Even after the Covid-19 Pandemic Wanes Many Will Still Deal with its Detrimental Economic Effects; Please Contact Us as to the Many Options that May Help You
The Coronavirus pandemic which started in 2019, but had manifested itself in the United States the early part of 2020, had not only caused a national and global health and economic crisis, but had also had an affect on the practice and laws applying to foreclosures, bankruptcy, mortgage modifications and negotiations. Because of the government mandated business lockdowns, layoffs, furloughs that were caused by the effort to slow the spread of the virus, there was an effort to cushion this economic blow by temporarily preventing and slowing foreclosures and evictions and by passing laws and issuing orders with the intention of expanding the ability to deal with these issues with improvements to the laws pertaining to bankruptcy and debt settlement.
The attempts to deal with the Coronavirus pandemic governmentally and through social behavior affected virtually all aspects of our national economy and therefore new or modified laws and/or practices to deal with a potential wave of financial hardship resulted in changes to debt relief laws and practices in the following areas: foreclosures, evictions, bankruptcy, mortgage modifications and negotiations.
The Coronavirus Aid, Relief and Economic Security (“CARES”) Act which was passed in by the United States Congress in the early part of the 2020 Coronavirus pandemic and signed into law by the President, on March 27, 2020, included not only emergency assistance to families and businesses affected by the pandemic but also some substantive changes to the Bankruptcy Laws, as follows:
CHAPTER 11 and COVID-19 – The CARES Act, passed by Congress and signed by the President at the end of March 2020, included changes to the U.S. Bankruptcy Code which were intended to help deal with the Covid-19 pandemic. One of the major changes was the temporary expansion of the use of Subchapter 5 of Chapter 11 of the Bankruptcy Code, which was already part of the Small Business Reorganization Act of 2019, by vastly raising the debt cap to $7.5 million, thereby expanding the applicability of a statue which was passed to make the reorganization of small businesses more expeditious, efficient and affordable. The most innovative change in subchapter 5 was having a businessman, rather than attorneys from the United States Trustee’s Office, operate as the trustee over the Subchapter 5 Chapter 11 cases. The oversight of the case by a trustee with business experience, as opposed to an attorney from or appointed by the United States Trustees Office, would potentially shift the expertise and and interests of the trustee in a direction which focuses on the businesses’ financial health, as opposed to a more traditional Chapter 11 trustee’s focus on strict technical compliance with administrative requirements.The other improvements under Subchapter 5 are a streamlined and shorted process of getting Chapter 11 Plan approval by dispensing with the requirement for a disclosure statement and allowing for a shortened and less complex Chapter 11 plan and approval process. Unlike with a regular Chapter 11 case, in a Subchapter 5 case, there is no need for creditor’s to vote on the plan of reorganization and a debtor can confirm a plan of reorganization if it treats creditors in a “fair and equitable” manner or if it pays creditors at least the amount they would get in a Chapter 7 liquidation. As in a Chapter 13 case, the Subchapter 5 plan can pay creditors over 3-5 years, a plan payment based on the debtor’s disposable income. Subchapter 5 with its expanded debt cap appears to be well suited to the post-pandemic business environment, where smaller businesses will look for more affordable and expeditious methods of reorganizing in bankruptcy.
CHAPTER 7 and COVID-19 – The Cares Act tried to allow easier access to Chapter 7 relief by not including in the income counted in applying the ‘means test” for Chapter 7 eligibility the extra federal assistance to the unemployment insurance (which was and extra $600. per week in addition to unemployment insurance and went down to an extra $300. per week).
CHAPTER 13 and COVID-19 – The Cares Act has allowed an already confirmed chapter 13 plan to be extended by up to 2 years soley based on Covid-19 related hardships. Effectively the extension of a chapter 13 plan from 5 years (60 months) to up to 7 years (84 months) allows a debtor’s payments to be effectively lowered on a monthly basis and allows greater flexibility during periods of Increased financial hardship for the debtor.
Moratoriums imposes by the New York State governor , the state Court system and FHA have essentially temporarily shut down the ability of lenders to foreclose. In addition the New York State Courts were closed till May 4, 2020 and even when they reopened, the Courts initially refused to file any foreclosure action documents. Presently, the Courts require a hearing to determine that a defendant is not facing Covid-19 related hardships before allowing a foreclosure action to continue to go forward. These moratoriums and other measures have given reprieve to borrowers unable to make mortgage payments during a period of national crisis and have given these households an opportunity to recover. However, the remedy of a moratorium on all foreclosures has been a broad one and by including foreclosures that were not caused by Covid-19, the moratorium has created a backlog of problematic mortgage situations where lenders during more normal times would have moved forward with foreclosure process. This mandated pause in the legal process has given an opportunity for borrowers to try to either reinstate, modify or otherwise resolve their mortgage arrears issues. Where a resolution is not forthcoming, the foreclosure moratorium and economic downturn will effectively give foreclosure defendants new litigation options to gain time, catch momentum and settlement opportunities. Currently the federal foreclosure moratorium had expired in the fall of 2021, but some individual states like New York State had determined their own course going forward but even in New York State the moratorium on foreclosures expired on January 15, 2022. New York State has passed legislation, Rule 9-x intended to encourage lenders to give modifications to homeowners who fell behind with their mortgages due to Covid-19 related hardships. If a modification cannot be agreed upon Rule 9-x seeks to defer Covid-19 arrears to the back of the loan. Also, New York State since January 2022, with the aid of federal funds has set up a Homeowner Assistance Fund in the amount of $530 million to assist homeowners behind on payments due to Covid-19 related hardships. See,
Lenders have been more willing to give modifications during a period for national crisis and economic hardship. Generally lenders have easily given forbearances during the pandemic. Many forbearances have been for up to 18 months. Most have not committed themselves to forgiving the debt, rather at the end of the forbearance they would determine how and over what time are the borrower can reinstate and have offered borrowers needing to defer payments the opportunity to apply for a modification. The Cares Act has allowed debtors affected by Covid-19 to withdraw funds from most retirement plans without a penalty. The result was that a client needing to modify a mortgage can improve their chances of obtaining a modification with a more accessible down payment and a more sympathetic atmosphere for modification if the hardship was attributed to Covid. New York State has passed legislation Rule 9-x which seeks to encourage lenders to give modifications to persons who fell behind with their loans due to Covid-19 related hardships or in the alternative to defer their Covid related arrears to the back of the loan. As the Covid-19 pandemic slowly recedes it seems that there are 2 distinct groups of borrowers in the eyes of lenders: those with pre-pandemic arrears who will be treated under the same former standards in terms of assessing for a modification and those which pandemic caused arrears who would get advantageous treatment and often a modification.
The Cares Act has allowed debtors affected by Covid-19 to withdraw funds from most retirement plans without a penalty. The result is that a client needing to resolve a particular debt can obtain an aggressive reduction of debt with a lump sum settlement or with a potentially large down payment. Covid-19 has made some creditors more flexible to aggressive settlement proposals in that there is more of an eagerness to resolve debts in exchange for such lump sum settlements. The Cares Act has also improved credit rating requirements so that a person affected by Covid-19 who falls behind with payments and gets into an agreement to catch up with arrears caused by Covid-19 will not have their credit negatively affected; instead the creditor will report them as current. Finally if a debt was caused and/or affected by Covid, certain mortgage lenders have offered forbearances, federal student loans have offered deferrals of payments and certain other lenders have offered other concessions. However these possible approaches Covid-19 related concessions by creditors vary greatly and need to be negotiated in a manner where there is a clear path forward for the borrower.
As with foreclosures, evictions in New York State have been stopped and held back with a series of moratoriums designed to allow persons to stay in their homes during the Coronavirus pandemic. Currently the moratorium and evictions as extended by NYS expires January 15, 2022.
Governor Andrew M. Cuomo announced on September 28, 2020 that the State’s Tenant Safe Harbor Act will be expanded until January 1, 2021 to protect additional residential tenants from eviction if they are suffering financial hardship during the COVID-19 public health emergency. The Executive Order extends the protections of the Tenant Safe Harbor Act to eviction warrants that existed prior to the start of the pandemic.”
Governor Cuomo first announced a State moratorium on residential and commercial evictions on March 20, 2020 to ensure no tenant was evicted during the height of the public health emergency. The Governor signed the Tenant Safe Harbor Act on June 30 which became effective immediately as well as additional legislation providing financial assistance to residential renters and landlords. Additionally, previous Executive Orders have prohibited charges or late fees for late rent payments, and tenants facing financial hardship can still use their security deposit as payment and repay their security deposit over time.
The State’s moratorium on COVID-related commercial evictions and foreclosures was extended by the NYS legislature until January 15, 2022, although the federal moratoriums on evictions and foreclosures had expired. This measure extends protections already in place for commercial tenants and mortgagors in recognition of the financial toll the pandemic has taken on business owners, including retail establishments and restaurants. The extension of this protection gives commercial tenants and mortgagors additional time to get back on their feet and catch up on rent or their mortgage, or to renegotiate their lease terms to avoid foreclosure moving forward. NYS has also implemented a Rental Assistance Program that is intended to pay affected landlords up to 15 months of rent, if a tenant could not pay due to Covid. Landlords helped by this program need to renew their leases with the affected tenant for an extra year.
We value and encourage referrals of potential clients from fellow professionals and can give you and your clients significant value for such referrals. We are especially seeking to work with fellow professionals in the services areas – in the accounting, financial, legal and real estate areas – to engage in a joint effort to help your clients adjust to and survive in the new post- Covid-19 economy. We offer a free consultation, for your clients and for yourself, where we will analyze your clients’ entire financial situation and make proposals as to legal options that may help your clients. Many of these options will involve working in partnership with you.
Many Long Island small businesses and individuals will need help adjusting to and surviving in the harsher post-Covid-19 economy. We are dynamic, zealous and energetic in our legal representation which combines different areas of the law with the goal of reducing, extending, reorganizing and/or eliminating debt. We can improve your clients’ ability to deal with their financial challenges by sharing our resources and expertise. By working together, we can improve your clients’ ability to survive in this new harsher economy.
Our law office, the Law Office of Ronald D. Weiss, P.C., is an established Long Island law firm, which has been concentrating in helping individuals and small businesses in financial hardship since 1993. Our debt relief tools include, but are not limited to: bankruptcy (chapters 7, 11, and 13), mortgage modifications, foreclosure defense, reorganizations, workouts, creditor negotiations, real estate deals, short sale negotiations, litigation defense, tax debt installment agreements, student loan resolutions, landlord-tenant litigation, eviction defense, credit card settlements and credit repair.
Our negotiation and settlement department leverages implied threats of bankruptcy and/or litigation to obtain better deals for our clients. Where negotiated resolutions are not forthcoming, bankruptcy and/or litigation options often can significantly improve a client’s chances of obtaining a favorable result in the reduction, extension, reorganization and/or elimination of debt.
Please contact us and let’s have a free consultation with yourself and/or your clients, either by phone or at our Melville, New York law office. We will review options in detail and customize specific plans for your clients, to help them with their unique financial circumstances.
The Coronavirus has changed many aspects of people’s lives and has therefore changed some of the laws governing debt relief. Our office was open throughout the entire Pandemic because parts of our business were considered to be “essential”. Nonetheless, the larger questions regarding debt relief and Covid-19 are whether the government will further initiate more changes to bankruptcy, foreclosure, landlord-tenant and other laws in order to meet the expected growing economic hardships facing our society as the pandemic has lasted longer and has caused greater financial disruption than was initially expected. Our office has kept update on the changes of laws, rules and policies due to Covid-19 and can help you deal with financial hardship during this challenging time and potentially caused or exacerbated by the economic hardships caused by the pandemic and the consequent economic downturn.