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May 26, 2020 by Todd Murphy

How a small business should deal with debt collectors during the COVID pandemic

The COVID-19 pandemic has affected almost every sphere of our lives. In addition to taking a heavy toll on the health of our national community, it has adversely affected our country’s economy. Read on to learn how a small business should deal with debt collectors during COVID pandemic.

debt collector villain

Many businesses are experiencing a decline in consumer activity. As a result, revenue is dwindling.

So, if you own a business you might be worried about how to manage it during this unprecedented crisis. Trust me, you need to plan instead of panicking. There are many ways to help your business survive COVID-19 and protect it, along with your employees.

First, make sure to pay your bills on time if possible. If you can’t, your creditors might mark delinquency on your credit report, and your debts might be submitted to collection agencies after a certain time. Yes, you heard it right! Debt collections continue amidst the outbreak of COVID-19.

So, what if you’ve already missed payments and been contacted by debt collectors? Here’s how a small business should deal with debt collectors during COVID pandemic. It’s very important to realize that you have rights.

First of all, there’s no need to pay as soon as you receive a collection call because debt collectors often take advantage of adverse situations. With that in mind, follow these measures:

  1. Ask for the details of the debt collector, such as the name of the caller and the debt collection company, its address, etc. If the collection company is legitimate, the collector will provide the details.
  2. Under the FDCPA (Fair Debt Collection Practices Act), you can request a debt validation letter from the collector. The letter will contain the information about your original debt amount along with other charges levied by the collection agency, if applicable. Usually, you’ll receive the letter within five days from the initial contact. If you don’t, you have up to 30 days to send a letter requesting a debt validation letter.
  3. Don’t admit the debt unless it’s proven by the debt validation letter. Debt collectors often call for making payments for debts that have passed the statute of limitations or that don’t belong to you or are already paid. So, don’t readily admit that the debt is yours. Ask for the debt validation letter first, and then act accordingly.
  4. Don’t reveal additional information about your current debt, income, and other finances. Debt collectors might gather some of the information from your credit report and use it to force you to make immediate payment, but remember, you don’t need to provide these details over the phone. So, hang up if necessary. Your conversation with the debt collector should be short but informative. Take notes, like the name of the collector, collection company, debt amount, etc., while communicating.
  5. After receiving the debt validation letter, if you find out you don’t owe any or some of the debt, dispute it as soon as possible. Send a letter to challenge the validity of the debt with supporting documents. Keep in mind you have up to 30 days from receiving the validation letter to dispute the debt.

Due to the outbreak of COVID-19, some states have recommended stopping debt collection activity for the time being. Check with your state’s attorney general to learn if there are any recent updates about debt collections in your state. Plus, New Jersey and some states such as California, Alabama, Alaska, and some cities like Los Angeles and San Diego have temporarily halted evictions, foreclosures, etc. So, check with your local and state governments to find out if there is emergency protection due to the pandemic.

Is it possible to stop debt collectors from contacting you? Yes, it is! If you’re exhausted by incessant collection calls, you can mail the debt collectors a letter to request that they stop calling you. I would suggest sending a letter via certified mail and keeping the return receipt as proof that the collector has received it.

Of course, stopping collection calls doesn’t mean that you don’t owe the debt anymore. But, you might get a temporary break from the incessant collection calls. Again, you will still owe the debt, and the debt collection agency might file a lawsuit against you to collect it. So, if you find that you really owe the debt, it’s best to pay it off as soon as possible. If you need help to do so, you can seek debt relief asstance.

The bottom line is that you have to handle the situation efficiently. You might be worried about your business during this pandemic. And a debt collection call might become an added burden. I hope, now, you understand how to deal with the debt collectors during the pandemic. The key is to stay calm.

So that is how a small business should deal with debt collectors during COVID pandemic, but, if you find you need help, please don’t hesitate to contact us. We may be able to help you negotiate a payment arrangement or even consider a bankruptcy if less severe tactics can’t help.

Lastly, stay safe and follow the precautionary measures recommended by the Centers for Disease Control and Prevention (CDC). And, if possible, help others during this pandemic.

Filed Under: Uncategorized Tagged With: bankruptcy, COVID, debt collections, debt collectorts, pandemic, small business

May 18, 2020 by Todd Murphy

COVID Will Force Small Businesses To Resort To Bankruptcy.

Deep Recession and Lack of Resources: COVID will force Small Businesses to resort to bankruptcy.

The United States economy is likely to remain in a deep recession that economists say may linger for more than a year or more and small businesses will be hit hard. COVID will force Small Businesses to resort to bankruptcy.

COVID effects on Small Businesses

Retail businesses were already in a death-spiral before COVID hit with consumer buying moving to online e-commerce. Local businesses, no matter how much we might like to support them just can’t offer the convenience, section and price that online stores can offer.

Restaurants were also in trouble with soaring rents, terrible working conditions, and a move to take-out with GrubHub, DoorDash and Uber Eats. Margins on restaurants can’t handle the 30% “vig” these delivery services take out of each sale and restaurants can’t afford not to be in the delivery game.

What Businesses Are Effected and Why?

In a survey by the SMB (Small and Medium Business) Group of more than 500 businesses it found the COVID-19 impact varies by type of business, with these three categories most affected: personal service, hospitality and retail. The smaller the company, the harder the hit, with companies with fewer than 20 employees most affected.

Why? Because a small business with fewer than 20 employees typically lacks cash flow and capital. Those companies were the first to reduce hours for employees or lay off employees. Those businesses were also the first to stop hiring subcontractors.

“Those businesses had a challenge, and will experience the most extreme negative impact,” said Laurie McCabe, SMB’s cofounder and partner. “They had to learn how to serve customers in the new stay-at-home environment.”
McCabe said that continuing to operate has been impossible for small businesses which provide hands-on services, such as hair salons and spas, home improvement and repair contractors, and for many dental and medical offices.

Don’t Expect Consumers to Go Right Back To Buying

The White-House wants us to believe that immediately upon lifting stay-at-home orders, consumers will go right back to buying and employees will go right back to their old jobs with not even a hick-up. That just isn’t going to happen when the government can’t get its act together on testing and a vaccine may still be be many months away. People just won’t feel safe going to stores and restaurants.

Small businesses have rent to pay – often to another small business that can’t afford to wait.

Revenues of Small Businesses Will Be Reduced Weighing on Their Ability too Pay Rent and Debt Payments.

If a restaurant is forced to keep distance between customers then its revenue is going to be cut in half or more. With reduced revenues comes reduced ability to pay rent and loan payments.

Rents must be reduced.

Retail real estate values simply cannot stay where they are today. If a retail tenant is paying $5000 a month rent but it’s daily shopping volume is reduced by social distancing rules, how can the retail shop afford to pay the same rent it paid before COVID. If the landlord chooses to enforce the current lease and evicts the store (and putting it out of business) what new business is going to come in at the old rent? And the same for restaurants.

If landlords and tenants can’t come to terms in amending leases, the small business is going to seek the help of the bankruptcy court.

Loans Must Be Worked Out

The same goes for loan payments. How can a retail store or restaurant pay monthly loan payments if its revenues are lower every month? Loans will have to be amended to suit the new business environment and if a bank and a business can’t agree on work-out terms, the business is going to seek the help of bankruptcy courts.

Small Businesses Will Struggle Before They Die

Small businesses are going to struggle before they finally decide to seek help in bankruptcy. They are going to use credit cards, raid the sales tax trust account and cut costs.

It is inevitable that these short-term strategies will backfire making it worse for owners. COVID will force Small Businesses to resort to bankruptcy.

Help Is Here In The Form of The Small Business Recovery Act (SBRA)

Coincidentally, help is available with a new set of laws in bankruptcy designed specifically to help small businesses. The Small Business Recovery Act (SBRA) because law at the end of February 2020 which simplifies chapter 11 bankruptcy for small business. There are some very important changes that can help a small business change the terms of a second mortgage that may have been taken against the primary residence, cram down SBA or other commercial loans and more.

Bankruptcy Takes Planning – Don’t Wait Until The End

A small business shouldn’t wait until it is under the gun to look into bankruptcy. Bankruptcy for a small business often takes some pre-bankruptcy planning.

Don’t wait. Contact a bankruptcy lawyer licensed in your State now even if bankruptcy is far in the future.

For more articles related to COVID resources see our CoronaVirus Resource page. Restaurants see our COVID Restaurant page

Filed Under: Uncategorized Tagged With: bankruptcy, COVID, restaurant, Retail business, small business

April 10, 2020 by Todd Murphy

Beneficial Changes in the Bankruptcy Code under the CARES Act

Small Businesses and Consumers will benefit from the changes in the bankruptcy code under the CARES Act

A number of changes in the bankruptcy code will benefit Businesses and consumers under the CARES Act making it easier and more beneficial for some to avoid or reorganize debts. See the SBA website here.

How the changes in the bankruptcy code under the CARES Act will benefit consumers.

The CARES Act amends certain provisions under Chapters 7 and 13 of the U.S. Bankruptcy Code to help consumers who will be or have been financially harmed by the COVID-19 pandemic.

The key changes that consumers should be aware of are as follows:

  • Chapter 13 filers with existing confirmed plans who have suffered a “material financial hardship” due to COVID-19 will be allowed to seek plan modifications, including extending their payments for up to seven years after their first plan payment was due, thereby reducing their monthly payment obligation.
  • Payments received from the federal government will not be included in the definition of “income” when determining eligibility.
  • Payments will not be included in the calculation of “disposable income” for confirmation. This change is designed to permit consumers to receive the full benefit of stimulus payments.

The key changes that small businesses should be aware of are as follows:

The CARES Act amends the Small Business Reorganization Act of 2019 (the “SBRA”), which became effective February 19, 2020, to temporarily increase the debt threshold under the new Subchapter V of Chapter 11 of the Bankruptcy Code from $2,725,625 of debt to $7,500,000.

The SBRA is designed to enable small businesses to reorganize their financial affairs in a more efficient and cost-effective manner while also maintaining more control over their businesses. For small businesses, Chapter 11 reorganization has not been a viable option due to the length and high cost of the process.

Some of the key features of the SBRA are as follows:

  • Businesses or individuals with at least 50% of their debts being commercial debt totaling not more than $7.5 million are eligible.
  • The bankruptcy process will be quicker with shortened timelines. For example: the deadline for filing a plan is just 90 days shortened from 120 days.
  • Filers are not required to pay quarterly U.S. Trustee’s fees (often costly)
  • Creditors committees will not be appointed minimizing disputes and distractions.
  • A standing trustee will be appointed who will: (i) help to formulate a plan; (ii) report fraud or misconduct, and (iii) monitor plan distributions.
  • Unlike a trustee that might be appointed in a Chapter 11 case, a SBRA trustee does not take part in operating business. The trustee’s goal is to help resolve issues with creditors and move the case along.
  • Only the small business filing bankruptcy can file a plan of reorganization. This eliminates risk of competing plans filed by creditors.
  • A disclosure statement is not required, unless the Court orders otherwise.
  • The plan may be confirmed even if all impaired classes vote to reject the plan.
  • Payments of administrative expense claims may be stretched out over the term of the plan.
  • Equity holders may be able to keep their equity interests in the business without the need to contribute new value because there is no “absolute priority rule”. This means that business owners can keep their interests in the company even if unsecured creditors will not be paid in full under the plan.

See other important updates and resources on our Coronavirus Resource Page here.

For full text of the CARES Act go here.

Filed Under: Uncategorized Tagged With: Bankruptcy Lawyer, Chapter 11 Bankruptcy, coronavirus, COVID-19, New Jersey, small business, Small business reorganization act of 2019

March 30, 2020 by Todd Murphy

CARES Act Small Business Loans – Summary of Emergency Loans

This is a brief summary of the CARES Act Small Business Loans relief program. Here are the very basic points to consider which will help you decide whether or not to pursue relief under this Act.

The Coronavirus Aid, Relief, and Economic Security (CARES)
Act allocated $350 billion to help small businesses keep
workers employed amid the pandemic and economic
downturn. Known as the Paycheck Protection Program,
the initiative provides 100% federally guaranteed loans
to small businesses.

Importantly, CARES Act Small Business Loans may be forgiven if borrowers
maintain their payrolls during the crisis or restore their
payrolls afterward.

Am I Eligible?

You are eligible if you are:

  • A small business with fewer than 500 employees.
  • A small business that otherwise meets the SBA’s size standard.
  • A 501(c)(3) with fewer than 500 employees.
  • An individual who operates as a sole proprietor.
  • An individual who operates as an independent contractor.
  • An individual who is self-employed who regularly carries on any trade or business.
  • A Tribal business concern that meets the SBA size standard
  • A 501(c)(19) Veterans Organization that meets the SBA size standard

What Will Lenders Be Looking For?

In evaluating eligibility for CARES Act Small Business Loans, lenders are directed to consider whether the borrower was in operation before February 15, 2020 and had employees for whom they paid salaries and payroll taxes or paid independent contractors.

Lenders will also ask you for a good faith certification that:

  • The uncertainty of current economic conditions makes the loan request necessary to support ongoing operations
  • The borrower will use the loan proceeds to retain workers and maintain payroll or make mortgage, lease, and utility payments
  • Borrower does not have an application pending for a loan duplicative of the purpose and amounts applied for here
  • From Feb. 15, 2020 to Dec. 31, 2020, the borrower has not received a loan duplicative of the purpose and amounts applied for here (Note: There is an opportunity to fold emergency loans made between Jan. 31, 2020 and the date this loan program becomes available into a new loan)

If you are an independent contractor, sole proprietor, or self-employed individual, lenders will also be looking for certain documents (final requirements will be announced by the government) such as payroll tax filings, Forms 1099-MISC, and income and expenses from the sole proprietorship.

How Much Can I Borrow?

Loans can be up to 2.5 x the borrower’s average monthly payroll costs, not to exceed $10 million.

Will This Loan Be Forgiven?

Borrowers Are Eligible To Have Loans Forgiven

A borrower is eligible for loan forgiveness equal to the amount the borrower spent on the following items during the 8-week period beginning on the date of the origination of the loan:

  • Payroll costs (using the same definition of payroll costs used to determine loan eligibility)
  • Interest on the mortgage obligation incurred in the ordinary course of business
  • Rent on a leasing agreement
  • Payments on utilities (electricity, gas, water, transportation, telephone, or internet)
  • For borrowers with tipped employees, additional wages paid to those employees

The loan forgiveness cannot exceed the principal

This is just a brief summary of the CARES Act Small Business Loans there is more detail available but this is the basic summary of what you need to know before you get started.

Feel free to contact us for more information.

Go to our CoronaVirus Resource page for more information on other programs that are available now and learn about others that are being discussed.

The US Chamber of Commerce has good information on what’s available for small businesses at their website here.

Filed Under: Uncategorized Tagged With: CARES Act, small business, small business emergency loans

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