https://www.nytimes.com/2022/03/28/technology/uber-taxis-san-francisco-deal.html

 https://www.nytimes.com/2022/03/24/business/uber-new-york-taxis.html

 Interesting article about Boris Becker bankruptcy filing and allegedly hiding assets. The article can be found at https://www.espn.co.uk/tennis/story/_/id/33570612/boris-becker-acted-dishonestly-hiding-wimbledon-australian-open-trophies-declaring-bankruptcy?platform=amp Jim Shenwick, Esq 212 541 6224 [email protected]

Student Loan Programs Ending: Are Borrowers Able to Pay? After May 1, 2022, the pause on federal student loan payments and interest will come to an end. This student loan program went into effect to assist individuals financially affected by the Covid-19 pandemic, and it has been extended multiple times to account for the pandemic’s dynamic nature. As the pandemic has significantly improved in recent months, the federal government has concluded loan payments will resume, but the question now is how prepared will students be when this program expires? The overall financial impact of the pandemic continues to this day, even as society has been able to slowly get back to work like they did before the pandemic started. While the federal student loan program was helpful in many respects, many don’t feel prepared to return to their payments, and it could lead to some widespread financial troubles come May 1. 37% of Student Loan Borrowers Feel Less Able to Pay The Covid-19 pandemic has had far-reaching economic effects on many U.S households, many of which have had a hard time adjusting even with the help of federal financial stimulus packages and student loans pauses. On average, 37% of student loan borrowers feel less able to pay their loans compared to before the pandemic. And although the exact financial situation of borrowers may vary, this statistic still provides a clear illustration of how people will be affected by the end of the student loan program. Google Survey Results To get a better understanding of how prepared borrowers are for the conclusion of the student loan pause, a recent Google survey asked people about how well positioned they were to resume loan payments compared to before the pandemic. Out of 963 respondents, roughly 37% of those with student loans responded they felt worse about resuming payments. This provides an indication of how the pandemic has affected student loan borrowers, and how those same borrowers might struggle with payments in the future. How the Pandemic Affected Student Loans The Covid-19 pandemic has had sweeping effects on student loans, both positive and negative. As was previously mentioned, when the pandemic first began to accelerate in the U.S the federal government suspended loan payments, stopped collections on defaulted loans, and implemented a 0% interest rate to prevent loan payments from worsening as the pandemic progressed.  This decision was further supported by the CARES Act once it became law on March 27, 2020, and although it was initially set to expire at the end of September that same year, it was extended multiple times to accommodate the evolving and ongoing nature of the pandemic to provide additional relief to those who needed it. For those who have been willing and able to make payments during this time, they’ve benefited from the 0% interest rate the federal government put in place. Although their payments may not have been lower, they will still save more money overall because they were unaffected by their previous interest rate. On the negative side of the situation, because the pandemic left many people unemployed for an extended period of time, and many of those same people still had to pay other bills, there has been little room left to save money towards loan payments. Many borrowers who have been getting back to work are still in the process of paying back more immediate bills, and once the student loan program ends, it will likely become a tremendous financial burden that exacerbates an already difficult situation. Student Loan Cancellation Discussions One topic of frequent discussion between borrowers and federal officials is student loan cancellation, where borrowers are no longer required to repay some or all of their loan due to various circumstances. The conversation on student loan cancellation was steadily gaining traction before the Covid-19 pandemic, but the resulting financial crisis has made it a frequent talking point over the last two years. While the idea of canceling all student loan debt has been passed around, the federal government has been hesitant to make that commitment, and has instead opted for incremental cancellations for eligible borrowers. It is rare a person’s entire debt may be canceled, and in some cases the eligibility requirements may exclude a wide range of borrowers who would greatly benefit from a partial or complete cancellation. As dire as the national and global financial situation is for many borrowers because of Covid-19, there is an overall reluctance to implement sweeping cancellations because of how reliant lenders are on loan repayments. There is a perceived greed on the part of borrowers towards these lenders as a result, but the overall complexity of the situation makes it much more nuanced than it may appear. Preparing for the End of Student Loan Forbearance As May 1 comes closer with the passing of each day, student loan borrowers will have to prepare for their payments to resume and their interest to continue building. For those who have been able to take advantage of student loan forbearance, there are ways to adjust your student loan debt to your benefit so you’ll be better prepared for regular payments and interest to resume. And for those who have not been able to make substantial payments during this suspension period, now is the time to make whatever payments possible before things go back to normal. Refinance Refinancing a student loan can have many benefits, the most significant being the ability to lower your interest rate or take on a more favorable payment plan. These benefits can be helpful no matter the circumstances, but they can be particularly advantageous during the current student loan pause. If you qualify for refinancing, and the process can be completed before the May 1, 2022 deadline, you could restart your loan repayment with a lower interest rate than the one you started with. You could also use refinancing to adjust your payment plan towards your current financial situation if the pandemic has made it more difficult to pay any bills. If you opt for refinancing, it’s important to do it as close to the May 1 deadline as possible, as you may miss out on any loan forgiveness that happens between now and then. You may also have to continue making scheduled payments with accruing interest, as the loan will now be managed by a private lender and not the federal government. Pay Extra Each Month If you have been able to make forbearance payments during the student loan pause, it would be wise to take advantage of your stagnant interest rate and pay more than you usually would each month. Not only will this move your repayment timetable forward, but it also makes any interest accrued less severe than it would have been otherwise. Even if it’s only a small percentage more than you would pay each month, it serves to lessen the burden of your loan once repayments resume after May 1. What People With Student Loans Can Do If you have student loans and you’re worried about the continuation of your payments and building interest, there are ways to prepare for May 1.  If you believe you may qualify for student loan forgiveness, complete the U.S. Department of Education’s application, and you will be notified if you meet their eligibility requirements. You may also seek out refinancing if you wish to make changes to your repayment plan, but it’s important to consider you will lose many of the protections that come with a federal loan.  The best thing to do no matter your financial situation is to assess how much money you need to contribute towards your loans once the pause concludes. This helps prevent loan repayments from completely derailing your current finances, and ensure you know what to expect when they resume. It’s no secret many people don’t feel completely comfortable with repaying their loans in the coming months, but it’s best to prepare in any way possible to lessen the impact when the time comes. The post 37% of Student Loan Holders Feel Less Able to Pay Due to Pandemic appeared first on David M. Offen, Attorney at Law.

Every day bankruptcy clerks sent out millions of required notifications to creditors and parties in interest. Creditors can bypass the paper notification by designating an email address for service pursuant to Fed.R.Bankr.P. 9036. Now the Bankruptcy Court for the Southern District of Texas is seeking to compel high volume creditors to sign up for electronic noticing.  On March 17, 2022, Judge Marvin Isgur instituted 328 orders requiring creditors to appear for a status conference through counsel to explain why they have not signed up for electronic noticing.  While creditors are receiving the notices, the problem appears to be caused, at least in part, by debtors using different variants of a creditor’s address. In one case I reviewed, the same creditor was the subject of three orders. One involved notice sent to a post office box, one was addressed to a physical address minus the creditor’s suite and a third was sent to the physical address with an incorrect suite number. The orders are being sent to “high-volume paper notice recipients” defined as parties receiving one hundred or more notices a month. The parties being haled into court seem to consist of debt collectors and creditors. When a debtor files a bankruptcy petition, it is good practice to include any debt collectors working on behalf of a creditor so that they receive notice and know to stop collection activities. Thus, debt collectors may find themselves on the receiving end of hundreds or thousands of notices without ever having appeared in a bankruptcy case. The court has offered a simple remedy to avoid having to appear in court. Creditors may go to:  https://bankruptcynotices.uscourts.gov.registerand designate an email address for notices and then file a notice in the miscellaneous proceeding demonstrating that they have registered. Parties who fail to respond to the court’s invitation may be subject to “any appropriate sanctions” As well as “the cessation of paper noticing from the U.S. Bankruptcy Courts and the creation of an electronic account for you by the Bankruptcy Noticing Center.” It is always a good idea to listen when a federal Bankruptcy Judge gives an order. However, there are other good reasons for complying with this requirement. It will reduce the cost to bankruptcy clerks across the country for sending out paper notices. It will also take some burden off the U.S. Postal Service. Finally, it will be good for the environment. Parties receiving these notices should act accordingly.

The ability to “clawback”[2] fraudulent transfers is an ancient,[3] but reliable, tool in bankruptcy trustees’ armories. Fraudulent transfers have two classes: a.) intentional; and b.) constructive. Intentional fraudulent transfers are “yes, I intended to hinder, delay and/or defraud my creditors.” Constructive fraudulent transfers don’t involve intent. Instead, they are transfers where the circumstances cloud the transfers’ economic bona fides (eg. “Jack, you traded the cow for some beans. Are you mashugah[4]? Go to your room! My creditors will go nuts.”). It doesn’t mean you’re a fraud; just not the best horse-trader. The post Concluding Insolvency Yields Inadequate Fraudulent Conveyance Claims appeared first on Wayne Greenwald, P.C..

 https://www.crainsnewyork.com/politics/chuck-schumer-and-new-york-elected-officials-blast-taxi-medallion-lender

Readers of our posts are aware that at Shenwick & Associates we do personal and business bankruptcy filings and workouts for many clients. In addition, we review settlement agreements for clients so that the settlement payments are not captured by section 547 of the Bankruptcy Code as a preference (also known as "preference proofing a settlement agreement").   This week we were retained by 2 clients who wanted their settlement agreements reviewed regarding preference exposure.This work is usually referred to us by the client or the client's litigator. There are generally 3 signs that indicate that a defendant may file for bankruptcy protection either after the settlement agreement is signed or after making some or all of the payments required by the settlement agreement. During settlement negotiations, the defendant discusses filing for bankruptcy.During settlement negotiations, the defendant discusses closing its business orThe defendant asks for more than 30 days to make the initial settlement payment. In the event that a defendant files for chapter 7 bankruptcy within 90 days of making a payment to the plaintiff,  that payment may be a voidable preference and subject to recapture or clawback by a bankruptcy trustee in a chapter 7 bankruptcy proceeding.Clients will be extremely upset and point fingers if their settlement payments are clawed back by a bankruptcy trustee or they need to defend a lawsuit (adversary proceeding) by a bankruptcy trustee seeking to recapture those payments.What can be done to preference proof a settlement payment? Below are some suggestions and strategies,  but a risk will always remain until 90 days have passed from the date of payment.Seek financial statements from the defendant or better yet a financial statement under penalty of perjury (an Affidavit of Net Worth), Have your CPA or a bankruptcy attorney review those financial statements.Seek a guarantee of the payments from a 3rd party.Make the plaintiff a secured creditor by receiving a mortgage on real estate or a security agreement and ucc-3 on another asset like accounts receivable. Structure the settlement agreement so payments are made sooner rather than later.Have the defendant stipulate to a judgment or a confession of judgment and have the plaintiff provide a satisfaction, 90 days after payment is made.Delay providing a release to the defendant until 90 days have passed from payment.Use the “earmarking doctrine” which provides that payments that are supplied by a 3rd party such as a  bank or a malpractice insurer  and earmarked for payment to a creditor are not preferential. Language should be included in the settlement agreement that preserves the plaintiff’s claim if any settlement payments are recaptured.Finally the settlement agreement should state that if the defendant files for bankruptcy the automatic stay, provided for in section 362 of the bankruptcy code is deemed lifted with respect to the Plaintiff.Although no single factor may win the day, a plaintiff should attempt to obtain as many of the above points as possible.Plaintiffs or their counsel having questions about settlement agreements and preferences should contact Jim Shenwick, Esq. 212-541-6224 or [email protected]

A new opinion from the Fifth Circuit highlights the perils of class proofs of claim, something I recently wrote about here. In West Wilmington Oilfield Claimants v. Nabors Corporate Services, Inc. (Matter of CJ Holding Company), Case No. 21-20394 (5th Cir. 3/10/22), the Fifth Circuit upheld a bankruptcy court decision which denied creditors covered by a putative class claim permission to file late claims. The opinion can be found here. What Happened In 2015, two former employees of an oilfield services company filed a class action in California state court. C & J Well Services, the defendant, removed the case to federal court. The defendant sought to enforce a company-wide arbitration agreement and class action waiver. The district court denied the motion. C & J appealed the case to the Ninth Circuit. In July 2016, while the appeal was pending, C & J and several of its affiliates filed bankruptcy in the Southern District of Texas. The Court entered an order setting a bar date and the deadline was advertised in national publications as well as by notice sent to creditors. The putative class representatives filed a proof of claim on behalf of the class for over $14 million. Twenty-seven individual claimants filed their own proofs of claim. A plan was confirmed which denied and expunged all claims filed after the bar date. The Debtor also entered into a settlement agreement with Nabors Corporate Services to indemnify it for any allowed claims and authorized Nabors to object to any claims subject to the indemnity agreement. Nabors was an affiliate of a company which had merged into the Debtor which had employed the persons bringing the employment claims. In February 2017, the bankruptcy court issued an order allowing the parties to the Ninth Circuit appeal to prosecute the appeal. In February 2018, the Ninth Circuit reversed the District Court and held that the arbitration and class waiver provisions were enforceable. Ninety-six claimants filed individual arbitration proceedings. However, only twenty-seven of these had filed individual proofs of claim. In October 2018, Nabors filed an omnibus objection to the various employment proofs of claim. The Bankruptcy Court ruled that the two class representatives and the twenty-seven additional creditors who had filed individual proofs of claim could proceed with the arbitrations but that the remainder could not rely on the class proof of claim. The Bankruptcy Court advised the claimants who had not filed claims that they could request leave to file late claims. The non-filing claimants did not file their motion for late-filed claims until August 2019, nearly two years after the bar date. After a hearing the Bankruptcy Court denied the motion. The claimants appealed to the District Court which reversed. Nabors then appealed to the Fifth Circuit.  The Court's RulingThe Fifth Circuit ruled that the Bankruptcy Court was correct in denying leave to file a late claim. How a tardily filed claim treated depends on the chapter. In Chapter 7, a late-filed claim is allowed but is subordinated to all timely-filed claims. 11 U.S.C. Sec. 726(a)(3). There is no provision for late-filed claims in Chapter 13, except that a debtor or trust may file a claim for a creditor within thirty days from the original bar date. In Chapter 11, a claim may be filed after the bar date if the late filing was the result of "excusable neglect." The Supreme Court has established a four-part test for excusable neglect: (1) “the danger of prejudice to the debtor,” (2) “the length of the delay and its potential impact on judicial proceedings,” (3) “the reason for the delay, including whether it was within the reasonable control of the movant,” and (4) “whether the movant acted in good faith.” Opinion, p. 8. The Fifth Circuit concluded that the risk of prejudice to the debtor weighed in favor of the claimants because the claims were known to the debtor and because Nabors had agreed to indemnify the debtor.  However, the length of delay was another story. The creditors waited two years and nine months after the bar date had passed and one year and seven months after the Ninth Circuit held that the class action was not a viable remedy.  Adding 67 more arbitrations would add anywhere from two to three months to years to the process.  Next the court found that the claimants had failed to reasonably explain the cause for the delay.  Excusable neglect "is the failure to timely perform a duty due to circumstances that were beyond the reasonable control of the person whose duty it was to perform." The Court found that most of the reasons proffered for the late filings were within the reasonable control of the creditors.  Finally, the Court ruled against the claimants on the good faith prong. The Debtors argue that the Claimants’ and their counsel’s failure to act diligently throughout the bankruptcy proceeding was so severe that it undermines their argument that they acted in good faith. We agree. To be sure, we have not held authoritatively that lack of diligence constitutes bad faith per se. Nor do we do so now. But other courts have held, in persuasive fashion, that lack of diligence can at least cast doubt on a claim of good faith.Opinion, p. 19. Thus, the Fifth Circuit agreed with the Bankruptcy Court with regard to three out of four factors. The Court noted that the standard of review was deferential to the Bankruptcy Court and thus reinstated its ruling denying leave to amend. Why It's SignificantThis case illustrates the danger in filing a class proof of claim. In evaluating good faith, the Court stated:Granted, the majority of circuits that have addressed the issue permit class proofs of claim. (citation omitted). However, this court has not spoken definitively on the issue. Yet, since 2016, the Claimants have ostensibly proceeded under the assumption that a class proof of claim would ultimately be available to them. Such is not settled law in this Circuit, and the Claimants’ reliance on unsettled law casts serious doubt on their claim of good faith.Second, even if the Claimants had moved the bankruptcy court to apply Rule 23 to their purported class proof of claim, they had a second hurdle to overcome. Namely, the bankruptcy court would still have had to certify the class proof of claim. Only once the bankruptcy court determines, in its discretion, that Rule 23 applies does it then evaluate whether the proposed class meets Rule 23’s requirements. Opinion, pp. 20-21. There are many things that can go wrong when individual creditors rely on a putative class rep to file a class claim. First, the jurisdiction might conclude that there is no authority for class claims. The class rep might fail to seek class certification in the bankruptcy court. If class certification is sought and denied, it would likely be after the bar date. One question that is left unanswered by the opinion is the specific notice that the individual claimants received. Notice is essential to due process. It is the debtor's burden to provide that notice. Given that twenty-nine claimants knew to file claims, there is an inference that notice was good.  So what should the putative class reps have done? First, they should have moved for class certification immediately in the Bankruptcy Court. As I have discussed elsewhere, Fed.R.Bankr.P. 7023 allows class actions in bankruptcy. However, there is no specific rule authorizing class proofs of claim. Thus, a class claim must be treated as a class action within the bankruptcy. Second, the putative class reps should have moved to extend the bar date for claimants within the class prior to expiration of the bar date. It is much easier to extend the bar date before it has expired than it is to get permission for a late-filed claim. Finally, this case illustrates why creditors should engage knowledgeable bankruptcy counsel before dealing with these difficult issues. 

A trustee who sought "turnover" of amounts owed under a construction contract had an arbitration clause in that contract enforced against him. The Bankruptcy Court found that the bankruptcy exception to enforcement of an arbitration clause was narrow and did not apply to a construction dispute. Satija v.  Kella (In re Davila General Contractors, LLC), Adv. No. 21-1047 (Bankr. W.D. Tex. 3/9/22). The order can be found on CM/ECF at Docket #23.What HappenedDavila General Contractors, LLC entered into an AIA Contract with Higginbotham Concepts, LLC to construct improvements for a Sun Auto Store. The contract contained an arbitration clause. Disputes arose between the parties and  Higginbotham sought to terminate the contract. Immediately prior to bankruptcy, Davila brought suit against Higginbotham seeking to recover over $158,000.After Davila filed, the Trustee filed suit against Higginbotham for "turnover" of the contract receivable under 11 U.S.C. Sec. 542. Higginbotham filed a Motion to Abate Proceedings and Compel Arbitration. The Trustee responded that arbitration should not be compelled in a core proceeding and that the contract was no longer enforceable because it had been terminated and/or rejected. The Court's RulingThe Court granted the Motion. The Court noted that in the Fifth Circuit, there is a two-part test for determining whether to allow arbitration.First, the underlying nature of the proceeding must derive exclusively from the provisions of the Bankruptcy Code.  Second, requiring arbitration must conflict with the purposes of the Bankruptcy Code. Order, p. 2. The Court found that labeling a cause of action as one for turnover was not sufficient since "Congress intended section 542 to apply to claims for tangible property and money due to the debtor without dispute which are fully matured and payable on demand, not to liquidate disputed contract claims." Order, p. 2 (cleaned up). Finally, the Court found that ordering arbitration would not conflict with the purposes of the Bankruptcy Code. "This is a chapter 7 case the goal of which is to liquidate assets and resolve claims. Both functions can be accomplished by arbitration." Order, p. 3. Finally, the Court found that terminating or rejecting the contract would not affect the arbitration clause. The Court noted that a party should not be able to escape the reach of an arbitration clause merely by breaching a contract (which is what rejection entails).  The Court also cited Nolde Bros. v. Loc. No. 358, Bakery & Confectionery Workers Union, AFL-CIO 8, 430 U.S. 243, 253-255 (1977) which holds that parties' obligations under an arbitration clause "survive contract termination when the dispute is over an obligation created by the expired agreement." Order, pp. 3-4.Judge Davis declined to follow a contrary ruling by his Texas colleague Judge Stacy Jernigan.  The Trustee had relied upon Highland Capital Management v. Dondero (In re Highland Capital Management), 2021 Bankr. LEXIS 3314 (Bankr. N.D. Tex. 2021), which in turn had relied on Janvey v. Alguire, 2014 U.S. Dist. LEXIS 193394 (N.D. Tex. 2014). Judge Jernigan had denied arbitration based upon two grounds. The first was that the arbitration clause was contained within an executory contract which had been rejected. When an executory contract has been rejected, it can no longer be enforced through specific performance but rather the contract counterparty has a claim for damages. This ruling was grounded on a U.S. District Court opinion in the Stanford Ponzi Scheme litigation and an article by the renowned Prof. Jay Westbrook. Judge Davis found that when the Fifth Circuit affirmed the Janvey v. Alguire decision on other grounds it cautioned against relying on the broad rationale used by the District Court.  In his oral ruling, Judge Davis stated that while he was reluctant to disagree with Judge Jernigan and Prof. Westbrook, he had worked on the Stanford cases as a practitioner and federal equity receiverships were considerably different than bankruptcy cases. Judge Jernigan also had an alternative rationale that the parties had waited too long to request arbitration. That was not a factor in Judge Davis's case.What Does It Mean?Many contracts have arbitration clauses. Many bankruptcy lawyers (myself included) have little experience with arbitration. Nevertheless, arbitration is one of the items in a defendant's toolkit to move a dispute to a different tribunal. The Trustee's suit for turnover was essentially a suit for breach of a contract containing an arbitration clause. The Trustee could not simultaneously seek damages under the contract and disavow the part of the contract containing the arbitration clause.I have three final thoughts here. First, when parties want to argue for or against arbitration in Texas bankruptcy courts, they now have opposing opinions from two well-respected Bankruptcy Judges. While the Davis opinion is considerably shorter than Judge Jernigan's ruling, it packs a lot of substance into a few pages. Second, the arbitration clause was included in an AIA form contract which was presumably prepared by the Debtor. The pre-petition Debtor must have thought that arbitration would give it some benefit, although it later ignored the clause and filed suit in state court. Including an arbitration clause in a contract benefits both the party that put it there and the counterparty, either of whom can choose or enforce or ignore it. Finally, calling something an action for turnover does not transform a breach of contract claim into a core proceeding. I remember when bankruptcy lawyers would routinely sue to recover on accounts receivable and call the suit a turnover action. However, as aptly pointed out by Judge Davis, turnover only applies to tangible property, such as a car, liquidated, undisputed amounts. Labels are not magic and breach of contract suits are still non-core proceedings.  (Author's note: Readers may be curious as to why I chose to write about an unpublished order containing little more than two pages of text. I was in Judge Davis's court for another matter and heard his oral ruling on this case and it sounded interesting so I decided to look it up.).