Unfortunately, it is not uncommon for someone to have a credit card in their wallet they are unable to use because it is maxed out. Nonetheless, they keep making the minimum monthly interest payment every thirty days. In some cases, there are multiple cards and people are transferring entire balances in hopes of getting a […] The post Can You File For Bankruptcy to Avoid Defaulting on a Credit Card in Pennsylvania? appeared first on .

Healthcare costs seem to continually rise in the United States and Pennsylvania. In a July 2020 Gallup poll, 50% of American households were extremely concerned about a major heath event leading to bankruptcy. In fact, roughly 15% of adults reported that at least one person in their family has long-term medical debt that they are […] The post Can You File for Bankruptcy to Avoid Defaulting on Medical Bills in Pennsylvania? appeared first on .

When a person is arrested and held in police custody, they often rely on friends and family on the outside to help them. In many cases, an arrested individual will depend on their spouse. The spouse outside of police custody is in a better position to begin meeting with attorneys and figuring out how to […] The post What to Do if Your Spouse Was Arrested in Bucks County, Pennsylvania appeared first on .

 The intersection between bankruptcy and personal injury tort claims can be a difficult one, as shown by a new opinion from Judge Marvin Isgur in Case No. 20-33900, In re Tailored Brands, Inc. (Bankr. S.D. Tex. 5/20/21). The opinion can be found here. The case involves a man who filed an employment discrimination suit against the clothier, but found his claims discharged without any ability to collect from insurance proceeds. The case is a cautionary tale for attorneys dealing with tort claims when a bankruptcy is filed, as large companies increasingly include large self-retention amounts as part of their insurance policies. What Happened In 2018, Michael Hoffman filed suit against The Men’s Warehouse, a Tailored Brands affiliate, and a Men’s Warehouse employee, alleging employment discrimination and harassment. When Tailored Brands (TB) filed bankruptcy, the automatic stay prevented Mr. Hoffman’s suit from going forward. By the time the suit was filed, TB had already spent $321,000 in defense costs. Mr. Hoffman filed a motion for relief from the automatic stay. TB opposed the motion claiming that it would have to pay to defend the suit because it had a large, self-insured retention under its insurance policy and that the effective date of its plan would occur soon. TB’s employment insurance policy provides: The Insurer shall be liable for only that part of Loss arising from a Claim which is excess of the Retention amount only set forth in Item IV. of the Declarations or Item V., if applicable. The Retention shall be uninsured and shall be paid only by an Insured, regardless of the number of claimants, Claims made, or Insureds against whom a Claim is made. The “Retention amount” under Tailored Brands’ policy is $500,000, “inclusive of Defense Costs.” Tailored Brands’ policy also provides that, “[i]n the event [Tailored Brands] is unable to indemnify or advance costs on behalf of an [employee] due to its financial insolvency, no Retention will apply.” After the plan was confirmed, Mr. Hoffman filed a motion to allow a late filed claim. The parties agreed that he could have an allowed claim of $250,000. Mr. Hoffman then filed a motion to be relieved from the discharge injunction imposed by confirmation of the Debtor’s plan. TB objected arguing that because Mr. Hoffman already had an allowed claim, he could receive a double recovery if he received payment on his allowed claim and payment pursuant to the state court suit. The Parties’ Contentions Hoffman relied on 11 U.S.C. Sec. 524(e) which states that “discharge of a debt of the debtor does not affect the liability of any other entity on, or the property of any other entity, for such debt.” Thus, Hoffman argued that he could proceed against TB as a nominal party for the purpose of seeking coverage under TB’s insurance policy. TB argued that it would have to pay the remainder of its self-retention amount ($179,000), before insurance would kick in and that this would be a substantial burden to the reorganized debtor. The Court’s Ruling Judge Isgur found that the discharge precluded Mr. Hoffman from continuing his suit against TB, but that he could continue to pursue his claim against the non-debtor employee. Judge Isgur found that “(i) In proceeding against a discharged debtor, a claimant may not recover damages from the debtor directly, nor force the debtor to incur ‘substantial’ defense costs.” Opinion, p. 6. Judge Isgur found that the remaining self-retention amount of $179,000 was in fact substantial.  Judge Isgur reached this conclusion by finding that the debtor was effectively uninsured for the first $500,000 of Hoffman’s claim. Opinion, p. 9. Another reason to allow the claim to proceed would be to liquidate it. Under 28 U.S.C. Sec. 157(b)(5), the bankruptcy court may not hear a personal injury or wrongful death tort claim. As a result, such claims must be liquidated in another court of competent jurisdiction. However, because the parties had already agreed that Mr. Hoffman had a claim for $250,000, the claim was already liquidated, and no further proceedings were necessary. The end result was that Mr. Hoffman had a claim against the reorganized debtor, which might be worth 5 cents on the dollar and the right to pursue the employee who harassed him. The claim against the non-debtor employee might give Hoffman an indirect claim against the debtor if the employee had a right to indemnification. However, based on the court’s reasoning, the non-debtor employee’s claim for indemnification may have been discharged as well. What It Means For many years, it was customary for motions to lift stay for the purpose of pursuing insurance to be granted as a matter of course. This was a win-win for both parties: the debtor would not have to deal with the claim in its plan and the plaintiff would be free to proceed with his suit. However, this assumes a traditional insurance policy with a deductible. Apparently, a self-insured retention functions differently. Since I am not an expert on insurance, I turned to the internet for an explanation. Here is what I found: Self-Insured Retention (SIR) — a dollar amount specified in a liability insurance policy that must be paid by the insured before the insurance policy will respond to a loss. Thus, under a policy written with a SIR provision, the insured (rather than the insurer) would pay defense and/or indemnity costs associated with a claim until the SIR limit was reached. After that point, the insurer would make any additional payments for defense and indemnity that were covered by the policy. In contrast, under a policy written with a deductible provision, the insurer would pay the defense and indemnity costs associated with a claim on the insured's behalf and then seek reimbursement of the deductible payment from the insured. For example, assume that two policies are identical, except for the fact that Policy A is written with a $25,000 deductible, while Policy B contains a $25,000 SIR. Also assume that defense and indemnity payments for a given claim total $100,000. In the event of a claim under Policy A, the insurer would pay the $100,000 in defense and indemnity costs that were incurred. After the claim is concluded, the insurer will bill the insured for the $25,000 in payments made on the insured's behalf. In the event of a claim under Policy B, the insured will pay the first $25,000 of defense/indemnity costs, after which, the insurer will make the additional $75,000 in defense and indemnity payments on the insured's behalf. Self-Insured Retention (SIR) | Insurance Glossary Definition | IRMI.com The thing to remember here is that insurance essentially is a contract. I do not have a lot of say in what insurance I purchase since my mortgage, my auto loans, and the State of Texas tell me what kind of a policy I must have on my home and cars. However, a company can negotiate for how much coverage it wants, as long as there are no loan covenants or state regulatory schemes requiring greater insurance. Thus, if a traditional insurance policy with a $25,000 deductible, covering losses up to $10 million per incident, costs $5 million and a policy with a $500,000 SIR, covering losses up to $10 million per incident, costs $2 million, it would make economic sense to go with the cheaper policy, so long as the company’s anticipated out-of-pocket expenses do not exceed the difference in premiums, which is $3 million in my example. (The numbers are completely made up for purposes of creating a hypothetical. I have no idea what large companies pay for insurance). Outside of bankruptcy, the company would pay its own litigation and settlement costs on routine cases and look to insurance to cover larger losses. However, once bankruptcy is filed, all the claims that would be the company’s obligation become unsecured claims and are less valuable. That still leaves the question of why the clause providing that the SIR would not apply if the company could not advance funds due to financial insolvency. It appears that TB was financially insolvent as shown by the fact that equity was wiped out and unsecured creditors received a small percentage of stock in the reorganized entity. However, the opinion does not appear to address this question. Practitioners dealing with similar issues should be aggressive in challenging whether the SIR applies in the bankruptcy context. Practical Considerations Insurance has gotten more complicated. As a result, personal injury attorneys (and the bankruptcy lawyers who assist them) should have an insurance expert on call to analyze the policy. Would this case have turned out differently if Mr. Hoffman and any other personal injury claimants in the same boat had filed an adversary proceeding against the insurance company to determine that the SIR did not apply? I do not know. Maybe they would have spent a lot of money litigating with the insurance company and still arrived at the same result. However, intuitively it seems like they might have obtained more bargaining power. In filing a proof of claim, personal injury claimants should consider listing the claim as unliquidated so that they can assert their right to liquidate the claim in a non-bankruptcy forum.  On the other hand, if the claim is relatively small and most likely will not be covered by insurance, it might make sense to file for a liquidated amount and accept whatever payment is provided. Personal injury claimants or their attorneys should take the time to read the plan before it is confirmed. A disclosure statement must address what will happen to pending litigation. If it does not, the claimant could object to the disclosure statement and confirmation of the plan and try to obtain a carveout from the discharge. One rule of bankruptcy is that people who object are listened to more than people who remain silent. Some plans will contain provisions releasing officers and directors. We do not know much about the employee who allegedly harassed Mr. Hoffman. However, if the harassing party was a high-level executive, the personal injury claimant should beware of third-party release provisions. 

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This article appeared in Inc. and can be found at: https://www.inc.com/diana-ransom/subchapter-v-bankruptcy-reorganization-small-business-debt-ppp.htmlAs the Pandemic Recedes, Small Businesses Face a New Plague: Debt CollectorsCreditors may have held off collecting unpaid debts but rest assured, they'll want to get paid.BY DIANA RANSOM@DIANARANSOM Getty ImagesThe worst of the pandemic may be over, but many small businesses are headed for a reckoning.As relief efforts like the Paycheck Protection Program (PPP) wind down, and state and federal protections such as eviction moratoriums begin to lapse, companies that may have been limping along or on the edge could soon topple.Or as Bob Keach, head of Bernsteinshur's business restructuring and insolvency practice, puts it: "Expect a total avalanche of bankruptcies soon."It sounds counterintuitive, but "filings tend to be at their highest during the early stage of the recovery," says Keach. A bankruptcy filing is effectively a court order that governs how an insolvent debtor, who can be a business owner or an individual, will deal with unpaid obligations.Why more businesses would elect to file now--in a recovery--all boils down to options: "Debtors want to file when they have options, and creditors cause filings when they have options," says Keach. In periods of stagnation--particularly at the bottom of an economic curve--not a lot happens because not a lot can happen, Keach explains. Lenders aren't being altruistic by allowing you to delay making payments; they want to get paid. (There's an industry term for it: extend and pretend.) But because their hands may have been tied during the pandemic by authorities or because they know it might be a PR boondoggle to force a company to liquidate during a crisis, they hold off, says Keach. Given time and an easing of conditions, they'll act.Debtors themselves might hold off filing for protection until a recovery because they will presumably have more credit sources. Waiting until the economy improves may give businesses some flexibility in restructuring or refinancing legacy debt, says Keach. Plus, should a restructuring involve an infusion of new capital, he adds, it would be an easier sell to lenders if your business has brightening prospects.Warning SignsEarly signs are pointing toward the surge that Keach predicts. Namely, the number of Subchapter V bankruptcy filings is rising. Subchapter V--so named for the section of the U.S. Bankruptcy Code in which it inhabits--marks a serendipitous bankruptcy reform for small businesses that became law in February, 2020, just ahead of the pandemic. Authorized by the Small Business Reorganization Act of 2019 (SBRA), Subchapter V makes reorganizing or liquidating less costly and less time intensive for small companies than filing for the traditional Chapter 11 reorg. The number of these filings increased by 55 percent in February, 59 percent in March, and 112 percent in April 2021, over the same months in 2020, respectively. Further, the Federal Reserve in its latest semi-annual Monetary Policy report, released in February, noted "business leverage now stands near historical highs." The central bank added that, as such, "insolvency risks at small and medium-sized firms, as well as at some large firms, remain considerable."Globally, business insolvencies--that is, companies reporting economic distress--are expected to grow 26 percent this year, with the annual tally hitting 9 percent in the U.S., according to a March forecast from Atradius, an Amsterdam-based credit insurer. That marks a significant increase from 2020, when insolvencies declined by 14 percent globally and fell 5 percent in the U.S.Behind the fallIn the last year, faced with unprecedented health and economic crises, millions of businesses applied for federal aid in the form of PPP loans, Economic Injury Disaster Loans, and Main Street Lending Program loans. They also sought out traditional Small Business Administration-backed loans that--thanks to the Economic Aid Act, which passed in December 2020--were sweetened to include a temporary cessation of fees and interest, and payment subsidies up to $9,000 through September 30 or as long as funds last. All told, the SBA has doled out more than $1 trillion in aid across its various programs since the onset of the pandemic, according to Bill Briggs, the former director of the SBA's office of capital access. He adds that the SBA has even more crisis-era lending authority, too.That's on top of the business owners' pre-pandemic debts, which may have grown during the outbreak. On average, home equity line of credit balances of small business owners jumped up 3.4 percent between February and May 2020, while those of overall individuals declined 0.6 percent over the period, according to an analysis of individual-level data from the New York Fed's Consumer Credit Panel and Equifax's commercial database. While some debts--like PPP loans that end up receiving forgiveness--won't need to be repaid, forgiveness itself remains a big open question for millions of borrowers. The SBA helped underwrite more than 10 million loans worth north of $780 billion since last April. It's likely that some of these loans won't get forgiven, says Melissa Peña, chair of the bankruptcy and creditors' rights group at Norris McLaughlin in Bridgewater, N.J. In that case, she adds, "to the extent that the PPP might not be forgiven, a company might need to discharge that debt."Plus, there's a clock on just about everything else. "Eventually people have to start paying that back," says Mike McGinley, executive vice president of small business banking at Live Oak Bank in Wilmington, N.C. Whether businesses will be able to stomach this repayment depends on how the economy responds, adds McGinley, who notes that an economic boom could go far in helping owners make good on debt payments. But that's not assured--particularly as the recovery has been uneven for many industries. "It's still a bit of a wait and see for small business," he says.Tough ChoicesPriscilla Luna of Today’s Business Solutions, pictured here with her mother Mely Jimenez, who co-founded the business with her husband Robert in 2003.COURTESY COMPANY Business owners like Priscilla Luna of Today's Business Solutions are already making major changes to accommodate new-found financial pressures. To pay down a $750,000 credit line she tapped during the depths of the crisis, Luna says she's selling her firm's building, which has served as both showroom and a storage facility for her company, an office supplies, furniture, and technology reseller based in Houston. The initial payment? A sizable $200,000. "That location gave us more credibility with customers who visited us," says Luna. "It's going to be a hard change, but we have to do what we have to do."The credit line, Luna says, was a lifeline in 2020. Whereas Today's Business Solutions booked $30 million in 2019, the company was off by more than a third in 2020. Despite getting a PPP loan in the first round, Luna says she still had to draw on the credit line to pay for everything from health insurance to employees' salaries. Meanwhile, she had to let go of six staffers, including members of her own family. "It was probably the worst day I've ever had," she says.Some founders are lucky enough to be able to use grant money to retire their pandemic-related debts. Sara Dima, the co-founder of R&D Foods, a prepared foods and specialty grocer in Brooklyn, N.Y., says she's using her Restaurant Revitalization Fund grant to pay vendors, whom she put off last year when her company's revenue tanked. And some of what's left, which she declined to disclose to Inc., will go to retire another small loan which she says has a high interest rate."I also might pay us, as owners, a bit more," says Dima. "There were weeks last year where we barely took a salary so that we could meet payroll, pay vendors, pay rent etc."If you're struggling with debt payments, there are out-of-court measures including negotiating directly with vendors and lenders, which Peña says remains a possibility these days. "I am seeing negotiations and forbearance agreements," she says. For others, reorganizing formally may be in order--though Peña points out that it should take place only after you've exhausted other options. "Usually we see it as a last resort," she says. "It is costly and it takes a lot of time and takes time away from management and time away from doing business."If you must, however, at least Subchapter V bankruptcy protection, under SBRA, offers to ease the pain. "The Reorganization Act is bankruptcy lite," says Nick Oberheiden, a federal defense attorney in Dallas. "It's much faster and you get the same protections" as a traditional commercial bankruptcy proceeding, without a lot of the drawbacks.