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Archive for the ‘Financial Crisis’ Category

Federal Eviction Moratorium Update

September 28th, 2020 at 7:00 am

The current federal eviction moratorium comes with a number of qualifications and conditions. Be aware of them. It’s a limited but helpful tool.

 

Our last three weekly blog posts have been about the new Agency Order temporarily stopping many residential evictions. This Order by the Centers for Disease Control and Prevention (“CDC”) went into effect on September 4, 2020. It expires on December 31, 2020, when all unpaid rent will be due and evictions can resume.

Three weeks ago we described this eviction moratorium. Two weeks ago we discussed how renters could get more benefit from the moratorium with a Chapter 7 “straight bankruptcy.” Last week we got into how Chapter 13 could help significantly more. This week we provide additional important practical information.

Exceptions to the Eviction Moratorium

The CDC’s evictions ban did not cover all possible evictions. As a renter you need to make sure that you qualify and take the right steps to avoid being disqualified.

First, as emphasized last week, you must complete and give your landlord a Declaration form to trigger the eviction ban. Otherwise you do not qualify for the moratorium.

Second, you sign that Declaration under penalty of perjury. If you are not truthful, you’d expose yourself both to criminal liability and to eviction. So make sure you meet the stated income and other qualifications.

Third, the Declaration requires you to make “timely partial payments” as much as you can afford. You can’t necessarily just stop monthly payments altogether. In fact “timely” indicates that you should try to make partial payments when the regular rent payments are due each month. But what determines whether and how much you can afford to pay? The CDC’s Agency Order says you must use your “best efforts.” The “partial payments [are to be] as close to the full payment as the individual’s circumstances may permit, taking into account other nondiscretionary expenses.” This is all quite vague. But if you can afford to pay something and you don’t, your landlord has potential grounds to evict regardless of the moratorium.

Fourth, the Declaration makes you liable not just for rental payments, but also for “other obligations that I may have under my… lease agreement… .” This includes “fees, penalties, or interest for not paying rent…  on time… .”  These “may still be charged or collected.” Presumably this means landlords can collect these additional charges only after the moratorium expires, so starting January 1, 2021. But don’t lose sight of these add-ons—they can really add up.

Evictions for Other Reasons

The Agency Order states clearly that even if you otherwise qualify and deliver a truthful Declaration, your landlord could still try to evict you “for reasons other than not paying rent….”

Some but not necessarily all such reasons include:

(1) Engaging in criminal activity while on the premises; (2) threatening the health or safety of other residents; (3) damaging or posing an immediate and significant risk of damage to property; (4) violating any applicable building code, health ordinance, or similar regulation relating to health and safety; or (5) violating any other contractual obligation, other than the timely payment of rent or similar housing-related payment (including non-payment or late payment of fees, penalties, or interest).

85 Fed. Reg. 55,294 (Sept. 4, 2020).

You need to be mindful of these other reasons for eviction that defeat the moratorium. However, also note that landlords face a significant risk if they violate the Agency Order by trying to wrongfully evict you. These include significant fines ranging from $100,000 to $500,000 per event, and even possible imprisonment. These penalties should discourage frivolous attempts by landlord to evict with invalid justification.

Expired or Lack of Lease Agreement, Subtenants

Three common situations are not addressed directly by the Agency Order.

First, you may have signed a month-to-month lease agreement with a one-year term, but continued on after that one year. The landlord and you essentially assume that you both continue to be bound by the lease agreement. But legally it’s clearly expired. Assume you’re not paying rent because of the moratorium, but the landlord has somebody else who can afford the rent. Can the landlord evict you without violating the moratorium because you have no valid lease agreement? It’s certainly plausible.

Similarly, what if your lease agreement expires at the end of this month? Presumably the landlord is under no obligation to renew or extend the agreement. So he or she may be able to evict you in spite of the moratorium.

What about verbal lease agreements? Or month-to-month ones in which both parties can legally end that lease at any point. Seems like the landlord could have the right to end the agreement and evict in spite of the moratorium.

Finally, many people are subtenants who are not on the original lease agreement. So they don’t have a direct relationship with the property’s landlord. Similarly, a number of residents may live under a lease signed only by one of the housemates. If you don’t have renter’s rights because you are not the legal renter, the moratorium does not apply to you. If the renter on the agreement does something allowing the landlord to evict him or her, the moratorium will not likely help you.

Conclusion

The federal eviction moratorium gives you a potentially helpful additional tool during these intensely challenging times. But you have to act to qualify for it. And there are various conditions and exceptions you’ve got to be aware of.

In addition, the eviction moratorium is just one tool of many. It may best be used in conjunction with a range of bankruptcy tools. See a bankruptcy lawyer to find out how to use all the available legal tools to help you meet your goals.

 

Chapter 13 and the Eviction Moratorium

September 21st, 2020 at 7:00 am

Use Chapter 13 to catch up on back rent that piles up during the eviction moratorium, so that you can stay in your rental long term. 

 

Our blog post two weeks ago was about a recent federal order temporarily stopping certain residential evictions throughout the country. Check out that blog post to see who is covered and how to take advantage of this eviction moratorium.

Asserting Your Right Not to Be Evicted

Assuming you qualify, you must act to assert your right not to be evicted. This mostly means you need to print up, review, sign, and give your landlord a two-page declaration form. Here is that Declaration form.

The Declaration starts with a quick explanation for how to use it, then lists the qualifying conditions you must meet. You have to be truthful about qualifying for the conditions, so read those carefully. You sign under penalty of perjury. So, “you can be prosecuted, go to jail, or pay a fine if you lie, mislead, or omit important information.”

Also, every adult renter included on “the lease, rental agreement, or housing contract should complete” it. Then get it to your landlord.

Important: as broad and clear the moratorium may seem, it is being interpreted differently by different state and local judges. For example, some judges believe that landlords can’t file eviction lawsuits at all. Others believe that they can be filed and processed, with only the eviction itself stopped by the moratorium. See this New York Times article about these inconsistencies: How Does the Federal Eviction Moratorium Work? It Depends Where You Live.

The Challenge Created by the Moratorium

Let’s assume you qualify and deliver the Declaration to your landlord. The big problem with the eviction moratorium is that it is temporary. It expires on December 31, 2020. Just as big of a problem is that it does not forgive any rental payments whatsoever. So even if you do everything right, you’d owe a pile of rent money on January 1, 2021. (You’d owe the piled up rent earlier if you earlier reach the point when can afford to pay rent again.)

So let’s now assume that you could afford to start paying your monthly rent in January 2021. (Or at any point earlier.) What to do with the months of back rent you owe then?

One option: move somewhere else and forever write off (“discharge”) the back rent with a Chapter 7 “straight bankruptcy.” See our last blog post about that, and other possible ways Chapter 7 may help.

But the challenge is if you really want to stay in your rental long term. Chapter 7 does not give you a reliable legal mechanism to pay the unpaid rent. Is there’s a better solution?

The Opportunity Created by Chapter 13

At the heart of a Chapter 13 case is a 3-to-5-year partial-payment plan. You and your bankruptcy lawyer prepare and file this plan at the bankruptcy court. Here’s the court’s official Chapter 13 Plan form.

Just as in Chapter 7, under Chapter 13 you have to choose whether to “accept” or “reject” your rental agreement. If you want to stay in your rental you have to “accept” the agreement and say so in your proposed plan. See Part 6 (starting on page 6, titled Executory Contracts and Unexpired Leases) of the Chapter 13 Plan form.

The crucial benefit under Chapter 13 is that generally you can catch-up on the accrued late rent payments over time. The payment plan that you submit contains the terms of repayment of those accrued rent payments. You could theoretically stretch those catch-up payments over the 3-to-5-year life of your plan.

The real beauty of Chapter 13 is that once your bankruptcy judge formally approves your payment plan, your landlord is forced to accept your repayments terms.

Landlord Challenges to Your Terms

Your landlord could object to the payment terms, before your Chapter 13 plan gets court approval. But you have a number of advantages.

First, your filing of the Chapter 13 stops the landlord from being able to proceed with eviction. This is true even if the national eviction moratorium had expired by then. The “automatic stay” imposed by any bankruptcy filing stops virtually any eviction proceeding in its tracks, at least temporarily. So time is more on your side.

Second, the landlord has the burden of objecting. If your plan shows that you can resume regular rent payments and presents a reasonable schedule for catching up on the late payments, the landlord may decide to accept your proposal. The landlord thereby avoids paying out more attorney fees. Under your proposed plan the landlord gets rent payments every month starting right away. Your plan should give the landlord some confidence in getting the back rent paid. The alternative is losing it all, and maybe another few months of no rent payments if you’re forced out.

Third, if the landlord does object to what you and your bankruptcy lawyer propose, there is often room for compromise. You have a lawyer on your side to look out for your interests. You’d likely be able to amend your Chapter 13 plan to satisfy both sides.  

More Chapter 13 Advantages

The way Chapter 13 works is that usually you pay “general unsecured” debts only to the extent that you can afford to do so. “General unsecured” debts are ones like medical bills, most credit cards, and such. Most likely you will want to pay your rental arrearage ahead of your “general unsecured” debts. Indeed you’ll be forced to if you want to stay in your rental.

The nice thing is that in many situations the money you need to pay for the past due rent reduces the amount you pay on your “general unsecured” debts. That’s because you can only afford to pay a certain amount to all of your debts over the course of your case. Your budget dictates that amount. The catch-up rent in effect comes out of what you’d otherwise have to pay the “general unsecured debts.

Another Chapter 13 advantage is that you can often delay paying certain debts until you’re better able to do so. For example, you may be able to pay less monthly on the back rent for several months, then more later. This may be because you anticipate increase in income, such as when a spouse returns to work. Or it may be because you anticipate a future reduction in expenses, such as paying off a vehicle loan.

Finally, Chapter 13 is flexible in other ways. You’re not necessarily tied into your payment plan forever. Its terms can shift with your changing financial circumstances even after it’s approved by the court. Or if you change your mind about staying in your rental, you can amend the terms of the plan. Or you can even convert into a Chapter 7 case and likely discharge whatever you then owe to the landlord.

 

Bankruptcy and the Eviction Moratorium

September 14th, 2020 at 7:00 am

  

The CDC’s recent order stopping all U.S. residential evictions gives you a new tool to use with some wise bankruptcy planning. 

 

Last week’s blog post was about a new federal order temporarily stopping certain residential evictions throughout the country. Please see that blog post about which renters and rental properties are covered, and how renters qualify for the moratorium.

If you are a tenant and are considering filing bankruptcy, this eviction moratorium can affect the timing and tactics of your filing. We start addressing that today.   

The Moratorium Ends on December 31, 2020

The most important aspects of the eviction moratorium are that it is temporary and does NOT forgive any rental payments. The “order prevents you from being evicted or removed from where you are living through December 31, 2020.”  However, “[y]ou are still required to pay rent… .”  

The obligation to pay the rent is just delayed. “[A]t the end of this temporary halt on evictions on December 31, 2020, [your] housing provider may require payment in full for all payments not made prior to and during the temporary halt… .” Your “failure to pay” then would make you subject to eviction at that point. 85 Federal Register 55292, 55297.

Note that you would almost certainly then owe more than just the missed rental payments. You also continue to be liable for “fees, penalties, or interest for not paying rent” imposed under your lease agreement. See Declaration, p. 2.

The Bankruptcy Timing Consequences—Chapter 7 “Straight Bankruptcy”

Bankruptcy generally allows you to discharge—permanently write off—debts that you owe at the time you file the bankruptcy. It does not discharge future debts.

So one seemingly straightforward option is to delay filing a Chapter 7 bankruptcy, then file to discharge the accrued rent. Any other contractual fees and penalties could also be discharged. Assuming you qualify for the moratorium, this lets you live rent-free for several months.

The crucial practical question is whether you’d be able to continue living at this rental or would have to move.

The situation is relatively simple if you do move away at that point. You would be liable for any rent or other fees accrued after you and your bankruptcy lawyer file your case. That’s because again the bankruptcy discharge does not cover any obligations accrued after the filing. So you’d have to move before or at the time you file the Chapter 7 case. Or else you’d have to pay rent and any other fees accrued after the date of your bankruptcy filing.  

Staying at Your Rental after Filing a Chapter 7 Case

But could you discharge any pre-filing obligations to your landlord and continue living there by paying all after-filing obligations? There’s a legal answer and a practical one.

The legal answer is very likely “no.”  You have to pay the pre-filing obligations if you want to stay. After filing a Chapter 7 case you have a short time to decide to “accept or reject” the lease agreement. You have 60 days. If you “reject” it, you leave and then usually don’t owe any pre-filing obligations to your landlord. If you “accept” the lease agreement, you have a very limited time to pay any pre-filing obligations. If you don’t accept the lease agreement on time, your landlord can evict you.  Or if you do timely accept your lease but then don’t pay the pre-filing obligations on time, your landlord can also evict you. (See Section 365 of the Bankruptcy Code on unexpired leases, one of its more complicated provisions.)

Notwithstanding all this, under some circumstances you might be able to persuade your landlord to let you stay. We live in crazy times. Your landlord may have multiple renters unable to pay their back rent, and may prefer that you stay. Your bankruptcy filing, in which you’re presumably discharging lots of other debts, will likely make you better able to afford your rent. The landlord may be open to negotiating something you can live with.

Obligation to Make Partial Rental Payments

Relatedly, be aware that to qualify for the eviction moratorium you have to try to make partial rental payments.  You have to certify the following:

I am using best efforts to make timely partial payments that are as close to the full payment as the individual’s circumstances may permit, taking into account other nondiscretionary expenses… 

85 Federal Register 55292, 55297.

The point of this is that it opens you and your bankruptcy lawyer to some creative planning and negotiations. You could agree with your landlord to make partial rent payments during the period before filing bankruptcy (which you could otherwise discharge). In return you or your bankruptcy lawyer could ask for the landlord’s flexibility about payment terms after your bankruptcy filing.  

Or more likely, you use the threat to reject the lease and discharge all the pre-filing debt as leverage. Instead you agree to accept the lease but pay only part of the debt and/or get payment terms you can tolerate.

A Chapter 13 Teaser

As you can see Chapter 7  is quite helpful, used with the eviction moratorium, if you’re leaving the rental property. You live there without paying the rent for months and then discharge that obligation in bankruptcy.

But if you want to stay, Chapter 7 leaves you to a large extent at the mercy of your landlord. You only get a bit of leverage, which may or may not work with your particular landlord.

What if you could legally force your landlord to give you much more time to catch up? What if you had many months to pay the rent not paid during the moratorium? In our next blog we’ll show you how a Chapter 13 “adjustment of debts” case may let you do this.

 

New Federal Eviction Moratorium

September 7th, 2020 at 7:00 am

The Centers for Disease Control and Prevention (CDC) just asserted its COVID-fighting power to stop most residential evictions through 2020. 

 

On Friday, September 4, 2020, a federal order went into effect temporarily stopping certain residential evictions throughout the country. Issued by the Centers for Disease Control and Prevention (“CDC”), it’s titled “Temporary Halt in Residential Evictions To Prevent the Further Spread of COVID-19.”  The legal basis and purpose of the Order is “to temporarily halt residential evictions to prevent the further spread of COVID-19.”

It covers residential rentals, NOT home mortgage foreclosures.

The Renters Covered by this Order

The CDC Order states that any “landlord… shall not evict any covered person from any residential property… during the effective period of the Order.”

Most residential renters unable to pay their rent likely qualify as a “covered person.” To be a “covered person” an individual must meet a number of conditions:

  • Either “(i) expects to earn no more than $99,000 in annual income for Calendar Year 2020 (or no more than $198,000 if filing a joint tax return), (ii) was not required to report any income in 2019 to the U.S. Internal Revenue Service, or (iii) received an Economic Impact Payment (stimulus check) [under] the CARES Act.”
  • Has “used best efforts to obtain all available governmental assistance for rent or housing.”
  • Is “unable to pay the full rent” because of one or more of the following:
    • a “substantial loss of household income
    • a reduction in “hours of work or wages”
    • lay-off
    • “extraordinary [unreimbursed] out-of-pocket medical expenses” (exceeding 7.5% of adjusted annual income)
  • Eviction would likely result in either homelessness “or force the individual to move into and live in close quarters in a new congregate or shared living setting—because the individual has no other available housing options.”

Covers All “Residential Property” through the End of 2020

The Order is very broad, including “any property leased for residential purposes.” This explicitly includes “any house, building, mobile home or land in a mobile home park, or similar dwelling leased for residential purposes… .”  Because this list is inclusive it MAY include other types of rental circumstances not listed (such as a rented houseboat?). “Residential property” does NOT include “any hotel, motel, or other guest house rented to a temporary guest or seasonal tenant.”

The Order is effective from September 7 through December 31, 2020. It could possibly be “extended, modified, or rescinded” at any time.

Renters’ Declaration to Qualify for the Protection

The procedure to take advantage of the eviction moratorium seems to be straightforward. The tenant reviews, signs, and gives the landlord a two-page declaration form. Here is the Declaration as provided by the CDC.

It starts with a quick explanation for how to use the Declaration. It then lists the qualifying conditions listed above (and a couple others discussed below).

Each adult renter included on “the lease, rental agreement, or housing contract should complete” it. Deliver a copy to your landlord, property owner, or whoever has the right to evict.

It must be signed under penalty of perjury. Meaning “you can be prosecuted, go to jail, or pay a fine if you lie, mislead, or omit important information.”

Major Potential Penalties for Noncomplying Landlords

The Order includes serious criminal penalties for landlords which don’t comply. Potential fines range from up to $100,000 and/or a year in jail for individual violators and $200,000 for business violators. If a violation “results in death,” the potential fines are two and a half times higher.

Significant Limitations of the Order

The most important practical problem with this Order is that tenants must still pay the missed rental payments later. Immediately after December 31, 2020 the landlord “may require payment in full for all payments not made.” These include payments missed both before and during the moratorium period. The amount due can also include all “fees, penalties, or interest for not paying rent” allowed under your rental agreement.

Furthermore, even during the moratorium period the tenant must make partial rent payments “as close to full payment as the individual’s circumstances permit.”

Also, careful: evictions can continue during the moratorium for reasons other than nonpayment of rent. Specifically the Order does not stop evictions for:

“(1) Engaging in criminal activity while on the premises;

(2) threatening the health or safety of other residents;

(3) damaging or posing an immediate and significant risk of damage to property;

(4) violating any applicable building code, health ordinance, or similar regulation relating to health and safety; or

(5) violating any other contractual obligation, other than the timely payment of rent or similar housing-related payment (including non-payment or late payment of fees, penalties, or interest).”

Note: the Order does not stop any state or locality from creating a stricter moratorium on residential evictions.

Last thing: the Order does nothing for landlords who need tenant rental payments to pay their own mortgages. Because of prior state and local eviction moratoria, many landlords have already not been receiving rental income for months. The Order essentially passes the economic pain temporarily from tenants to landlords.

This impact on landlords, and the short-term relief for tenants, puts pressure on Congress for a better solution.

 

States’ Reactions to Trump’s Unemployment Benefits Extension

August 24th, 2020 at 7:00 am

  

How are states responding to Trump’s Memorandum providing $400 (or maybe $300?) weekly extended unemployment benefits? It varies widely.

 

Last week we explained the President’s Memorandum of August 8 which extended reduced federal unemployment benefits. The $600 weekly benefit had expired on July 31. The House of Representatives had previously passed a bill extending the $600 benefits into early next year. The Senate had proposed to extend the benefits but at only $200 weekly. The two Houses of Congress were not resolving their differences. Then the Memorandum directed the Federal Emergency Management Agency (FEMA) to fund supplemental unemployment benefits out of its Disaster Relief Fund. This was to cover $300 of a $400 weekly benefit. The remaining $100 weekly was to come from the states.

National Developments Since the Memorandum

The Memorandum raised some confusion, especially about the states’ contribution. The President’s contemporaneous remarks indicated that the federal money would only be available for states that paid their $100 share.

But this implication was changed through a 6-page U.S. Department of Labor letter of guidance issued on August 12. It relieved states of paying the $100 share in order to receive the $300 federal contribution. States could pay the $100 share to their unemployed residents, in order to pay out a $400 weekly supplemental benefit. Or states could choose not to pay the $100, resulting in only a $300 weekly benefit.

So What Have States Decided?

States are all over the map, both in their decisions and where they are in the process. As of this writing (Saturday, August 22, 2020), many states have applied to FEMA to get started while others have not yet decided what to do.  One state—South Dakota—has decided to decline the assistance. About 14 states’ applications to FEMA for the assistance have been approved, while others are in process. Most states are going to pay $300 weekly, but at least 3 are paying $400.

Here are additional details about what’s happening at 7 states, to give an idea of the variety of situations:

Indiana

Governor Eric Holcomb announced last Wednesday (Aug. 19) that the state would apply for the federal $300 benefit. It would not be paying the state’s additional $100 weekly.

FEMA approved Indiana’s application on August 21. The commissioner of the Indiana Department of Workforce Development, Fred Payne, says that “it will take maybe 2 to maybe 4 weeks for us to get this in place.” There are additional details on the Department’s website.

Kentucky

Governor Andy Beshear announced last Wednesday (Aug. 19) that the state would apply for the federal $300 benefit. It would also add the state’s $100 additional amount for a total of $400 weekly. Since FEMA is doling out the money in 3-week increments, the current plan is to go at least these 3 weeks, longer if funds are available. Because these benefits are retroactive, this first installment covers the weeks between July 26 and August 15.

FEMA approved the application on August 21. The first $400 payments are expected to pay out in early September.

Texas

Governor Greg Abbott announced in a press release last Thursday (Aug. 20) that the state would apply for the federal $300 benefit. The press release made no reference to the state paying the additional $100.

FEMA approved Texas’s application on August 21. The above press release stated that “eligible claimants should expect to receive the additional benefits on their first payment request on or after August 23, 2020. These funds will be backdated to the benefit week ending August 1, 2020.”

New Jersey

As of Friday (Aug. 21), Governor Phil Murphy had not yet decided whether to apply for the additional federal benefit. His chief counsel, Matt Platkin said on Friday: “They’ve never run it through FEMA this way. And there’s some concern that if they were to come back – if Congress were to come back and enact an extension of the $600 that then the state would have to go back and recoup this money… .” The governor concluded: “If we can do it and we’re not on the hook for that back $100, and it doesn’t come back in the future where we’re going to have to repay any or all of that, we’ll sign up,” Murphy said. “But we’ve got to get guidance on that first.”

California

California applied last Wednesday (Aug. 19) for the federal $300 benefit. It will not be paying the additional $100 weekly.

FEMA approved its application on August 21. California’s Employment Development Department says that it will receive $4.5 billion, with the possibility of additional funding going forward.” This apparently is to cover $300 weekly benefits “for a limited period of time, a minimum of three weeks.” Coverage is for “weeks of unemployment dating back to August 1.”

West Virginia

Back on August 10, the Monday after Trump signed the Memorandum, Governor Jim Justice committed to paying the state’s $100 share. “Hands down, period, West Virginia is going to pay it,” he said. The governor added: “I believe that the federal government will eventually reverse their stance on that and that they will pay the full 100 percent in the end. But we’ve got the money set aside to make it work either way.”

According to a press release last Wednesday (Aug. 19), Workforce West Virginia is in the process of applying to FEMA. As of this writing (Aug. 21), the application has not yet been approved. According to Scott Adkins, acting commissioner of WorkForce West Virginia, “The federal government requires each state to set up a system that complies with the program. We are in the process of doing that now.”

Montana

Montana’s Department of Labor & Industry (DLI) applied to FEMA back on August 15, and sent additional information on August 17. It announced on Wednesday (Aug. 19) that FEMA approved its application for the extended benefits. Montana will be paying the additional $100 weekly. It’s doing so out of Montana’s allocation of the federal CARES Act Coronavirus Relief Fund. Montana’s DLI press release of August 20, 2020.

Acting DLI Commissioner Brenda Nordlund said. “Programming to meet the new requirements is underway and we should be up and running as soon as possible.”

 

Trump’s $400 Weekly Unemployment Benefits Extension

August 17th, 2020 at 7:00 am

Trump’s Memorandum Providing $400 Weekly Unemployment Benefits from August to December Is Complicated.

 

A Quick History

The CARES Act’s $600 per week additional federal unemployment benefits expired on July 31, 2020. Section 2104 of the CARES Act.  Back in May the U.S. House of Representatives had passed the HEROES Act extending these $600 benefits through January 31, 2021. Section 50001 of the HEROES Act. Then on July 27 the Senate announced its HEALS Act; it reduced the additional federal benefit to $200 per week. (This was to last through September, and then transition into a total unemployment amount of 70% of lost wages.) The Senate bill did not come up for a vote in the Senate.  Intense efforts to reconcile the House of Representatives’ HEROES Act and the Senate’s HEALS Act have so far gone nowhere.

Trump’s Memorandum on Authorizing the Other Needs Assistance Program

 Then on August 8, 2020, President Trump signed a “Memorandum on Authorizing the Other Needs Assistance Program for Major Disaster Declarations Related to Coronavirus Disease 2019.”

This Memorandum creates an “Assistance Program for Lost Wages.” This potentially provides for a weekly “lost wages assistance” of $400 per week. Theoretically it would cover the period from August 1 through December 6, 2020. See Sections 4—6 of the Memorandum.

But there are a series of practical challenges.

Can the President Act without Congress on This?

The Constitution gives Congress the power of the purse: to make laws about collecting and spending tax money. U.S. Constitution, Article 1, Section 8. Not the President. The Memorandum is clearly about spending billions of dollars of tax money. So how does Trump get around this?

He uses a law passed by Congress, the Disaster Mitigation Act of 2000. This law mostly pertains to federal housing assistance after a major disaster. But it also allows the president to provide for “Financial Assistance to Address Other Needs.” Specifically, the law allows for “financial assistance… to address… other necessary expenses or serious needs resulting from the major disaster.” 42 U.S.C Section 5174(e)(2).

This law empowers “the President, in consultation with the Governor of a State,… [to] provide [the] financial assistance… to individuals and households… .” 42 U.S.C Section 5174(a)(1).

So there’s at least a sensible argument that Trump can spend money to extend unemployment benefits needed from the pandemic.

But Where Does the Money Come From?

Under the Memorandum the new unemployment money comes from two sources.

First, the Federal Emergency Management Agency’s (FEMA) Disaster Relief Fund “has more than $70 billion in emergency assistance funding available.” The Memorandum directs “up to $44 billion” of this money to go towards the unemployment benefits. The remaining “at least $25 billion” in to be “set aside” for “ongoing… and potential 2020 disaster costs.” 75% of the $400 weekly benefits are to come from this $44 billion from the Disaster Relief Fund.

Second, the Memorandum says that the remaining 25% to fund the extended benefits is to come from the states. It references the CARES Act’s $150 billion earmarked to states and some other local governments for COVID-related costs. The Memorandum asserts that “more than $80 billion [of these] dollars remain available.”

Are These Sources of Money Actually Available?

Start with the 75% federal share. To keep it simple here, assume that above-mentioned Disaster Mitigation Act contemplates supplemental unemployment benefits to be a “serious need” for people unemployed during the pandemic.  Let’s put aside the wisdom of dedicating nearly 2/3rds of this natural disaster fund for this purpose.

One bit of reality is that the $44 billion the Memorandum earmarks for this purpose is only enough to cover 4 or 5 weeks of benefits. That barely makes a dent in the August to December period referenced.

How about the States’ Share?

As for the states’ 25% share, this provision comes with a bunch of practical challenges.

First, many states vehemently disagree with the Memorandum’s assertion that “more than $80 billion remain available” from the CARES Act. The states counter that this money is necessary for other absolutely critical pandemic purposes. In many cases already been explicitly earmarked for those purposes.

Second, beyond these CARES funds, the Memorandum has states use “other State funding,” to pay its 25% share. But states are in dire financial straits. Tax collection is significantly down and expenses are significantly up because of the pandemic. This includes huge increases in state unemployment benefit payouts, which continue at historic highs. State legislatures are going into emergency sessions to address the severe shortfall. Unlike the federal government, states must balance their budgets every year. They simply do not have money to pay for this new program.

Third, the Memorandum also says that “States should also identify funds to be spent without a federal match” if the federal money runs out. So after 5 weeks of the federal government paying 75%, the states are supposed to pay for the entire program. If there’s no money for 25%, there certainly isn’t money for 100% of the cost.

So Where Does This Now Stand?

Arguably the Memorandum was mostly meant as leverage to get Congress to agree on some kind of unemployment benefits extension. It’s been more than a week (as of this writing on August 17) but there’s been no progress there.

If you had been kept afloat by the $600 weekly federal unemployment benefits, this is an intensely frustrating time.

 

Consumer Bankruptcies Not Increasing–Yet

May 18th, 2020 at 7:00 am

After declining significantly since 2010, consumer bankruptcies edged up in 2019, increased in March, then oddly sharply declined in April. 

 

In the last two weeks three major retailers filed Chapter 11 bankruptcy: J. Crew, Neiman Marcus, and J.C. Penny. Total business Chapter 11 reorganizations were up 26% in April 2020 compared to the same month last year. (560 compared to 444.)

What about consumer bankruptcy filings? What has happened so far, and what’s to come?

Consumer Bankruptcy Filings So Far

Since the Great Recession, consumer bankruptcy filings had been declining. They’d topped out at more than 1.5 million filings in 2010, then came down steadily for almost the full decade. Only half as many consumer bankruptcies were filed in 2018, about 751,000. Then in 2019 the number nudged up for the first time since the Great Recession, although just barely. Annual Business and Non­-business Filings by Year (1980­-2019).

So what about the first few months of 2020? The last couple monthly totals are very unusual. After holding steady during January and February, there was a significant uptick in filing in March. Consumer filings increased 12% that month from the prior month (from 53,087 to 59,668). But then in April filings plummeted, dropping 39% (down to 36,161 for the month).

What’s going on? Common sense says that as the reality of the pandemic set it, people who had been on the brink, and/or started getting hit economically, and rushed to file. That accounts for the March increase.

Then when states started shutting down in late March and early April, connecting with a bankruptcy lawyer to start the bankruptcy process became more difficult. Plus the Coronavirus Aid, Relief, and Economic Security Act (“CARES”) passed in late March. People have been waiting to see if the one-time relief payments, and its enhanced unemployment benefits, would help enough. These account for the sharp decrease in April filings.

What’s Happening Soon

In the last 8 weeks 36.5 million Americans filed unemployment claims. Countless others are working less hours and/or for lower pay.

According to one recent poll 77% of laid off workers believe they’ll get their jobs back “after stay-at-home orders are lifted.” That may well be overly optimistic. Millions of businesses face deep financial stress because of the pandemic. Many will not reopen. The health safety changes required by the virus will add costs and reduce income for entire industries. Restaurants, transportation, and retail are obvious examples. Businesses with thin financial margins will either not reopen or will try but won’t succeed. As part of a recent Time magazine article title says, A Flood of Small Business Bankruptcies Likely in Coming Months.

On top of all that, states and local governments are sharply losing tax revenue so job cuts are inevitable.

Even among those who do get back their jobs, those without enough savings will be left with an income hole. Many will need bankruptcy relief.

According to Amy Quackenboss of the American Bankruptcy Institute, “We think business filings will see an uptick in April with consumer filings to surge in May and June.” She said this in early April. She was accurate about the April business filings. She’s likely right about the consumer filing surge as well.

Household Debt Burden

One very reliable indicator of future consumer bankruptcy filings are the amount of household debt and its delinquency rate. Here’s a comparison of these two just before the 2008-09 Great Recession vs. just before the COVID-19 pandemic.

While mortgage and credit card debt is only modestly higher now, vehicle loan debts are up 63% and student loan debt has nearly tripled.

The delinquency rate overall was recently virtually as high as it was just before the Great Recession. Back then that resulted in a doubling and then nearly tripling of consumer bankruptcy filings between 2006 and 2010. The even worse household debt burden and delinquency rate pre-pandemic foretell a similar new surge in bankruptcy filings.

 

Protecting Your Pandemic Relief Payment from Your Bank

May 4th, 2020 at 7:00 am

If you owe money to the bank or credit union where your $1,200 relief payment is being deposited, can it take that money to pay itself first?

 

Our last blog post was about whether your creditors can seize the $1,200 (or so) pandemic relief payments. Today’s is about one specific class of creditors: your own bank or credit union. What if you have a debt to the financial institution where your relief money is being direct-deposited? Can it pay itself to cover your debt instead of paying you? Would you only get whatever’s left, if any?

The Banker’s Powerful Right of Setoff

To force payment from your bank account, most creditors must sue and get a judgment against you first. So the big focus in last week’s blog post was on determining whether you had a judgment against you, and a resulting garnishment order on the bank account where your coronavirus relief payment was arriving. If no judgment, than no garnishment, and the relief payment is safe from creditors.

But the bank where you have your account is different. (All references to banks in this blog post also include credit unions and other financial institutions.) Banks have a right of setoff.

The basic idea is that money you have in a checking or savings account is money the bank owes you. It can set off its debt to you against your debt to it. It zeros out its debt to you (by taking the money in your account) and lowers your debt to it by the same amount. The practical effect is that money comes out of your checking/savings account to pay off or pay towards your debt.

This right is put into likely every contract you enter into with your bank governing your deposit accounts. For example, here’s the pertinent language from a recent 64-page Wells Fargo Bank Deposit Account Agreement:

[W]e have the right to apply funds in your accounts to any debt you owe us. This is known as setoff. When we setoff a debt you owe us, we reduce the funds in your accounts by the amount of the debt. We are not required to give you any prior notice to exercise our right of setoff.

A debt includes any amount you owe individually or together with someone else both now or in the future. It includes any overdrafts and our fees. We may setoff for any debt you owe us that is due or past due as allowed by the laws governing your account. If your account is a joint account, we may setoff funds in it to pay the debt of any joint owner.

So, in general a bank can take the relief money as it arrives into your account. It uses the money to pay any debt you owe the bank. That debt may be on the account itself—such as an overdraft fee—or any other debt you owe it.

Special Credit Card Law

This right of setoff usually does not apply to unsecured consumer credit card debts. Under Federal law

A card issuer may not take any action to offset a cardholder’s indebtedness arising in connection with a consumer credit transaction under the relevant credit card plan against funds of the cardholder held on deposit with the card issuer…   .

15 U.S.C. Section 1666h(a). For more details see the related regulations at 12 C.F.R. § 1026.12(d).

So, if you owe your bank on a credit card, it can’t take your relief payment to pay that debt. (This assumes the bank hasn’t sued you and gotten a judgment and garnishment on that account.)

Special Closed Account Rule

What if you had an account at a bank but either you’ve closed it or the bank has done so? In particular, what if the relief payment is slated to come to that closed account? That’s what would happen if you had the IRS send last year’s tax refund to that account (while still open).

In this situation the bank can’t take your relief payment to pay a debt you owe to the bank. Its right to setoff is cut off when either you or the bank close the account. 31 C.F.R. § 210.4(c)(3).

This means that the bank has to return the payment to the IRS (actually the U.S. Treasury). Then you should receive the payment by paper check through the mail. How long before you’d receive that check? The lower your income the quicker the IRS is mailing the paper checks. Here’s a recent article listing the mailing dates based on your adjusted gross income.

Therefore, in some circumstances it may make sense to close your account to prevent a setoff. The delay in receiving the payment may be worth avoiding losing some or all of it through a setoff. Then of course when you receive the check, cash or deposit it at a different financial institution.

If this is your situation you’d likely benefit from talking with a bankruptcy lawyer about this, and about your overall financial options.

Important Exception to the Closed Account Rule

Be careful about one important twist. If you believe your bank closed your account because of unpaid fees, it may not actually be closed. The bank may have charged off the account with a negative balance but not legally closed that account. Then this closed-account exception would not apply. The bank could pay the unpaid fees with your relief payment when it hits your account. It could also set off any other debts you may owe to the bank (other than credit cards). Again, this is a situation to discuss with a lawyer.

Local Pandemic Collection Protections May Apply

Last week we gave a list of state emergency orders preventing seizure of the relief payments to pay ordinary creditors. Most of these addressed creditor garnishment of bank accounts. Most did not directly address the separate question of setoffs by the banks themselves. However, some of those orders did so, including:

 This situation is constantly changing so it’s worth seeing whether your state has created similar setoff protections.

Some Banks’ Voluntary Policies

Some individual banks have announced that they’re not exercising their setoff rights specifically regarding relief payments. These include JP Morgan Chase, Citibank, Bank of America, USAA, and Wells Fargo, and likely others.

Because these are voluntary, and temporary, the exact details will vary at each bank, and may change. They may even vary customer by customer. So be careful, and find out whatever details you can before relying on these voluntary policies.

 

Protecting Your Pandemic Relief Payment from Creditors

April 27th, 2020 at 7:00 am

Your $1,200 or so coronavirus relief payment is subject to seizure by your creditors, if they have a garnishment order on your bank account.  

 

Our blog post four weeks ago was about the $1,200 pandemic relief payments going out to most U.S. adults. The CARES Act explicitly protected these payments from seizure for certain governmental debts. Generally, the payments can’t be reduced or taken to pay past-due federal taxes and student loans. They can be for past-due child support obligations.

But the CARES Act made no mention of protection from debts owed to non-governmental creditors. So the relief payments are generally subject to possible seizure by your creditors. Today we address this concern about private creditors’ access to these payments.

There are two classes of creditors at play:

1)      Setoffs by your own bank or credit union for a debt you owe to it

2)      Garnishment by other creditors which have a judgment against you

Next week we address setoffs by for fees or other debts owed to your own financial institution. Today is about protecting your relief payment from other creditors.

Judgments and Garnishment Orders

Generally a non-governmental creditor can’t take money from your bank account without a court’s garnishment order. And to get a garnishment order a creditor virtually always must first sue you and get a judgment. (This assumes that the creditor isn’t a governmental agency or the bank/credit union itself.) If a creditor has an active garnishment order on your bank/credit union account, your relief payment would arrive there and go to pay the debt instead of giving you the financial relief you need.

Do You have a Garnishment Order on Your Bank/Credit Union Account?

This question is not necessarily so easy to answer, for a number of reasons.

First, although most of the time you’d know that you received lawsuit papers, not necessarily. You may have not noticed it in the mail.  It may not have looked much different from other collections paperwork. If you’ve moved a lot, it’s possible you didn’t even get the lawsuit papers.

Second, you may not know that the lawsuit resulted in a judgment. If you didn’t respond within a very short time to the lawsuit papers, you probably lost the lawsuit by default. That almost always immediately turns into a judgment—a court decision that you owe the debt. The judgment gives the creditor power to—among other things—garnish your bank account.  

Third, you may not know about the garnishment order, or the pertinent details about it. For example, you may think it only applies to your paycheck, not your bank account. Or the bank garnishment order may have happened a while ago and you don’t realize that it’s still active.   

Fourth, the laws about lawsuits, judgments, and garnishments are detailed, complicated, and different in every state. And they change (sometimes in a good way, as we show below.)  So what you may have heard in one situation may not apply at all to you regarding these relief payments.

Finding Out If You Have a Bank Garnishment Order

Some common sense questions you should ask yourself. Have you:

  • ever received lawsuit papers and then did not fully resolve the debt?
  • had any kind of creditor garnishment or seizure, even if unrelated to your bank/credit union account?
  • had anything repossessed, especially a vehicle, where you may still owe a balance?
  • gone through a real estate foreclosure in which you may still owe a money to junior mortgage or other lienholder?
  • moved from another state and thought you left unresolved debts behind?

In these and similar situations you may have a judgment against you and a garnishment on your bank/credit union account. So your relief money would likely go to pay the judgment before you’d get any of it.

Is there any more direct way of finding out if there’s a garnishment order? Yes, you could contact your bank/credit union and ask. The problem is that in the midst of the pandemic you may well have trouble getting anyone to answer. More to the point, you’d likely have trouble getting through to somebody who could accurately and reliably answer this question.

A debtors’ rights or bankruptcy lawyer could help. He or she likely knows the right people to call at your financial institution, including that institution’s lawyers.

 What To Do If You Do Have a Garnishment Order

First, every state has exemptions that you may be able to claim to protect the relief money from garnishment. Each state has different procedures for claiming those exemptions. An extra challenge during the pandemic is getting access the courts to assert your exemption rights. Many courts are physically closed, you may be subject to a stay-at-home order, and contacting a lawyer may be harder. But if you don’t want to lose your relief money, you’ll likely need to assert your exemption protections.

Second, you may want to consider some other tactical steps:

  • If a garnishment order has expired and the creditor needs to renew it, you may have time to take the money out of the account immediately after it arrives.
  • Has the IRS has not yet direct-deposited your payment? Then you may be able to redirect it to an account at a different (non-garnished) financial institution. Go to the Get My Payment webpage to provide new bank account routing information (if it’s not too late).
  • Are you currently waiting to receive the relief payment in paper checks? Consider NOT providing the IRS direct deposit information even though that may delay the payment. (Here’s an article with the dates that the IRS is mailing out paper checks, based on income.)

Third, a number of states are issuing orders to prevent garnishments of bank accounts:

California Governor’s Executive Order N-57-20District of Columbia Act 23-286

Illinois Governor’s Executive Order 2020-25

• Indiana Supreme Court Order in case nos. 20S-MS-258 and 20S-CB-123

Massachusetts emergency regulation 940 C.M.R. 35.00

Nebraska Attorney General Warning

• New York Attorney General Guidance on CARES Act Payments

• Oregon Governor’s Executive Order 20-18

• Texas Supreme Court Tenth Emergency Order Regarding the Covid-19 State of Disaster

Virginia Supreme Court Order Extending Declaration of Judicial Emergency

• Washington State Governor’s Proclamation 20-49 Garnishments and Accrual of Interest

This list is expanding all the time. So if your state isn’t listed here it may have acted after this writing (4/27/20).

This IS Complicated

Garnishment law is detailed and not at all straightforward. And that was before all the legal and serious practical complications caused by the pandemic. So if at all possible, get through to a debtor’s rights or bankruptcy lawyer. We have spent our professional lives helping people deal with garnishments and protect their assets from creditors. This is just another twist on what we do all day every day.

 

Enhanced Unemployment Benefits Under the CARES Act

April 6th, 2020 at 7:00 am

The greatly enhanced unemployment benefits mean much more money each week, for longer, for many more kinds of workers, and for many others.


Our blog post last week was about the emergency $1,200 Economic Impact Payment that’s “rapidly” coming to most American adults. (Plus $500 for each qualifying dependent child.) For updates on this payment since then, see the IRS’ special “Coronavirus Tax Relief” webpage. That links you to its News Release IR-2020-61, which came out on March 30, 2020. It was modified and updated on April 1, specifically about Social Security recipients.

Today’s blog post is about the new greatly enhanced unemployment benefits provided by the same law. The $2.2 Trillion Coronavirus Aid, Relief, and Economic Security Act (“CARES”) includes about $260 Billion for expanded unemployment benefits. Although that’s only about one-eighth of the whole package, it’s still a huge amount of money. By way of comparison, $260 Billion is almost 40% of last year’s entire defense budget.

These new unemployment benefits include the following distinct components.

Larger Checks—Federal Pandemic Unemployment Compensation

Individuals who already qualify for unemployment benefits under state law will get an additional $600 per week. This extra is called Federal Pandemic Unemployment Compensation. The states will pay this extra $600 per week in addition to the regular amount of unemployment benefit. Section 2104 of CARES.

This is quite a big increase, especially compared to the usual weekly amount. That usual amount varies widely. In Connecticut the maximum benefit is $631, in Florida it’s $275. No matter your state, the additional $600 per week is a very meaningful increased benefit. 

Longer Payment Period—Extended Unemployment Compensation

Individuals usually get up to 26 weeks of unemployment benefits under state law. Some states provide less. For example, Florida gives only 12 weeks of benefits. CARES adds up to 13 more weeks of benefits, for up to 39 weeks of benefits. Section 2102(c)(2) of CARES.

These additional weeks of benefits include BOTH the regular state unemployment benefit amount PLUS the $600 per week referred to above. Section 2102(d)(1)(A) of CARES.

Extension of Exhausted Benefits—Available to Work but Can’t Find Work

The new law also reinstates unemployment benefits for those “have exhausted all rights to regular compensation under the State law or under Federal law” for the benefit year. This assumes that the individual is “able to work, available to work, and actively seeking work.” Section 2107(a)(2) of CARES.

The unemployment benefit amount under this part of the law includes the regular state-determined weekly amount plus $600, as discussed above. Section 2107(a)(4) of CARES.

Pandemic-Related Individuals—Virtually Everyone Who’s Impacted

The law gives unemployment benefits to a wide array of individuals affected by the health emergency, covering 10 categories. An individual who doesn’t otherwise qualify for the unemployment benefits receives them by providing a “self-certification” stating that he or she is “unemployed, partially unemployed, or unable or unavailable to work because” of the following conditions. The individual:

  1. has been diagnosed with COVID-19 or has symptoms and is currently being diagnosed
  2. has a household member who’s been diagnosed with COVID-19
  3. is caring for a family or household member diagnosed with COVID-19
  4. has a child or other dependent who can’t go to school or a care facility because of the health emergency
  5. can’t get to the workplace because of a quarantine
  6. can’t get to the workplace because of being “advised by a health care provider to self-quarantine due to concerns related to COVID–19”
  7. was scheduled to return to work but can’t because of the health emergency
  8. became the “breadwinner or major support for a household “because the head of the household has died as a direct result of COVID–19”
  9. “has to quit his or her job as a direct result of COVID–19”
  10. lost a job because the “place of employment is closed as a direct result of the COVID–19 public health emergency”

Section 2102(a)(3)(A) of CARES.

Consistent with the other parts of the law, the amount of weekly benefit is the regular state-determined amount plus $600. Section 2102(d)(1)(A) of CARES.

Nontraditional Workers Get Benefits—More “Covered Individuals”

Self-employed and independent contractors are usually not covered by state unemployment benefits. Very significantly, many of the benefits we’re discussing here do apply to these nontraditional workers. The law says that

The term “covered individual”—(A) means an individual who

(II) is self-employed, is seeking part-time employment, does not have sufficient work history, or otherwise would not qualify for regular unemployment or extended benefits under State or Federal law or pandemic emergency unemployment compensation under section 2107 and meets the requirements of subclause (I)

Section 2102(d)(1)(A) of CARES. The reference to Section 2107 is to those who already qualify for benefits otherwise, as discussed two sections above. The other reference to subclause (l) is to the list of 10 COVID-19-related circumstances listed in the section immediately above. So the self-employed and independent contractors receive unemployment benefits if they fit any of the 10 conditions.

However, these benefits to the self-employed and independent contractors are not available to those who can work remotely—who can “telework with pay.” Also individuals “receiving paid sick leave or other paid leave benefits” don’t qualify. That’s true even if they fit into any of the 10 COVID-19-related categories discussed above.

 

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