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10 March 2010

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LA to Help Debt Ridden Businesses

Dec 15 at 11:11pm by Kristine Doluche

Cited: LA DailyNews

LA SealLos Angeles has created a $15 million loan fund that is designed to help scores of LA companies expand as recession winds down providing a boost to those small businesses that have been hampered by tough economic times.  The first recipient in the program, Powerline Control Systems in Northridge, will get $220,000 to expand its commercial and industrial business that manufactures lighting controls.

“Once this thing gets off the ground (and) depending on what the sales volume is, it will create jobs,” said Powerline CEO Marshall Lester, who founded the company in his garage 15 years ago.  Lester is taking advantage of the Los Angeles Citywide Small Business Loan Program, which will be administered by the Van Nuys-based Valley Economic Development Center.

“Right now we’re in the midst of the most significant credit crunch we’ve seen since the 1970s,” said Roberto Barragan, the center’s president. “What this program does is recognize the fact that businesses are going through tough times.”

The fund is the brainchild of Barragan and Ninoos Benjamin, director of the Economic Development Division of the city’s Community Development Department, who began discussions last February.

“I said, `Look the city has not a citywide loan program since 2004,”‘ Barragan said Friday.

Benjamin concurred and assembled money for the loan pool, allocating some of the money the city receives from the U.S. Department of Housing and Urban Quantcast Development. The city has typically used these grants for construction projects.

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“I credit a lot to Ninoos in making our request feasible because he knows the HUD rules and we don’t,” Barragan said.

Businesses that qualify can use the money to refinance debt; buy inventory, equipment or commercial real estate; as working capital; or for tenant improvements.  With loan amounts ranging from $50,000 to $400,000, Barragan estimates as many as 60 companies will benefit.

And while HUD provisions require that one job be created for every $35,000 loaned out, Barragan hopes to add one job to the city work force for every $10,000 loaned.

Loan applications and terms are available on the center’s Web site at www.vedc.org. Barragan said that interested companies should first check the terms to determine if the program meets their needs.

The center will then do a free credit check to see whether a company should continue with the application process.

“You don’t have to have fantastic credit but we don’t want people who had a bankruptcy in the last three years or major collection actions because that would make it very difficult to get through our (application) process,” Barragan said.

Startup companies must show strong job creation potential and the owner must have a significant investment of his own money, he said.

Barragan also said that Lester’s Powerline was an excellent loan candidate.

“The company is a good, strong company. It has a real upside potential for jobs,” Barragan said. (Lester) is in a green type business and that’s what we’d like to see more money in.”

Lester said there is a lot of competition in the residential lighting control sector but he thinks he’s got a clear field on the commercial side.

“There is no competition (in commercial) because nobody can do what we do,” Lester said.

The loan money will be used to produce and market Powerline’s new, patented GreenWorx energy-efficient commercial lighting control system. Lester said the company will first focus on parking structures and then expand into buildings.

Powerline’s control system uses existing power lines to automatically control lights without the need for rewiring the facilities.

The latter is an expensive undertaking, Lester said, and the only other option to his company’s technology. GreenWorx systems reduce energy use and power costs, both important considerations to industrial and commercial businesses.  Lester said his company should be ready for its big push at the end of next year’s first quarter.

In fact, a $220,000 deal is being installed at California State University, Northridge, which is the company founders’ alma mater.  It is a six story parking structure.  This is only one of a couple of systems that the company has already sold.

“That’s also kind of our giant testing laboratory,” Lester said.

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My Take: This does not make sense to me.  I keep hearing how bad California is financially and Los Angeles can do this?  Maybe the LA city mayor should take over the state?  Maybe it is because LA is such a big passion town, who knows.

I know there are several T shirt design companies that are based in LA as well as cosmetics manufacturing companies.  Maybe that is because of Hollywood.  But you can definitely get any number of pop culture T shirts easily in Los Angeles.  However, I do not think any the manufacturers of private label skin care products need to worry too much because most females think they need it.

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California Leaving the Union?

Dec 15 at 11:11pm by Kristine Doluche

Cited: DailyNews

SecessionAccording to an editorial in the Daily News, California is in a state of denial right now.  Mainly because a high-ranking government official made the suggestion they drop out of the union.  The reason that it was suggested is because of their unmanageable financial disaster.  And it seems that flag companies may be working double time to make new flags with 49 states instead of 50. 

In that editorial, you were told how the catastrophic state budget crisis has been a boon for one-way truck rentals as taxpayers and businesses move to greener pastures. Well, now the editor discovered another industry poised for a huge pay day courtesy of years of California’s reckless mismanagement. So, cash in your savings bonds, dig up those gold bars you buried under the compost heap and buy, buy, buy stock in the flag industry!

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This isn’t 1959 nostalgia. Dropping a state from the union is an actual idea considered by a high ranking government official. Twenty guesses which state we’re talking about? Have the Carolinas finally gotten together? Have the Virginias kissed and made up after that silly Civil War spat? Perhaps somebody figured out we don’t really need two Dakotas? Of course not. The endangered star on the flag is the home of the stars. California is considering voting itself off the island.

Michael Genest, director of the California Department of Finance, told The Wall Street Journal he, “Literally looked at the federal Constitution to see if there was a way for states to return to territory status.”

This isn’t a story from The Onion. This really happened! The top financial advisor to Gov. Schwarzenegger actually thumbed through the U.S. Constitution to see if California could revert to territorial status! His scheme would make our budget mess the federal government’s budget mess, as if they need any help. Let me repeat, one of the top financial policymakers in California is so despondent of a fix he considered giving up statehood! Sorry for all the exclamation points, but seriously, a Hollywood Boulevard crazy with tinfoil on his head couldn’t come up with something this desperate.

On the other hand, with a budget hole of $21 billion – a staggering 49.3% of the general revenue fund – and a political system bereft of leadership or common sense, maybe Mike Genest isn’t so crazy. He who lives in Los Angeles shouldn’t be so quick to point at other people’s tinfoil hats.

As long as we’re talking about flags, its time someone yanks that bear off the state banner and sticks an ostrich up there, since it’s obvious no one in California wants to deal with fiscal reality. Our debt is so massive it’s created its own gravity, morphing into a fiscal black hole that’s sucking up everything in its path. For nearly a decade we’ve blown past every red light, every warning, and legislated as if bubbles never burst. At the polls we OK’d hugely expensive ballot measures with zero concern for how we’d pay for them, “Yippee! High speed trains for everyone!” We’ve chased schemes and dreams as irresponsible and greedy as the most avaricious Wall Street robber baron.

The shock and outrage of the college students protesting the recent huge tuition and fee hikes at the UC system is understandable. Waking up one morning to find your tuition bills are a third higher is a real kick in the wallet. However, the chanting protesters at UCLA and other campuses revealed a sad ignorance; the solution, so many protesters insist, is higher taxes on businesses and the rich. What do they think California’s been doing? How do you think we got into this mess?

There’s nothing less ideological than a spreadsheet. Yet, our universities are producing highly educated people who believe they are entitled to other people’s money. We’ve also elected assemblyman after assemblyman, senator after senator, city councilman after city councilman who thinks job creators and taxpayers are ATM machines. Yet, all those beautiful buildings on the UCLA campus have some rich person’s name attached. The protesting students apparently ducked class the day their economics professors taught a simple truth: The government doesn’t have any money, not a single penny. All “government” money comes from the people. It comes out of their parents’ paychecks.

The fiscal maturity of Californians is low.  Californians need to realize that if they want safe streets they need to pay cops, courts and jails.  They need to realize that more green from their wallets will make for a Green planet.  They need to realize that they want low tuition as well as multimillion dollar science centers; they need a better state economy that allows industry to create jobs instead of a punitive business environment that repels them.  They also need to realize that a few more rich people need to want their names on buildings in campuses and cities.

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My Take:  I do believe that it is against the law to secede from the union.  After the US Civil War, Congress made it even legal to do so.  I cannot even imagine why any state government official would even consider it!  I remember when Ronald Reagan was governor of California; he put them in the black.  He left that state with a balanced budget.

Maybe some of those government officials need to sweat a little more by doing a Pilates workout.  It seemed to be sweating over everything else including the state budget.  Arizona State budget is ingested bad condition, but you do not hear Arizona wanting to leave the union.  That is because our politicians are not stupid.  They are probably in a Pilates exercise program to sweat out all their frustrations.

I bet there is one thing about those politicians over there in California that smoke, they must be going crazy because they cannot smoke in a government building.  Of course, if they have the Njoy they do not need to worry too much.  If they got their Njoy starter kit, it included battery charger and an extra battery so they would not run out of smoke.

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The Frustration of Bad Debt Part 3

Dec 15 at 11:11pm by Kristine Doluche

Continued from “The Frustration of Bad Debt Part 2“ 

Cited: ABA Journal 

Bad Debt 2Attribute Reduction:

It was mentioned in the previous part that the price for excluding CD income that the debtor must reduce certain specified tax attributes when reducing a debt.  That means a debtor who declares bankruptcy, insolvency or qualified farm indebtedness that excludes COD income must reduce their tax attributes in the following order:

  • net operating losses
  • general business credits
  • alternative minimum tax credits
  • capital loss carryovers
  • basis of assets
  • passive activity loss and credit carryovers
  • foreign tax credit carryovers.

 The credits are reduced at the rate of 331⁄3 cents for each dollar of excluded COD income. The other attributes are reduced on a dollar-for-dollar basis.

The reduction in attributes is made after the determination of taxes for the taxable year of the debt discharge. That means attributes arising in or carried to the year of the discharge may be used to reduce income or tax for the year of the discharge, and the remaining attributes themselves are reduced for the following year.

Flexibility in the rules for reducing attributes allows a debtor, with careful planning, to apply the rules to best advantage. Instead of reducing attributes in the order prescribed above, the debtor may elect, pursuant to IRC section 1017, to first reduce the basis of its depreciable property. In that way, the debtor may choose to preserve net operating losses for future years.

The exclusions from COD income for qualified principal residence debt and qualified real property business debt specifically provide for a reduction in the basis of the property securing the debt instead of following the ordering rules for attribute reductions.

Temporary Deferral of COD Income:

Congress provided additional—albeit temporary—relief to beleaguered debtors when it included a tem­porary deferral rule in the American Recovery and Reinvest­ment Act that became law earlier this year.

A couple of definitions will help explain the temporary deferral rule: An applicable debt instrument is one issued by an individual, corporation or other entity in connection with the conduct of a trade or business. This is broadly defined to include any bond, debenture note, certificate, or other instrument or contractual arrangement constituting indebtedness within the meaning of IRC section 1275.

A reacquisition of an applicable debt instrument may be made by the issuing debtor in one of the following ways: (1) acquisition for cash or other property; (2) exchange of the debt instrument for another debt instrument (including an exchange that results in a signifi­cant modification); (3) exchange of the debt instrument for corporate stock or a partnership interest; (4) contribution of a debt instrument to capital; or (5) complete forgiveness of a debt instrument by the holder.

Now, the rule: An eligible debtor may elect to defer COD income arising from its reacquisition of an applicable debt instrument during calendar years 2009 or 2010, in accordance with IRC section 108(i). The debtor may include the income ratably over a five-year period beginning in the fifth tax year following a reacquisition that occurs in 2009 and the fourth tax year for a reacquisition occurring in 2010. (See IRS Revenue Procedure 2009-37 for additional guidance.)

The debtor may make a deferral election separately for each applicable debt instrument that is reacquired. The election may apply to all or only a portion of the COD income that results from each instrument. Once made, a deferral election is irrevocable. Debtors who are not sure whether they will be deemed to have realized COD income in 2009 or 2010 may file protective elections under section 108(i).

If the debtor elects to defer, then the other exclusions from COD income are not applicable. But because the deferral election may apply to only a portion of COD income, the debtor has the flexibility to exclude some of it and defer other COD income. An insolvent debtor, for example, might elect to exclude COD income and reduce tax attributes to the extent of the debtor’s insolvency, but defer any COD income in excess of its insolvency.

If the taxpayer dies, liquid dates, or cells substantially all assets or ceases to do business, any COD income that is deferred under section 108(i) will be accelerated and added to income for that catch your.

Continued in “The Frustration of Bad Debt Part 4”

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 My Take:  I think after this humongous article, I would rather hire an accountant to take care of it.  Because if I tried to take care of it my family would be hunting for a burial urn, I would probably have a stroke trying to figure it all out.

I wonder if you would be going through prison metal detectors if you missed all this up.  Of course, hopefully you would be going through a walk through metal detector to visit someone in prison instead of being there yourself.  Of course, nobody wants to go to prison over debt or taxes so would be a good idea to get professional assistance.

You just need to make sure you know what can be deducted or excluded.  I doubt pet keepsake urns would fit either of these criteria.  Now, you might be able to take off Virginia cleaning services if they are used for your business.  Now if it is for medical reasons, you might be able to take Washington DC maid service off your taxes.

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Parents Help Keep Private School Open

Dec 9 at 9:09pm by Kristine Doluche

Cited: NY Daily News

Holy TrinityA Lutheran school lost its facility, but has reopened as a secular school after the parents raised thousands of dollars were to happen.  The New Chapter Academy has a new beginning as does Principal Ginger Joseph.  The Lutheran school came back from the brink last month when it was slated to close the parents would have nothing of it.

The Holy Trinity Community Lutheran School, which lost its Hollis facility earlier this year, reopened as the New Chapter Academy in September. It is now housed in the former St. Albans Police Athletic League building.

The school was expected to close after it lost support from the Metropolitan New York Synod, which had overseen the pre-K-through-8 program and provided a building for the school. But in a move that could be a model for other religious schools struggling with dwindling enrollment, parents raised thousands of dollars and reopened the school as a secular private school.

“What we asked the parents to do is believe in us and believe that this thing could happen,” said Darnel Lyles, chairman of the academy’s board of trustees.

“The school is one big family, from the parents to the teachers to the administration,” said Lyles, who is also the father of two academy students. “We all want to do what’s best for our children.”

Parents had looked into turning Holy Trinity into a charter school, he said, but decided it was easier to create a nondenominational academy instead. They found a new space for the school with the help of local elected officials.

It was allowed to retain its academic credentials, he said, by changing its name and forming a nonprofit board of trustees.

“We worked as hard as we did to keep the school open for our children,” Lyles said. “The alternative public schools available to us were not appealing.”

The synod decided to close the school because it couldn’t afford to help Holy Trinity stay open any longer, said the Rev. Gary Mills, synod spokesman.  The synod was lending the school money to meet its operational expenses each month, he explained, and the school was more than $1 million in debt. Enrollment was also down, which meant fewer tuition dollars.

The school once called the Holy Trinity Community Lutheran School, had signs out urging parents to sign up their children for the following year.  However, many did not think that there would be a next year at the Hollis Institution.

Officials at the Metropolitan New York Synod, which oversees the pre-K through eighth-grade school, said Holy Trinity is being closed because the synod can no longer bankroll it. St. Stephen’s Lutheran School in Brooklyn is also scheduled to close.

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Parents and teachers fought to keep it open for one more year – just long enough to be eligible for charter school status.

“It’s ludicrous for this place to close,” said Marie Evans, 49, of Hollis, who has a daughter in the eighth grade. “Children do well here.”

“It’s too bad, but it’s a challenge when you have so many schools that are facing the same problem,” said David Olson, interim assistant to Bishop Robert Rimbo at the synod. “There’s a limit to the resources.”

Over the last few years, enrollment at Holy Trinity has dropped to a low of 120 students, from the past average of 150-160. And even with an increase in tuition, the school has still needed hundreds of thousands of dollars from the synod to remain open.

“We have regretted that we cannot continue to provide,” Olson said. “But we are hopeful that these students will find as good of an education in a nearby school.”

Parents and staff did not taking the decision lightly. They met with city Department of Education officials and local leaders about turning Holy Trinity into a charter school. They have also been fund-raising.

“This is an important school for the Hollis area,” said City Councilman Leroy Comrie (D-Hollis) at a meeting with parents last week. “We need to do everything we can to pressure the synod to keep it open.”

School officials now claim they can afford to keep the school open another year without financial assistance from the synod – as long as enrollment goes up.   But to the dismay of parents like Fiamma Rieckman, 33, of Hollis, that did not seem likely. She attended the school as a child, and now her 9-year-old son is enrolled there.

“We wish them all the best,” Mills said of the school’s new independent endeavor. “We’re happy that they could reopen and continue.”  The synod did close St. Stephen’s Lutheran School in Brooklyn.

Ginger Joseph, New Chapter’s acting principal and middle school teacher, said she is happy her school was able to survive.  “I truly believe the synod did us a favor,” she said. “We ended up with a facility that is twice the size we had before.”

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My Take: I think parents should get involved in their kid’s school.  I think they should get more involved with their kids as well.  One time in the year you see parents paying attention to their kids most is a holiday season.  That usually starts with Halloween.

While the parents look for sexy costumes, the kids try to convince them they want to be there favorite superhero or rock star.  Eventually, the parents help them pick out their Halloween costume and all our happy, most of the time.  Of course, most parents are most attentive at the beginning of their child’s life.  They send out baby announcements galore, to everyone that they can think of.  Some even send out personalized birth announcements to close friends and family.

However, because of the demands online in our society today many parents stop paying attention.  At least, until their child gets into bad trouble and that trouble usually involves the police.

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Banks and IRS May Give Short Sale Sellers Problems

Dec 9 at 9:09pm by Kristine Doluche

Cited: Realty Times

paperworkThe tons of paperwork that may be needed by short-sale sellers and their agents give them plenty to think about besides being annoying.  Even so, they need to make sure that they keep it for possible future use as well as pay attention to what is in the paperwork.  That paperwork may be needed if circumstances cause the seller develops problems after the sale has taken place.

Bad enough that a short sale involves the loss of one’s home with no equity to show for it, and a credit negative that may last for years; it also has the potential to produce two very bad after-effects. One is that the lender, or the lender’s assignee, may continue to pursue the beleaguered seller for the remainder of the debt. The other is that the I.R.S. may come knocking on the seller’s door, seeking tax on the amount of debt that was unpaid.

The first possibility is often contained in the paperwork that goes along with the seller’s ok of the short sale. The borrower may be required to sign a promissory note for the difference between the debt owed and the short sale proceeds received by the lender. Or, a lender may require the borrower to sign a paper acknowledging that the lender reserves its right to pursue the borrower for this amount.

The second possibility resides in the fact that, if a debt is forgiven, the borrower may be taxed on the amount he didn’t have to pay back. (see I.R.S. publication 4681). To be sure, there may be short sales where the debt that is unpaid is not taxable. For those exemptions, see a tax accountant.  The point here is that the short-sale seller may suffer one of those unpleasant consequences; but he ought not to suffer both.

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The point is raised because here is what can happen: In allowing the short sale, the bank requires the borrower to sign a note for the difference, or to acknowledge that the bank has the right to take action to collect that amount. Also, probably sometime later, the bank sends out a 1099-C, informing the I.R.S. that a certain amount of debt had been cancelled.

No one who has dealt with a short sale would raise the question: “How could this happen? The two actions contradict each other!” That is because anyone who has been through the process knows that it is common for the right hand of the bank not to know what the left hand is doing. Indeed, it is not uncommon for the right hand not to know what the right hand is doing.

This is why it is important for the seller to be sure to keep his paperwork. If he signed a document to the effect that the bank was going to pursue its unpaid interest, he should hang on to that. Then, if he receives a 1099-C saying that the debt was forgiven (and, therefore, taxable), he will have support for the claim that the 1099-C is incorrect.

Conversely, suppose that there was no specific release of the debt and that the paperwork contained no reference to it. Then, if the seller receives a 1099-C, saying the debt was cancelled, he should keep that, just in case the bank, or its assignee, comes calling a year or so later, trying to collect the debt.

This is not tax or legal advice I know means.  It is hoped that this will encourage short-sale sellers to consult with someone on the matters at hand to make sure that no problems do arise four, during or after a sale.

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My Take: The IRS is out to get everybody!  :-)   I guess this means that if you have a short sale AZ, you better be careful.  Because I live in Arizona, I have heard that there is a lot of Mesa AZ mortgage refinancing now because people just cannot afford their mortgages.

Of course, Arizona is not the only one with real estate problems.  I understand there are several Houston homes for sale as well due to foreclosures.  However, Houston properties seem to be selling better than those in Arizona.

On the other hand, I really do not want to think about how much debt there are because of mortgages.  I would rather worry about finding the best movie downloads on the Internet.  Watching a movie as the movie downloads is a lot more enjoyable than worrying about debt anytime.  In fact, I think I will download comedy movies today.

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The Uninsured Are Not the Only Ones with Medical Debt

Dec 9 at 8:08pm by Kristine Doluche

Cited: Baltimore Sun

Healthcare 1Until you are sick and overwhelmed by copayments and other health costs, you may not even realize that your coverage is inadequate even if you have debt.  This tells you that not just uninsured patients who can rack up steep medical bills or medical debt.

“Medical costs are the single largest contributor to people declaring bankruptcy,” often including those who already have insurance, said Ron Pollack, executive director of Families USA, an advocacy group.

To help consumers avoid getting buried under hospital bills, Families USA recently published a handbook, “Your Medical Bills: A Consumer’s Guide to Coping with Medical Debt,” which is available online at www.familiesusa.org. Along with that, the group published a list of what Maryland and some other states have done lately to protect residents from medical debt.

Maryland added protections starting in June after a series of articles last year in The Baltimore Sun that showed aggressive collection tactics used by some hospitals against low-income residents, even though their unpaid bills are covered through rates charged to all patients. The law now requires hospitals here to provide free or reduced-price care to low-income residents and to give patients information about financial assistance.  This protection may be expanded soon to make even more Marylanders eligible for free or reduced-cost care.

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So what do you do if you face big medical bills?

The first step is to make sure the hospital bill is correct, Pollack said during a recent news conference announcing the consumer guide. Sometimes you may be billed twice for services that you received only once or not at all, he said.

Request an itemized copy of your bill. Also, check your medical record to make sure the services on the bill were actually provided to you, he said.

If your insurer refuses to pay a claim, you can file an appeal with the company to review its initial decision, Pollack said. If that doesn’t work, some states allow you to file an appeal with them. Marylanders whose insurer won’t pay for treatment considered a medical necessity can file an appeal with the Maryland Insurance Administration.

Low-income patients should check to see whether they are eligible for Medicaid. “If you are, you should only be paying for very minor copayments,” Pollack says.

Marylanders with limited means have additional options.  Maryland hospitals now must provide free care to residents whose income falls below 150 percent of the federal poverty level – or $27,465 for a family of three, said Stephen Ports, principal deputy director for the Health Services Cost Review Commission, which sets rates for hospital services. Hospitals also must offer a reduced price for other low-income residents, although it’s up to the hospitals to determine who qualifies.

A work group within the Review Commission last month proposed an expansion of this protection.

In a proposal now undergoing public comment, free care would be provided to residents whose income fell below 200 percent of the federal poverty level, or $36,620 for a family of three, Ports said. And those who fall between 200% and 300% ($54,930 for a family of three), would get reduced-cost care. Hospitals facing financial hardship, though, could petition the commission for some leeway on this, he said.

Among other suggestions, the work group recommends legislation that would forgive certain medical debt incurred during the year that exceeds 25% of household income for low- to moderate-income patients. This provision would most likely help uninsured patients paying for medically necessary treatments, Ports said.

“Until we have health care for all, it will continue to happen,” said Vincent DeMarco, president of Maryland Citizens’ Health Initiative.

Medical debt could still be a problem even if healthcare report passes.  Many changes are being discussed during the national debate on health reform, but nobody knows it will truly help or not.

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My Take: I think the worst debt that anybody can have is medical debt.  Mainly because it means that somebody in your family has become seriously ill and may have or could die.  This is not something people want to experience.  Most people regret spending a lot of money and creating debt, but medical debt is something they do not want to create.

Medical debt is created in many ways, from something needed to something frivolous like using a Panama City Florida plastic surgeon.  Of course, even a plastic surgeon can be a necessity depending on the reason.  But something like a Pensacola FL hair transplant surgeon is usually something used because of vanity.  There is also a medical debt from by necessity such as nursing home debt.  Although, sometimes you may need a Brooklyn nursing home abuse lawyer because it is not a good place.

Sometimes, medical debt is only temporary and a NY slip fall accident attorney can get the medical debt paid off by the insurance.  Basically, medical debt is one thing that nobody wants to occur in their lives.

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Health Accreditation Solutions

One service has successfully assisted hundreds of doctors obtain their accreditation and/or state license including dialysis center accreditation.  They differ from other services simply because they guarantee their work and provide the implementation necessary to give you peace of mind that you can achieve your DME accreditation.

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Is Below-Market Secured Valuable?

Dec 9 at 8:08pm by Kristine Doluche

Cited: Law.com

charterheadqsI bring you an old story with a new twist that is as old as borrowers, lenders and the bankruptcy code itself.  It seems that one judge wants to help a company get reorganized to alleviate its debt.

On Oct. 15, Southern District of New York Bankruptcy Judge James Peck stated that he would confirm the joint plan of reorganization of Charter Communications Inc. over the hard-fought objection of a group of its secured lenders lead by JP Morgan Chase Bank as administrative agent. Charter holds itself out as the fourth largest cable operator in the United States, providing high-speed Internet, telephone and video service to approximately 5.5 million customers maintaining a 27-state footprint and employing more than 16,000 people.

More impressive than the size of its operations was Charter’s ability to lose money. Even one of the wealthiest people on earth found Charter’s losses unsustainable. “After investing and losing more than $8 billion in the Charter enterprise,” Paul Allen said “enough.”

What Charter lost in equity, however, it more than held onto in debt. Charter’s secured creditors were owed an aggregate of approximately $11.8 billion in the case. Even worse, from their perspective, the interest rate on those billions of dollars of debt was substantially below the current market rate. As a result, rather than seek to modify its loans through a cram down and thereby reset the lenders’ interest rates at a higher market rate, Charter sought to “reinstate” the loans and retain the benefit of below-market rates. To reinstate the loans, Charter would have to convince the court that the lenders’ legal and equitable rights would be unaffected after the bankruptcy case and that all defaults would be cured by the plan’s effective date, i.e., the lenders would have the full benefit of their prepetition bargain notwithstanding the intervening bankruptcy.

Reinstatement is specifically contemplated by the Bankruptcy Code. It has been recognized by courts as a viable treatment of secured creditors for purposes of confirmation for more than 25 years.  During a 16-day trial, Charter and its lenders did battle the way most debtors and secured creditors do: Charter argued economic substance and what results are “right,” while the lenders responded with technical arguments under the loan documents and process rights under the Bankruptcy Code. Charter, for example, in framing the arguments that it anticipated at confirmation, spoke of lenders receiving “the complete benefit of their bargain with Charter.”

It also stated that reinstatement is “globally intended” to put debt “back on track and effect a reorganization “and that lenders should not be allowed to “extract improper windfalls at the expense of the debtors’ estates.”

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In response, the lenders identified numerous “incurable” defaults that Charter had tripped (e.g., change of control, breaches of past and future representations and Charter’s inability to reinstate due to acceleration) thereby making reinstatement impossible. Further, the lenders pointed out that Charter had the burden of proving the elements of reinstatement, and, they argued, Charter’s proof fell short.

At the end of the day, however, the Court sided with Charter, concluding that the lenders’ $11.8 billion of debt could be reinstated by Charter, resulting in an interest savings to Charter of more than $500 million per year. The actual ruling and order have not yet been issued, but the court indicated it would enter a written ruling in the near future.

So if reinstatement has been available to debtors for over a quarter century, what is the new twist? The twist is current-day economics. Although reinstatement as a theory has been around for years, the economic incentive to utilize the practice has not been as compelling as it is today. In the frothy liquidity days earlier in this decade, capital was readily available. Banks, private equity funds, CMBS facilities and others were pumping hundreds of billions of dollars of fresh cash into the economy annually. Companies were expanding, revenues were increasing year after year and everyone in the capital markets wanted to be a part of it. Both competition and broad-based access to funds pushed debt pricing down. Debtors even utilized the Chapter 11 process to take advantage of these lower market rates.

That has changed. In the current economic climate, debt is more expensive, if it is even available. New debt pricing at the market rate would have cost Charter approximately $500 million per year in increased interest costs. That created a powerful incentive for Charter to seek reinstatement of its existing indebtedness. While debtors historically have utilized bankruptcy to get a better deal, Charter utilized the process to hold onto what it had.

Will the same economic incentives drive additional bankruptcy filings, or at least cause companies to file sooner?

More than ever before, debtors in the current capital-constrained market have a powerful incentive to place their debt-strapped companies in bankruptcy before there is a default on secured indebtedness and lenders can effectively accelerate their debt. The interest rate pricing differential, as in the case of Charter, may be a significant corporate asset that boards of directors will have to carefully evaluate in determining whether and when to file bankruptcy cases.

Only time will tell whether there are enough other debt-strapped debtors living in the perfect storm of:

  1. Huge amounts of secured indebtedness (enough to justify the transactional costs and market risks of a significant Chapter 11 war)
  2. borrowed at significantly below current market rates,
  3. whose boards and advisers can see far enough ahead to know that a “sooner than normal” bankruptcy filing is essential.

It is hard to tell how often these three elements will converge, or whether companies realistically can be expected to assess when all the reasons for a pre-default filing are aligned. A decision to file before a secured debt facility is even in default would be counterintuitive to most directors. One thing is certain, however, sophisticated boards and management of large companies will now have to consider the “Charter Reinstatement Scenario” should their companies approach the zone of insolvency.

A partner in Bankruptcy & Workouts practice group at Perkins Coie, Stephen M. Hedberg, has more than two decades of experience working with clients.  It is his job to help them solve complex commercial and economic issues related to insolvent companies.  At present, he is a member of the firm’s Management and Executive Committees and is based in the Portland office.

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My Take: If the average person can do it, so can a corporation.  Besides, a corporation is considered an entity like a person.  That is why corporations can get away with so much.  You never hear about a corporation needing a criminal lawyer Denver CO or a New Jersey child molestation law firm, do you?  You do your about them getting Beaverton OR bankruptcy attorney though!

It would be a big joke to hear about a corporation who hired divorce lawyers Denver CO or Freehold reckless driving attorneys.  It would be absolutely hilarious to hear about a corporation hiring a Portland OR personal injury attorney because somebody drove their car into their lobby.

Fact is, a corporation can get away with so much more than a person can is ridiculous.  The only person that could actually be held responsible and corporation might be the CEO.  Then again, he may not have known anything about what had.

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Provincial Offences Advocacy

A Toronto provincial offence is commenced in one of two ways. Either you receive a ticket. This ticket will have a dollar value amount on the front of it and the officer’s name appears at the top just below a 4 digit number and an 8 digit number. Or you may receive a summons. This document looks like a ticket only it does not have a dollar value. Instead, it has a date, time and place where you are “commanded by Her Majesty” to appear in Court.  A criminal charge begins when you are summoned or to Court by the police. You will often receive a document called a “Promise to Appear”, “Summons to defendant”, “recognizance entered into before an officer in charge or another peace officer”, or other similar document. In some cases, you may be physically detained in custody and kept there until you appear in bail court.  It which time you may need in Toronto assault lawyer.

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The Frustration of Bad Debt Part 2

Dec 9 at 8:08pm by Kristine Doluche

Continued from “The Frustration of Bad Debt Part 1”

Cited: ABA Journal

Bad Debt 5Modification of Debt

By reducing the interest rate or extending the maturity date a creditor may agree to modify the terms of a loan or other debt.  If this is defined as “significant” under the Treasury regulation section 1.1001-3 will determine the tax consequences of such a modification.

Generally, a modification is significant under the regulation only if, based on all the facts and circumstances, the legal rights or obligations are altered in an economic manner and to a degree that changes the character of the debt in a major way.

A modification that changes the timing of payments, for instance, is significant if it results in the “material” deferral of scheduled payments. A deferral will be material if it extends a payment period more than five years or more than half of the original term of the loan, whichever is less. Other significant modifications in a debt may be indicated by changes in its yield to the creditor; the substitution of a new obligor replacing the original debtor on a recourse debt; a change in the collateral or guarantee on a nonrecourse debt; or changing the debt instrument from recourse to nonrecourse, or vice versa.

If the debt modification is not significant under the definition of the Treasury regulations, or if it was contemplated or provided for in the original debt instrument, then it generally has no tax effect.

If the modification is significant, however, the debt is deemed to be exchanged for new debt in a taxable exchange under IRC section 1001. In that case, the debtor will generally be treated as having satisfied the old debt with an amount of money equal to the issue price of the new debt.

Exclusions from COD Income

As discussed above, the general rule is that cancellation-of-debt income is treated for federal tax purposes as ordinary income to the debtor.

But COD income may be excluded if the debtor falls within certain exceptions enumerated in Internal Revenue Code section 108. (In the case of debtors that are partnerships, the exclusions are applied at the partner level; for S corporations, the exclusions are applied at the corporate level.)

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The two most important exclusions are for bankruptcy and insolvency.

COD income is not recognized for tax purposes if the discharge of the debt occurs in a federal bankruptcy proceeding pursuant to a plan approved by the court—whether filed under chapters 7, 11 or 13. Under the bankruptcy exclusion, there is no limit on the amount of COD income that may be excluded.

The insolvency exclusion, however, applies only when, and to the extent, a debtor’s liabilities exceed the fair market value of assets determined immediately before the discharge, and income may only be excluded to the extent of the insolvency.

Assets exempt from the claims of creditors must be counted in determining whether the debtor qualifies for the insolvency exclusion. This could be a factor as to whether the debtor seeks to use the insolvency exclusion or, instead, restructure in a formal bankruptcy proceeding.Bad Debt 4

Contingent liability is another factor in the insolvency computation. In 1999, the 9th U.S. Circuit Court of Appeals based in San Francisco ruled in Merkel v. Commissioner that a contingent liability should be counted toward insolvency only if the debtor proves by a preponderance of the evidence that he or she will be called upon to pay that liability. This is an all-or-nothing test that makes it more difficult for debtors to establish that contingent liabilities should be taken into account to establish insolvency.

There are other exclusions from cancellation of debt income that may be available to debtors under IRC section 108:

  • Qualified Farm Indebtedness.  A debtor may exclude COD income resulting from the cancellation of “qualified farm indebtedness,” which is debt incurred directly in connection with farming operations, if 50 percent or more of the debtor’s aggregate gross receipts for the three taxable years preceding the taxable year in which the discharge occurs is attributable to the trade or business of farming. The excluded amount may not exceed the sum of the adjusted tax attributes of the debtor and the aggregate adjusted bases of property held or used in a trade or business, or for production of income.
  • Student Loans. This exclusion applies to certain student loans, but the discharge of the loan must be pursuant to a provision of the loan under which all or part of the indebtedness is discharged if the individual works for a certain period of time in certain professions for any of a broad class of employers.
  • Qualified Real Property Business Indebtedness. This is debt incurred or assumed to acquire, construct or substantially improve real property used in trade or business, and that is secured by the property. But this exclusion, which is available only to noncorporate debtors, may not be used if the cancellation of debt occurs in the course of a bankruptcy proceeding or if the debtor is insolvent. The amount excluded generally may not exceed the amount by which the principal amount of the discharged debt exceeds the fair market value of the property securing the debt.
  • Qualified Principal Residence Indebt­edness. Under the Mortgage Forgiveness Debt Relief Act of 2007, this exclusion applies only to the discharge of this kind of debt if it occurs on or after Jan. 1, 2006, and before Jan. 1, 2013. The indebtedness must be incurred to acquire, construct or substantially improve any qualified principal residence, and be secured by that property. The exclusion is limited to $2 million of COD income for a married couple filing jointly ($1 million for single filers and married persons filing separately), and it must be used to reduce the basis of the principal residence.

Those portions of the indebtedness can be considered to have been canceled first and therefore be treated as COD income if the indebtedness exceeds a certain monetary limit or a portion of it is used for a nonqualified purpose.

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My Take: Again, you need to be an accountant to understand this article.  When people think of bad debt they think of all the phone calls they are going to get from the company they own money to.  I think those companies actually use a call center to make those calls.  Of course, with all the bad debt that is going around right now, it does mean that somebody is getting the job, which is a good thing.

A contact center can provide customers a way to contact the business if they have a problem with a product or service.  But the bright spot is the employment, people getting a job because of somebody’s bad debt.  I just hope that the company utilizes good payroll services.  If they have good custom payroll program, they should not have any problems with employees not doing their job.

There is also a way to help your bad debt if you happen to have an old car sitting in your yard that does not work.  There are junk car removal services that will come and remove that old car from your yard for free when they purchase it.  There is a service that will buy junk cars online.  If it does not help with your debt, at least it’ll put groceries in the house.

Continued in “The Frustration of Bad DebtPart  3”

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