At the conclusion of a bankruptcy an Order is entered called the discharge. It is the discharge that functionally eliminates the debtor’s personal liability (meaning his legal responsibility for paying) the debt incurred prior to the bankruptcy filing. In many ways the discharge is the wrap up of the whole bankruptcy process, and it makes everything that happens before it final and permanent.
The downside of the discharge is that it also means the debtor is once again outside the safety of the bankruptcy court and back in the real world — although without all the baggage that caused the bankruptcy filing in the first place.
Clients are thrilled when they get their discharge. It is OVER! I am free! I am frequently a bit wistful, because I know that when something else happens (and life is always happening), the debtor may be less comfortable inside the bankruptcy; but the debtor is far safer. Inside of a Bankruptcy the Debtor is protected by the Automatic Stay and the Confirmation Order (if in a reorganization chapter). Those things mean procedural protections and, most importantly, time, to deal with whatever life throws at you.
We have a false feeling of control over our lives. Really what makes debt and bankruptcy both so scary is the sense of being out of control — but we are used to that. We aren’t used to bankruptcy so it feels scarier, when in many cases it is far safer.
We are living in the most uncertain times that any of us have lived through, and we are all going to have to learn new survival skills. I hope that for you bankruptcy won’t be one of them, but if it is, try to be less anxious rather than more.
Confirmation orders are only entered in reorganization chapters (for consumers most normally a Chapter 13), but when they are entered, they constitute a new contract between all parties to the order (which includes the debtor and all of the creditors in the case). This new contract requires, among other things, that the debtor be treated as current. It limits the creditors’ ability to get paid only as provided for in the plan. It limits a creditor’s ability to charge late fees or to apply payments in ways other than as specified in the plan. Now, some of the protections of the Confirmation Order require that the debtor successfully complete the plan and receive a discharge; but it remains a potent form of protection for a debtor in a chapter 13 bankruptcy.
Another thing that makes a Confirmation Order particularly valuable during uncertain times is that it can be modified by Motion and Order. That means that if bad things happen during a multi-year plan of reorganization, the Debtor can ask the Court to modify the Confirmation Order to allow the debtor room to cope with the unexpected. The ability to request a modification means that if something bad happens during a Chapter 13 bankruptcy, the Debtor is almost always going to have time to address it, and if a little time isn’t enough the tools to change payment terms or sometimes even to extend the repayment term.
One of the surprising aspects of the CARES act (one of the principal pandemic assistance statutes) is the ability to extend a chapter 13 repayment plan from 5 years to 7 years. Now, this only applies to cases that were confirmed before March 27, 2020, and the provision will sunset on March 27, 2021. Still, for people experiencing a decrease in income for an extended period of time, this provides a unique tool for curing arrears on secured debt.
The incredible protections of a confirmation order are one of the reasons I am recommending Chapter 13 filings during this time of great uncertainty. It can be difficult to explain, but being in a chapter 13 can be one of the safest places to be during times as scary as the ones we are currently living through.
I interrupt this week’s trip through the protections of the bankruptcy code to focus a few minutes on the extraordinary unemployment benefits available for residents of the State of Oklahoma during the COVID-19 (Corona virus) pandemic.
Ordinarily, at least in Oklahoma, self-employed people (including independent contractors, sole owner/employees of S-Corps or LLC’s, gig workers, etc.) are not eligible for unemployment benefits. The reason is, because traditionally in order to be eligible for benefits your employer had to pay into the system (which is a mandate for most employers). Then, when an employee goes to collect from the system, the computer system designed to process that application checks to make sure that the applicant is a covered insured. If you aren’t a covered insured (i.e., if no employer has been paying into the system on your behalf), then the computer system is designed to reject your application out of hand.
EXCEPT! Recent legislation out of Congress has changed that. Yes, I know in Oklahoma employment benefits are processed and paid out of the Oklahoma Employment Security Commission, which is a STATE agency. It is not under the control of Congress — most of the time. Congress has always had a hand in the unemployment system, even though it is largely controlled and exclusively administered by the States; and a few weeks ago Congress flexed a little muscle (and a lot of money).
Now, because of the current pandemic, people who have never paid into the system — self-employed, gig workers, sole proprietors, sole owner/employer of an S-Corp or an LLC — are all now eligible to collect from a system they have never paid into. But WAIT, it gets better! Congress is ponying up the cash to increase most people’s weekly benefit (and by a lot — like $600 for most), they have extended the number of weeks that benefits are available, and they have eliminated the week off work that you have to wait before you are eligible to collect benefits. Oh, and they have also dispensed with the weekly requirement that all applicants be actively looking for work (you know, during that whole shelter at home thing).
So, what’s the catch? Come on, you know there is one. The catch is that Oklahoma’s unemployment computer system was completely unprepared for this. First, there is the eligibility for an insurance program of people who have never been insured (i.e., paying into the system). Then, there is the increased benefit, the changes in timing and eligibility requirements. Its enough to give an ancient computer system a nervous breakdown. In all fairness I don’t know that our unemployment system is still built on COBOL (New Jersey has made a lot of news for their COBOL system looking for retirees willing to come back to work on it.) Ours may be Fortran, but whatever it is — it ain’t new. Then, the people who are needed to maintain and rewrite it to adapt to these major changes are all — working from home — in their pajamas and slippers. Add to that record setting unemployment levels and you have a disaster waiting to happen — and it is happening.
So, here is the skinny straight from Oklahoma State Representative Mickey Dollens:
UPDATED 4/14/2020 – OKLAHOMA UNEMPLOYMENT:
The following guidance, tips, recommendations, comments, and answers will help you navigate the unemployment filing process. I’ll do my best to answer your questions in the comments section. If I don’t know the answer then I’ll seek out those who do.
Self-employed workers, independent contractors, free-lancers, and gig economy workers who are not typically eligible for unemployment benefits will be covered under the federal Pandemic Unemployment Assistance (PUA) program which is part of the new CARES Act:
• The Oklahoma Employment Security Commission (OESC) cannot implement these extended unemployment benefits for independent contractors until guidance is handed down from the U.S. Department of Labor on how to administer these benefits.
• Independent contractors must provide alternate forms of financial documentation (pay stubs, invoices, 1099’s, etc.) This is different from what is required for traditional claims.
• If an independent contractor applies for unemployment benefits right now, they will receive an immediate denial message. DO NOT REQUEST AN APPEAL. Any appeal will delay your claims process. Those individuals must wait until OESC has implemented the guidance from the U.S. Department of Labor and updated its system to allow for the processing of PUA claims. OESC is hoping this will be mid-late April.
• Self-employed are not required to file weekly claims while the state waits on the Federal implementation of the PUA program. They will start filing weekly claims at that point.
• W2 claimants ARE REQUIRED to file claims every week as soon as you file. If possible, it’s best to do this each Sunday because this triggers payment. During the emergency all work search requirements are waived. But be sure to respond “yes” when you are asked if you have made your required weekly work searches. Otherwise your benefits will stop.
• It is important to note that once OESC receives the necessary PUA guidance, OESC will backdate all independent contractors claims to March 30, the date the CARES Act went into effect.
• All claimants are eligible for an additional $600/week in Federal unemployment supplemental benefits. The Federal supplemental benefit starts the week of April 4, 2020, and runs through the week ending July 25th, 2020. All claims will be backdated to the date your covid19 related job loss occurred. In some cases, claims may be backdated all the way to Feb. 8, 2020.
• There is no additional process required to receive the Federal unemployment supplemental funds. All approved claimants will receive this automatically.
• Benefits begin as soon as you file. The one week waiting period has been suspended. All claims filed with an effective date of 3/15/20 or later will have the waiting period waived for the duration of the emergency.
Here is some general information:
• Oklahoma provides for 26 weeks of unemployment. The new federal CARES Act adds 13 weeks of additional unemployment for a total of 39 weeks.
• OESC has expanded its call center to better serve claimants. The average call wait time has dropped significantly from last week: 1-800-555-1554
• OESC designed a more user friendly website, https://oesc.ok.gov. However, as of 4/11/20 some of their answers in the FAQ have not been updated to reflect the extended benefits provided in the Federal Cares Act.
Here are some additional tips for those who are self-employed:
• File a claim for PUA as soon as it becomes available. (OESC says mid-April.) If you’ve already filed a claim, that’s fine. OESC will announce when the PUA program is implemented and ready independent contractors likely by mid to late April.
• When filing a claim as self-employed the application will ask for your “employer.” Use your name here. The requirement to put your resume on okjobmatch is waived for the duration of the emergency. At this time the OESC has also waived the work search requirement. List the day you were laid off when it asks for “start date” and keep blank for “end date”
• If the application tells you, “self-employed do not qualify,” or “monetarily ineligible for lack of reported wages“ simply click “continue.” DO NOT FILE AN APPEAL. If you’re self-employed then it is not necessary to file weekly claims until PUA is implemented. You will still receive back pay once the PUA kicks in.
• When you file your claim you will be asked for information about your separating employer. If your separation was due to the business closing or reducing hours due to COVID-19, please mark your reason for separation as a “LACK OF WORK.”
• You will receive an email and or letter saying your application was denied. This means the system hasn’t been updated yet. Save your claim ID number. Do not file a monetary appeal.
Again, OESC will announce when the federal Pandemic Unemployment Assistance program is ready to be administered, which should be mid-late April.
• Benefit amounts will be calculated based on previous income.You will need financial records such as tax returns or pay stubs that document your earnings.
• To check the status of your claim, go to https://unemployment.state.ok.us/w2.aspx You will find information regarding the status of your application, recent activity, monetary entitlement, and determinations of eligibility.
• An unemployment benefit debit card will be issued to you at the time your first eligible week processes. It normally takes between 7-10 days to receive the card. If it takes longer than 7-10 days then they likely ran out and will send you a card as soon as they’re restocked. If you receive a debit card with no balance, that probably just means that your eligibility to receive benefits has not been processed yet.
• If you want to have your benefit deposited directly, visit GoProgram.com or call 1-866-320-8699 and use the automated system to enter your banking information
•If you experience difficulties in filing your claim you may e-mail OESC Helps at firstname.lastname@example.org or call 1-800-555-1554
• If you don’t have internet then you can mail copies of two forms of IDs (one has to be a photo ID) to: OESC P.O. Box 52006 Oklahoma City, OK 73152-2006
•Please be mindful about fraudulent activity at this time. Fraudsters are coming at us through websites, phone calls, and even in person. Be assured you can trust https://govstatus.egov.com/oklahoma-coronavirus-information to connect you directly to government websites for general updates, business help, unemployment help, and all things COVID-19.
One important change in this advice from Rep. Dollens is regarding the advisability of filing an appeal. Last week House Minority Leader Emily Virgin was advising filing an appeal. Evidently, the system has been tweaked since then.
Regardless, this is the latest information that I have available regarding these extraordinary employment benefits for these extraordinary times. What I can tell you is that a client of mine who filed at my urging got his benefits debit card in the mail yesterday.
Good luck, remember, the people at OESC are slammed, their system is crumbling around them; and if you get nowhere — call your State Rep or your State Senator — both of whom have way more time on their hands right now than anyone at OESC.
The instant that a bankruptcy is filed an order is entered automatically, and it stays (or temporarily stops) all collection activity against the debtor or property of the debtor. Instantly. Automatically. Boom. All collection activity must stop. That means lawsuits, wage garnishments, nasty letters, annoying phone calls (Ok, so I don’t know any court that has managed to stop the car warranty calls, but we’re working on it.).
That order remains in place until either the Court modifies or lifts it, the Debtor’s discharge is entered or the case closes without a discharge. The automatic stay is designed to give someone who has just filed for bankruptcy literally months of breathing room.
Where the automatic stay is most likely to get cut short is when someone files for bankruptcy and doesn’t continue making payments on a secured loan — most commonly a car payment. In that case the lender has the right to ask the court to lift the stay and let them repossess the car. A chapter 7 bankruptcy is not the right place to be if you are not current on a vehicle that you need to keep. If that is the case, file a chapter 13 bankruptcy.
However, if you find yourself with more debt than you can pay, but you are current on your car loans and mortgage (if you have them), but your phone is ringing off the hook, you are afraid to open your mail, and your payroll office has just received a wage garnishment; the automatic stay is the legal equivalent of a Calgon bubble bath commercial from the 70’s.
One of the things I am working on this weekend is a demand letter to the attorney for a local credit union. You see, someone at the credit union seems to have thought that taking advantage of an elderly man with early stage dementia was a profitable idea. I will concede that under ordinary circumstances what they did might qualify as greedy and morally questionable; it should, however, be legal.
Not so fast.
In this case the elderly customer just happened to be in an active Chapter 13 Bankruptcy, and the Credit Union knew this. They got checks from the Chapter 13 Trustee on this man’s loan accounts up until the events I am upset about happened.
It would be inappropriate and unnecessary to go into what actually happened or why I think it happened. What is relevant is that when someone is in an active bankruptcy, they are under the protection of the Bankruptcy Court. That means that there are orders in place that are designed to protect them from their creditors. The credit union in the case I am currently working on appears to have violated several of those.
Over the next few days I am going to talk about what those orders are and how they can be used to keep you safer inside a bankruptcy than outside — particularly in uncertain times.
The SBA has a really amazing Corona virus relief program, the Paycheck Protection Program. It is called a loan program, but it appears to be intended as grants. Basically, the SBA will give small businesses money to make payroll for two months. It looks pretty sweet.
There is one problem. One of the questions on the application is:
Is the Applicant or an owner of the Applicant presently suspended, debarred, proposed for debarment, declared ineligible, voluntarily excluded from participation in this transaction by any Federal department or agency, or presently involved in any bankruptcy? (Emphasis added).
Ignoring the obvious, which is what the heck does most of this even mean? Declared ineligible by whom? Disbarment? I mean, a lot of lawyers are applying for this; but not that many. Suspended by a Federal department or agency? Suspended from what? I’m sorry, but nothing about this question really makes sense. So, I suppose I shouldn’t be surprised to see this bankruptcy language tacked on to the end.
So, what the heck does “presently involved in any bankruptcy” mean, anyway? I have no clue. None.
Taken literally, this would exclude every business who is listed as a creditor in anybody’s bankruptcy. Somehow, I don’t think that is what it means. If you check the Statute this may mean that the debtor cannot be a debtor in possession in a bankruptcy. For all intents and purposes that means the Debtor cannot be in a Chapter 11 reorganization, but the question on the loan application is broader than that. Oh, and the application says on its face, that answering yes to this question means that your loan will not be approved. So, getting comfortable with what you think it means might be important.
Regardless of what the statute is supposed to say, or what it means or what the question means; the consensus among lawyers I have discussed this with is that if the business, or the owner of the business, is a debtor in any chapter of bankruptcy at the time a PPP application is completed, odds are very good that the application will be denied out of hand.
So, now what?
An applicant who is a debtor in a chapter 7 or chapter 11 is probably out of luck. There is no right to dismiss a chapter 7, and if you are in a chapter 11, dismissing it so that you can get two months payroll out of the SBA is almost certainly not a good idea.
The real issue is if the applicant (or the owner of the applicant) is a debtor in a chapter 13 bankruptcy. In that case it should be possible to dismiss the chapter 13, collect the PPP, spend the PPP on approved expenses, apply for forgiveness of the amount spent on appropriate expenses, and then refile a new Chapter 13 in order to finish out your plan of reorganization. How much time this will take depends in large part on the local rules for your court. However, if the money is worth it to you, talk to your lawyer. You may be able to get a dismissal in a few days.
Friday I did my first initial consult with a prospective bankruptcy client by video conference. A little over two hours later, we were done; and I thought the format was functional enough that it can replace a face-to-face, take off half a day to go meet the lawyer, traditional, in-office meeting.
The next step will be passing paperwork back and forth via my secure portal. Of course, without a scanner, regular mail is an option as well.
Currently, most bankruptcy courts are allowing for the signing of the documents necessary to file a bankruptcy to be done remotely. I am hopeful that we will be able to establish sufficiently secure procedures that we will be able to retain this.
Then, there is the First Meeting of Creditors (a/k/a the 341 hearing) which for most consumer debtors is the only time they have to go to the courthouse — except — currently, those are being conducted by telephone. It has occurred to me that the client I met with by video on Friday and I might go all the way through the bankruptcy process and never be in the same room.
One of the worst parts of the Coronavirus shutdown is the uncertainty. When will it end? What bills will still have to be paid? When will they have to be paid? Will my job still be there?
No matter what the answers are to any of those questions, there are some things you can start doing now to be prepared for whatever the answers are.
Here is a list:
Check your credit report;
Make a list of everyone you owe money to — names, addresses, account numbers, contact telephone number, total amount owed, payment amount due;
Get your 2019 taxes prepared if they aren’t already (and any missing prior years while you are at it);
Review your household budget;
Collect pay stubs or other evidence of income for at least six months.
This information will help you deal with creditors when it is time to do that. It will help you apply for whatever forms of assistance may be available for you. It will help you prioritize what income you have (now or later); and, if necessary, it will facilitate a bankruptcy filing if that becomes necessary.