer to find out their post-forbearance options. These lenders may have their own loss mitigation programs for borrowers who want to retain their property, including deferment, loan modification, reinstatement or repayment plans. If a homeowner wishes to keep their property post-forbearance, and their lender is unable to offer them an acceptable loss mitigation option, then they may wish to seek protection from foreclosure in bankruptcy.

Post-Forbearance Bankruptcy Options

There are three different ways a bankruptcy can help a homeowner to resolve their missed mortgage payments post-forbearance and protect them from foreclosure: Chapter 13 bankruptcy, Chapter 13 with loss mitigation, and Chapter 7 bankruptcy with loss mitigation. No matter which form of bankruptcy is filed, typically, the filing of a bankruptcy petition provides the debtor with an automatic stay which puts any foreclosure proceedings on hold.

When a homeowner files a Chapter 13 bankruptcy petition, they reorganize their debt. This allows them to pay back their past due mortgage payments and most other debt through a 60-month payment plan that is interest free on most debt. Provided the repayment plan is feasible, this option is available to any homeowner who qualifies. If a debtor files for Chapter 13 bankruptcy with loss mitigation, they pay back their non-mortgage debt in a 60-month payment plan and co-currently enter the Bankruptcy Court’s loss mitigation program. We find that lenders and servicers are often more responsive to such loss mitigation requests as a bankruptcy judge oversees the process. If the loss mitigation process is successful and the debtor is offered a loan modification, the bankruptcy judge must review and approve the modification.

If a debtor who is exiting a forbearance is able to qualify for a Chapter 7 bankruptcy and intends to retain their property, they may want to enter the Bankruptcy Court’s loss mitigation program. In these circumstances, the homeowner’s dischargeable debt will be eliminated without a required payment plan. A bankruptcy judge will oversee the loss mitigation process, and similar to a Chapter 13 with loss mitigation, if the process results in a loan modification offer, the judge assigned to the case will need to review and approve the modification. Furthermore, the Chapter 7 bankruptcy process with loss mitigation is generally faster than that a Chapter 13 case. It can be much more efficient in solving a mortgage issue provided the debtor qualifies under the Bankruptcy Code. While loss mitigation in the Bankruptcy Court, in both Chapter 13 and Chapter 7, does not guarantee a loan modification, it may offer many homeowners the best chance at retaining their property.

Regardless of what type of loan you have, the Law Offices of David I. Pankin, P.C. can help you review all your loss mitigation options in order to resolve your forbearance. We have 25 years of experience in helping New Yorkers save their homes. If you have a mortgage that has a forbearance that is about to end and have questions about your rights or options, please feel free to contact our offices at 888-529-9600 or by using our easy online contact form.

More information:

https://www.consumerfinance.gov/about-us/newsroom/cfpb-issues-rules-to-facilitate-smooth-transition-as-federal-foreclosure-protections-expire/

https://www.consumerfinance.gov/about-us/newsroom/cfpb-issues-reports-detailing-mortgage-borrowers-continuing-covid-19-challenges/

New Post has been published on https://www.debtlawyer.com/caselaw-update-mortgage-foreclosure-cases-the-statute-of-limitations/

Caselaw Update: Mortgage Foreclosure Cases & The Statute of Limitations

New York’s Civil Practice Law and Rules § 213 (4) sets forth a six-year statute of limitations for foreclosure lawsuits in New York. Once a mortgage is in default, the holder of the mortgage note (which is typically the lender or another party that was later assigned the note) may accelerate the debt. This means the entire balance of the mortgage note becomes due. At this point, the statute of limitations, which limits the amount of time the note holder has to foreclose, begins to run for the entire mortgage amount. If a mortgage remains un-accelerated, the statute of limitations runs for each payment until the maturity date of the loan.

The right to accelerate a mortgage note, is typically an optional right given to the holder of the note. Acceleration can be initiated by two different methods. An acceleration notice may be sent informing the borrower that their entire mortgage note is due, or the holder of the mortgage note can file a foreclosure lawsuit. If a holder of a mortgage note does either of these things, the statute of limitations for the entire amount of the mortgage begins to run. A recent consolidated New York Court of appeals decision, Freedom Mortgage v. Engel, et al. has bolstered mortgage holder’s rights concerning de-acceleration and the calculation of the statute of limitations. This is bad news for homeowners in foreclosure. 

On Feb. 18, 2021, the New York Court of Appeals issued a joint opinion that addressed four separate appeals involving the statute of limitations and foreclosure. In the opinion, they overturned recent lower court, pro-borrower decisions on the statute of limitations to foreclose. There are three different issues raised in the cases on appeal. Two of the appeals were cases where the trial court had found that a voluntary discontinuance had de-accelerated the loan. Those decisions were then overturned by New York’s Appellate Division. The third appeal asked whether a notice of default that contained the phrase “will accelerate” constituted an acceleration of the mortgage loan. The fourth appeal involved whether complaints that had been dismissed for substantive deficiencies could be considered accelerations.

In the cases that concerned voluntary discontinuances used to de-accelerate a loan, the Court of Appeals noted that de-accelerating debt requires “an affirmative act” by the noteholder within six years of the election to accelerate. The question before the court here was “whether a noteholder’s voluntary motion or stipulation to discontinue a mortgage foreclosure action, which does not expressly mention de-acceleration or a willingness to accept installment payments, constitutes a sufficiently ‘affirmative act’.” The court held that “when a bank effectuated an acceleration via the commencement of a foreclosure action, a voluntary discontinuance of that action—i.e., the withdrawal of the complaint—constitutes a revocation of that acceleration …. absent an express, contemporaneous statement to the contrary by the noteholder.” The court rejected prior holdings that required a consideration of the post-discontinuance conduct of the holder to determine whether the acceleration was revoked.

As a consequence of this holding in Engel, no additional affirmative act will be required beyond withdrawing a foreclosure lawsuit. Upon withdrawal, the statute of limitations clock stops ticking, and the note holder will be able to commence a new foreclosure action to collect installments not more than six years past their due date. By adopting this bright-line rule, the court rejected prior, conflicting holdings requiring subjective inquiry into the noteholder’s intent or motivation in discontinuing a foreclosure action. This eliminates the need for a case-by-case review by a court. Now, unless the lender makes an “express, contemporaneous statement to the contrary” when voluntarily dismissing a foreclosure action, the dismissal alone will automatically de-accelerate the loan. This holding provides mortgage note holders with a clear rule concerning de-acceleration via voluntary dismissal. It presents an opportunity for lenders to review and potentially revive some foreclosure cases that were voluntarily dismissed and were previously considered barred by the statute of limitations.

With respect to the issue of notices of a mortgage loan default that contain “will accelerate” language, the Court of Appeals stated that the act of acceleration of a mortgage debt “should not be presumed or inferred; noteholders must unequivocally and overtly exercise an election to accelerate.” Courts in New York courts have been split on whether a notice of default referencing a future event could accelerate a loan. Here the Court of Appeals held that a notice of default that did not immediately accelerate the debt was merely a warning of a possible, future discretionary acceleration.

In the instant case, the borrower relied on a notice of default with “will accelerate” language and filed a quiet title action seeking to discharge the mortgage. The borrower argued that the letter accelerated the debt and was sent more than six years prior to the filing of his quiet title action. The Court of Appeals rejected the borrower’s argument, concluding that “an automatic acceleration upon expiration of the cure period, could be inconsistent with the terms of the parties’ contract, which gave the noteholder an optional, discretionary right to accelerate upon a default.”

Finally, Engel addressed the issue of whether a foreclosure lawsuit that has been dismissed for substantive deficiencies is to be considered an acceleration of a mortgage debt. The lower courts had held that two prior complaints acted as accelerations even though they were dismissed for failing to reference the borrower’s loan modification. The Court of Appeals overturned that decision and held that where the deficiencies in the complaints were substantive, it was unclear whether the debt was accelerated and that “the commencement of these actions did not validly accelerate the modified loan.” Based on this decision, any complaint dismissed for a substantive pleading defect would not act as an acceleration.

When evaluating whether a statute of limitations defense applies in a foreclosure matter, it is important to speak with an experienced New York foreclosure attorney who is familiar with the intricacies of this area of the law. If you have any questions regarding a foreclosure action, please feel free to contact the Law Offices of David I Pankin, PC at 888-529-9600 or by using our easy online contact form.

Caselaw:

Freedom Mortgage v. Engel, et al.

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Protecting Homeowners

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Foreclosure Defense

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Foreclosure Defense Options

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Retail Bankruptcies and The Effects from Covid

If you walk through the streets of New York City, it is quickly evident that the Covid-19 Pandemic has taken not only toll on New Yorkers from a health perspective but from an economic perspective as well. From shuttered stores and restaurants, to the many “for lease” signs in locations that were the once home to major popular retailers, the economic devastation is abundantly clear. It is also evident in the record number of retail businesses filing corporate bankruptcies this year, such as Century 21, Lord & Taylor and J.C. Penney. What is involved when a such a corporation files for bankruptcy?

Corporate Bankruptcy: An Introduction

Typically, when a business is struggling financially and overburdened with debt, it has two options with respect to bankruptcy relief: Chapter 7 and Chapter 11. The filing choice depends on whether the company wants to cease operations and close down or whether they want to continue to operate, even if it winds down some if its business operations. In a Chapter 7 case, the business closes and its assets are sold off to pay creditors. In a Chapter 11 case, the business reorganizes its debts in a court ordered repayment plan. Please note that businesses do not receive a discharge of its debt in bankruptcy.

Chapter 7 bankruptcy is often referred to as “liquidation” bankruptcy. Businesses who file for this form of bankruptcy must allow a Trustee to sell off its assets to pay their creditors. In a Chapter 7 case, the trustee takes over and closes down the business. The trustee has a duty to act in the best interest of the unsecured creditors while administering the case and may operate the business for a short time if that generates more money for the creditors.

Chapter 11 bankruptcy, on the other hand, is often referred to as “reorganization” because the process allows a business to restructure their debt while continuing to operate. Although the company’s management continues to run the business on a day-to-day basis, all significant business decisions have to be approved by a bankruptcy court. The business has to file a plan with the court, detailing how it will pay creditors and in what order. It can also reorganize its finances and consolidate its operations. Chapter 11 is the most complex form of bankruptcy and generally, the most expensive. It is most often used by businesses and high-income individuals. In some cases, where a business is a sole proprietorship and the debtor meets specific debt limits, a debtor/owner can file a Chapter 13 which is less complex and as a result, the legal fees will be much lower. The current debt limits for a Chapter 13 are $419,275 for unsecured debt and $1,257,850 for secured debt. Only a fraction of the business filings for bankruptcy would meet these requirements.

In a Chapter 11 filing, the owners of the business continue to operate the business. The debtor is considered the “debtor in possession” because generally no trustee is involved. The debtor in possession has the exclusive right to propose a bankruptcy plan of reorganization for a certain period of time. Unsecured creditors may form a creditors’ committee to ensure the bankruptcy plan meets their best interests under the bankruptcy laws. After a certain period of time, creditors are able to file a competing plan. The debtor’s bankruptcy plan can propose different treatment for creditors’ claims and even cram down secured creditors by changing the terms of the repayment, including the interest rate. Ultimately, the court will determine what is in the best interest of creditors and may approve a bankruptcy plan following a confirmation hearing. If a company is successful in Chapter 11, it will typically be expected to continue operating in an efficient manner with its newly structured debt. If it is not successful, then it will convert to Chapter 7 and liquidate their assets. 

The Small Business Reorganization Act of 2019, which went into effect on February 19, 2020, added a new subchapter V to Chapter 11. This subchapter was designed to make bankruptcy easier for small businesses, which the code defines as those with $2.7 million in debts and also meet other criteria. The law imposes shorter deadlines for completing the bankruptcy process, allows for greater flexibility for both negotiating and restructuring plans with creditors. The Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed into law by President Trump on March 27, 2020, made a number of temporary changes to bankruptcy laws designed to make the process more available to businesses and individuals who were economically distressed by the Covid-19 Pandemic. These include raising the Chapter 11 subchapter V debt limit to $7.5 million and excluding federal emergency relief payments due to COVID-19 from “current monthly income” in Chapter 7. The changes apply to bankruptcies filed after the CARES Act was enacted and are set to expire after one year.

Increase in Corporate Retail Bankruptcy Filings

If you read the business section of the newspaper or have been watching the news on television, you will notice something that does not quite make sense. The stock market has been performing extremely well during the Covid-19 Pandemic but the retail corporate bankruptcy filings have increased significantly. Twenty-seven large retail corporations have filed for bankruptcy in 2020 so far, and only 5 of these bankruptcies were pre-Pandemic. The retailers that have filed for bankruptcy so far this year include:

Century 21 (Sept. 10)

Stein Mart (Aug. 12)

Tailored Brands (Aug. 2)

Lord & Taylor (Aug. 2)

Ascena (July 23)

The Paper Store (July 14)

RTW Retailwinds (July 13)

Muji USA (July 10)

Sur La Table (July 8)

Brooks Brothers (July 8)

G-Star Raw (July 3)

Lucky Brand (July 3)

GNC (June 23)

Tuesday Morning (May 27)

Centric Brands (May 18)

J.C. Penney (May 15)

Stage Stores (May 11)

Aldo (May 7)

Neiman Marcus (May 7)

J. Crew (May 4)

Roots USA (April 29)

True Religion (April 13)

Modell’s Sporting Goods (March 11)

Art Van Furniture (March 9)

Bluestem Brands (March 9)

Pier 1 (Feb. 17)

SFP Franchise Corp (Jan. 23)

The number of corporate bankruptcy filings is expected to continue to increase as the second wave of the Covid-19 Pandemic hits this fall. Furthermore, the corporate retail bankruptcy filing rate does not capture the effect being felt by small and medium-sized corporations. Many companies close without filing for bankruptcy protection, hence this fact is not reflected in the corporate filing rate. Furthermore, as federal stimulus relief for small businesses dries up, more small businesses will be forced to close their operations. Despite the increase in corporate bankruptcy filings, retail businesses with well-developed online stores are flourishing during the Covid-19 Pandemic.

The Pandemic Economy and Online Shopping

Many apparel chains and department stores have seen sales drop significantly during the Covid-19 Pandemic. For example, clothing sales are down 20% since the Pandemic struck. While some companies have filed for bankruptcy due to decreased revenue and mounting debt, other companies are doing quite well in the Covid-19 Pandemic economy. Besides online retailers like Amazon, many chain stores that remained open, such as Best Buy, Dick’s Sporting Goods, Walmart and Target, have seen revenues jump. Some have also gained a new edge in e-commerce as they expanded options to enable customers buy online and then pick up a purchase, in-store or curbside. Additionally, companies that sell furniture and home improvement items, such as West Elm, Lowes and Home Depot are seeing large profits. Other companies, such as IKEA saw profits fall due to a large number of store closures but also saw online retail expand rapidly.

One of the large changes caused by the Covid-19 Pandemic is the amount of people working from home remotely. This sudden but significant shift in working environments has also caused a big change in buying habits. Specifically, the work-from-home trend has led to a boom in purchases to improve home living situations and home offices to satisfy remote working needs and also to keep people busy while they are spending additional time at home. However, not everyone is lucky enough to have a job that allows them to work remotely. Hundreds of thousands of Americans are out or work and are slipping into poverty. Food pantries cannot keep their shelves stocked. The recession we are in now may last for a long time. Economists say the full impact of these types of store closings in the consumer economy may not be felt for a few months, when the effects of the stimulus wear off. Those Americans who are unemployed will be the first to pull back on spending. Those with jobs may start to lose confidence in the economy and will stop buying as much. A new stimulus bill may prevent further the economy from getting worse, but the retail economy was changing even before the Covid-19 Pandemic.

It’s Not Just the Pandemic

The increase in retail bankruptcies is not just being caused by the Covid-19 Pandemic. Retail businesses has been suffering for a long time. Even before the Covid-19 Pandemic, many brick and mortar retailers were experiencing a significant reduction in business. The fact is that online shopping can be very convenient and online retailers can charge lower prices by saving on expensive commercial real estate rental costs. Furthermore, consumers are able to aggressively comparison shop online, which is much harder to do in a physical store. The Covid-19 Pandemic has made a bad situation even worse for in-store retailers by exacerbating retailer’s losses as many Americans socially distance themselves. Shoppers are avoiding going into stores and ordering items they need online. The disparities in how people shop now hints at a recovery that is both uncertain and uneven.

If you are overwhelmed by business debt, whether it is personally guaranteed or not, a bankruptcy filing can provide you the financial relief you need. For over 24 years, the Law Offices of David I Pankin, PC, we have been helping business owners with debt problems. If you have any questions about a business bankruptcy or personally guaranteed debt, please feel free to contact the Law Offices of David I Pankin, PC at 888-529-9600 or using our easy online contact form. David Pankin is a NYC bankruptcy lawyer with convenient office locations in Brookyn, Manhattan and Long Island. We provide remote video conferencing for individuals that prefer no contact consultations.

Further Reading:

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Remote/Telephonic Hearings in Bankruptcy Court

There has never been a more convenient time to file for bankruptcy. As a result of the Covid-19 pandemic and until further notice, most court hearings and all 341(a) meeting of creditors are being conducted remotely by telephone. The 341(a) hearing is the mandatory court proceeding in which a court-appointed Trustee examines a debtor regarding his or her bankruptcy petition. The hearing is usually 4-6 weeks after the debtor files for bankruptcy. The name of the hearing “meeting of creditors” is potentially misleading, in that it is quite rare for a creditor to make an appearance at the hearing in a typical Chapter 7 or Chapter 13 case.

Prior to the Covid-19 pandemic, a debtor would have to travel to court, wait on line to go through court security and then wait to be examined in the designated meeting room with the Trustee. As you can imagine, this can be a time consuming and stressful experience. However, since April and until further notice, the hearings are being conducted by telephone. That is right, by telephone, and not even by Zoom or Skype! The hearing is still conducted as if being in court, in that there is a calendar and you have to wait for your turn to be examined. Depending upon your position on the calendar, the examination itself is approximately 10-15 minutes long and you can expect the whole proceeding, with wait time, to last approximately 1 hour. However, the hearing could be longer depending upon the complexity of the other cases on the calendar.

Adjusting to the new remote court process, our law firm has been pro-active in guiding our clients through it. We provide our clients with detailed instructions on how to call into the meetings and what to expect. More importantly, prior to the hearing, we schedule and conduct remote court preparation meetings in which we review the range of possible questions that a Trustee may ask at the hearing. Unlike many law firms, we also don’t use per diem or outside attorneys to represent you at the hearing. From personally participating in many, many of these hearings, I am finding that our clients are some of the most prepared debtors at the meetings. This typically leads to a much smoother moving case. The trustee appreciates this as well.

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The Covid 19 Impact on Bankruptcy Filing in New York

While the Covid-19 pandemic continues to speared and surge across the U.S., it has also been causing economic devastation in its path. Surprisingly, although the pandemic with its business lockdowns that has led to record number of unemployed Americans, there has been a significant decrease in bankruptcy petitions filed over the past few months. This decrease was probably caused by both the psychological and emotional impact of Covid-19 with people focusing on their health and family first. However, the immediate need of filing for bankruptcy relief was also set aside by the various financial benefits that were created by the CARES Act and the executive orders issued by Governor Cuomo in New York. While filings remain relatively low through June 2020, many experts predict an expected wave of bankruptcy filings in the near future.

Total Bankruptcy Filings by Jurisdiction

2019 Filings                                         Jan       Feb      Mar      Apr      May     Jun

Eastern District of NY            1466    1254    1576    1503    1573    1409

Southern District of NY                      635      891      701      823      802      648

2020 Filings                                         Jan       Feb      Mar      Apr      May     Jun

Eastern District of NY            1387    1242    982      328      421      511

Southern District of NY                      640      652      547      405      421      409

Source: American Bankruptcy Institute

It is clearly evident from the figures above that bankruptcy filings in the Southern and Eastern Districts of New York through June 2020 are down when compared to last year’s filings over a similar period. The economic stress created by the mixture of unemployment, underemployment, expiring benefits and a worsening economy is likely to lead to more bankruptcies, especially now that the Federal $600 a week unemployment insurance (UI) benefit has expired. (As of the publication time of this blog post, the Federal UI benefit expired and has not been renewed or replaced.)

Corporate Filings Are Set to Increase

2020 has already seen a number of high profile corporate bankruptcies from companies with household names, such as Hertz, J. Crew, JCPenney, Brooks Brothers, Neiman Marcus, and most recently California Pizza Kitchen and Lord & Taylor. Corporate bankruptcy filings are likely to further increase this year. Companies that go into Chapter 11 bankruptcy can try to restructure their debt so they can stay open. Many of the retail stores are expected to close non-performing stores and focus on online sales which obviously has lower rental costs associated with it. This will likely have a domino effect on the retail real estate industry. If a Chapter 11 plan fails or cannot be worked out in the first place, the corporation will be liquidated instead. The assets of the company, including equipment, inventory and property, etc. are sold off to pay debts, and the company is dissolved.

Many companies have been able to put off bankruptcy by conserving cash and keeping themselves solvent. Since the COVID-19 pandemic started, companies have been taking advantage of federal and state pandemic-relief programs, as well as drawing down existing credit lines, furloughing workers and delaying projects. When the money from pandemic-relief programs runs out, these companies will start spending their cash to keep themselves afloat. When a company burns through their cash, a bankruptcy filing becomes much more likely. Bankruptcy often provides a company with their best chance of survival as it approaches insolvency.

A Wave of Personal Bankruptcy Filings Is Likely

Various factors have led to a decrease in bankruptcy filings from March 2020 through June 2020. These include the Federal $600 a week UI benefit, foreclosure and eviction moratoriums, forbearance programs offered by mortgage servicers or created by government mandate, and payment deferment programs being offered by some credit card companies. Now that the Federal UI benefit has expired, bankruptcy filings may start to increase. The money from this benefit has enabled many unemployed workers to continue paying their bills, such as mortgage or rent, credit and store cards, and utility bills. It has also kept food on the table for many families. Unfortunately, Congress is presently deadlocked over either extending this benefit or creating a new one that is tied to the unemployed worker’s former wages. If Congress does not act soon, many New Yorkers will likely consider filing for bankruptcy.

One of the primary benefits of bankruptcy is its ability to eliminate and discharge credit card balances, personal loans and medical bills. These are some of the types of debts that have been exacerbated by the Coronavirus crisis. The best way to know whether bankruptcy is an option you should consider, is to speak with an experienced bankruptcy attorney. If you are considering bankruptcy, you can contact the Law Offices of David I Pankin, PC at 888-529-9600 or by using our easy online contact form. See what our client’s are saying about us at Brooklyn bankruptcy lawyer reviews.

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Mortgage Forbearance Options

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Should You Let Your Insurance Company Monitor Your Driving?

Many large auto insurers offer programs that will monitor you’re driving and give you a discount for safe driving. Additionally, there is one new insurance start-up that will require it. Is this discount worth the trade off in privacy?

What Is Involved?

The driving monitoring programs may use two different means to track your driving data. Some of the programs will use your smartphone’s GPS chip. Others will require a device to be plugged into the car’s OBD-II diagnostic port, and others gather data through General Motors’ OnStar telemetric system. State Farm Insurance requires a Bluetooth device to activate the app on your phone when the car door is opened.

The data recorded by the various apps can include miles driven, acceleration, speed, braking, in addition to use of your cellphone while driving. The companies vary only slightly in determining what makes a safe driver. While the proponents of this insurance program tend to only mention the potential savings, while privacy advocates call these apps, a “spy in your car.”

What Is the Discount?

Most of the driving monitoring programs provide a 10 percent discount against the price of a standard car insurance policy and reward good driving with additional discounts. For example, at State Farm, the average discount is between 10 and 15 percent, but the maximum discount is 50 percent, while at Nationwide the average discount of 21 percent. Allstate reports that 50 to 60 percent of all drivers enrolled in its program earn benefits beyond the initial discount. The insurance start up mentioned earlier, Root Insurance, has policies work somewhat differently. All drivers with a Root policy are required to be monitored. Root sets a customer’s rate after an app records their driving data over a 30-day trial period. However, approximately 15 percent of drivers who complete the 30-day trial are denied coverage. The maximum discount at Root is 52 percent.

What About Privacy?

There are some privacy considerations to take into account before joining a driving monitoring program with your car insurer. Most of the programs report your vehicle location, so your insurer will know where you are. Some people may find this disturbing, however any American with a smartphone has most likely sacrificed this type of privacy already. These programs are banned in California, whose insurance department bars the use of individual driving data for setting rates.

Is It Worth It?

Drivers who engage in the following activities while driving may lose their initial discount and may even see their rates raised:

Excessive speeding

Use of cellphone while driving

Hard braking

Excessive mileage

However, for many drivers, this usage-based insurance is less expensive than a conventional policy, and for cautious drivers who do not drive that often, it can be a great deal.

By tying a financial benefit to safe driving, these insurance programs will hopefully help reduce the amount of automobile accidents. If you have any questions about car insurance or if you have been injured in an auto accident, please contact the Law Offices of David I. Pankin, P.C. at 888-529-9600 or by replying to this email. We have been helping car accident victims get the compensation they deserve for over 25 years. The consultation is always free, and we will provide excellent “customer” service.

Here are links to the various monitoring programs:

Allstate Drive Wise

Liberty Mutual Right Track

Geico DVE Easy

Nationwide Smart Ride

And here is a link to the car insurance start up: