Zoccola Law Firm

Covid-19 has hit everyone hard. Many are struggling to pay their bills and have had their income reduced or eliminated due to furloughs or reduction in their employer’s workforce. All of those plans they had to use your money to buy a house, put a new roof on their current house, pay for their child’s college education, go on a much-needed vacation- those plans have either been put on hold or even washed away. Many are trying to hold on to their jobs, their homes and their cars. Many are facing a mountain of student loan debt or their monthly credit card bills are skyrocketing because they are using their credit cards to pay for groceries, gas for their car and shoes for their children. Perhaps they are going through a divorce due to these troubled financial times and now their income will be slashed in half without that former spouse’s income but they still have to pay the same rent, car repairs and MLGW bill. Maybe they are facing a serious medical crisis and not certain how they are going to pay the medical bills for the care they need. Some have the IRS breathing down their necks, filing liens for unpaid taxes and threatening to take away their house. Hopefully their creditors will work with them during these uncertain times like the national moratorium on rent evictions or MLGW’s relief program. If they find themselves in times of trouble, understand that there are thousands of people in bad situations just like them. Understand that there are options for them. One of those options is filing a bankruptcy case. If they have a lot of unsecured debt and don’t have a house to save and are current on their car, they may be able to dump those credit cards balances or write off that growing pile of medical bills. They may be in a position to file a chapter 7 case if they meet the means test. If they are behind on your house payments or you are struggling to find full time work so they can pay their car note, chapter 13 may provide them the time to get full time work and reorganize their finances. Room to breathe, space to pull it all together—bankruptcy can do that for them. Bankruptcy was designed for the “honest but unfortunate debtor.” We at Mason Zoccola Law Firm PLLC, are here to help shepherd our clients to achieve understanding, security and peace of mind.  If they need the kind of financial help that bankruptcy can provide, have them call us at Mason Zoccola because first, we listen…

(not to be confused with the pizza franchise) Did you ever play the game of Dominoes as a child? This is where you lined up all of the small plastic black game pieces with the white dots on them, each one leaning precariously upon the next one. Then at some point, you pushed the first one and then it fell on the second one, which fell on the third one, and so forth. Imagine that Covid-19 is like a set of Dominoes. Although this is no game as there are lives at stake. When the first Covid-19 case appeared, that infected person caused the second case, etc., which then started a Pandemic. And then people needed to social distance by staying home to stay healthy. And then businesses started to fail because people stayed home and didn’t get paid so they didn’t eat in restaurants or need gas in their cars to go places.  And they couldn’t afford to purchase things and the government tried to help financially and businesses needed protection from their creditors. World Picture There is a documentary called Outbreak: Anatomy of a Plague (available on Amazon Prime) that documents the1885 smallpox pandemic in Montreal. Scientists tried desperately to trace the social circles of the individuals who were infected to try to contain it. It wasn’t until they imposed mass vaccinations that the pandemic was gotten under control. On March 11, 2020, the World Health Organization declared Covid-19 (short for corona virus 2019) a pandemic. During the current Covid-19 pandemic, we have watched as medical personnel have urged us to social distance at least six feet from each other to contain the spread of the virus. They have required anyone who contracts it or is exposed to it to quarantine themselves away from all others. Scientists and big Pharma are working on a vaccine, possible available next year. In the meantime, the economy is hurting. Medical science is telling us to stay home. And we are staying home and not working. And people are not spending money because they aren’t making money. And Gap filed for bankruptcy because its sales dropped 43% because people are not buying clothes and Gap is having trouble paying its rent at its various retail locations. And Simon, owner of various malls across the nation, including Oak Court Mall in Memphis has sued Gap for the rent due to it. And Chuk E. Cheese, a beloved place for children’s birthday parties and loved by kids everywhere, has filed for bankruptcy because business is down. And people are not driving anywhere because they are not working and can’t afford to go anywhere. And BP cut 14% of its workforce because demand for gas is down as people are not going anywhere. And hotels are in fear of foreclosure as people are not traveling and they are not getting mortgage relief from their lenders. And no one is traveling so airlines are at risk and are staying afloat only due to the federal stimulus package. And advertisers on Pinterest are requesting extensions to make payments because they are having financial problems. And nursing home occupancy falls 10%. Nursing homes account for 42% of deaths from Covid-19. There is a steep drop in new admissions to nursing homes as people are afraid to put their loved ones at risk. The global economy is expected to shrink by 5.2% in 2020 according to the World Bank. Businesses The U.S. Recession started in February of 2020. Congress responded with $3.3 trillion of emergency spending to aid those hardest-hit economically. Government responded to the current Pandemic swiftly to create aid for small businesses through its Payroll Protection Plan (PPP) “loans.” Administered through the Small Business Administration, the PPP loans were intended for businesses to be able to continue paying employees during the Pandemic, to restore payrolls to pre-crisis levels by the end of the year. Originally, 75% of the PPP loan proceeds were required to be used to pay employees; and businesses had to spend the money within 8 weeks. Congress eased these restrictions to give businesses 24 weeks to spend the proceeds and allow them to spend only 60% of the loan money on wages, allowing them to use the remaining proceeds on other costs such as rent, supplies, etc. This has been a critical life line for small businesses as it has helped keep 50 million workers paid. At the latest count, the government has given 4.5 million PPP loans which have cost us taxpayers $511 billion. The U.S. Department of Labor reported that the nation’s unemployment rate hit 14.7% in April, a post-World War II high. Construction lost one million jobs in April, manufacturing lost 1.5 million jobs and leisure and hospitality lost 7.5 million jobs. In May, governments started reopening slowly and jobs gained some with construction adding 500,000 jobs, manufacturing adding 200,000 and leisure and hospitality adding 1.2 million. In May, the Federal Reserve established a Main Street Lending Program to support lending to small and medium-sized businesses that were in sound financial condition before the onset of the COVID-19. The Fed lowered the minimum size loan from $500,000 to $250,000, increased the maximum loan size; increased the loan term option from four years to five years, delayed principal payments for two years and raised the Reserve Bank’s participation to 95% for all loans. Individuals Currently, testing consists of either a swab test or a blood test. The next generation of testing will likely involve saliva testing in pools of 10 people. If Covid-19 shows up in the saliva pool, then the entire pool is tested for it. Government also jumped in to aid individuals with the Coronovirus Aid Relief and Economic Security Act (CARES Act). In April, the federal government sent checks of $1,200 to each individual and $500 per child for households with income of less than $75,000. The CARES Act stimulus money is not taxable income. Congress also expanded unemployment benefits, including tacking on an additional $600 per week to achieve a longer lasting impact. Congress is considering an additional $1,200 stimulus check to individuals. Predatory lenders offered to “cash stimulus checks in minute for a 1.75% fee. Payday loans are charging up to 521%. A study by the Chicago Federal Reserve showed that people spent ½ of their $1,200 stimulus checks within the first two weeks of receiving it and then reverted to earlier spending habits. The stimulus check spending was on discretionary items like fashion. Because of the stimulus money, personal income increased 10.5% in April, which helped to make up for an 8% decline in wages. The personal savings rate, which is the difference between disposable income and spending, surged from 8.2% in February and 12.7% in March to 33% in April. However, unemployment rates continue to be high with 21 million people filing state unemployment claims last week. The Commerce Department reported that consumer spending fell 13.6% in April, following a 6.9% drop in March. If that contraction in spending continued for an entire year, it would mean a 53% contraction of the economy. Consumers are reluctant to spend their money because of the uncertainty of Covid-19, which impacts their income, which impacts the economy, which impacts the jobs, which impacts the people, which impacts the spending. LOCALLY The other day my son turned to me as we sat in front of the television and said, “Do you remember when we had sports?” His cynical joke reflects that everything has changed for all of us. We don’t have sporting events to attend or watch on tv, we don’t have movie theaters (although I hear the Drive-In is doing booming business), restaurants are just starting to open with limited seating, gyms have occupancy requirements. One of the advantages (and disadvantages) of living in Memphis is that we are often the last ones to the party, meaning that national trends, for better or for worse, his us later than most other part of the country, particularly the coasts. The first case was reported in Wuhan, China on December 31, 2019. The first case in the United States was on January 21, 2020, in Washington state from a man who had traveled to Wuhan, China. About six weeks later, on March 8, Shelby County had the first case of Covid-19. A few days later, the World Health Organization declared the pandemic. Memphis Mayor Jim Strickland wasted no time implementing a shut down of all businesses except those that were deemed “essential,” such as grocery stores, gas stations, hospitals, etc. He also encouraged social distancing of at least six feet from others. He required employees at stores to wear face masks and encouraged everyone else to wear them as well. Once the number of new Covid-19 cases started to stabilize, Mayor Strickland implemented Phase I of economic recovery for Memphis on April 24. Retailers could open but were required to limit the number of customers, establish waiting lines that allow for six feet of social distancing and provide hand sanitizers. Retailers had to provide one hour of controlled access for those 55 and older, which for Kroger, meant that those in that age group could enter the store at 7:00 a.m. and the rest of the public must wait until 8:00. Gyms and restaurants could also reopen to the public during phase I. One of the gyms that reopened is the YMCA. The Y has shortened its hours and limits access to only the main workout floor, closing off the cycling classes, pool, daycare and classes. At the Y, they ask the obligatory questions about if you have tested positive for Covid-19, been around anyone who has tested positive, had any fever, chills, etc. Then they take your temperature and apparently record your temp on their system and limit their members (no guests) to 45-minute workouts. They also carefully count the number of people accessing their facility to make sure it complies with the Mayor’s orders. Phase II started on May 11 and included 50% occupancy for restaurants, gyms, small retailers, etc. Phase II also allowed opening of close contact businesses such as tattoo businesses and spas. Phase III is scheduled to start on June 15. Tennessee has had 204,000 cases. Mississippi has had 102,241 cases. Arkansas has had 88,880 cases. As of June 11, 2020, Shelby County has had 32,513 cases of Covid-19, and 492 deaths. Cases are rising in several states including our neighboring Arkansas, according to the Wall Street Journal. The virus tends to strike in households with large number of residents. In Gadsden, AL, seven members of the Woods family were struck by the virus. Small businesses have been affected in various ways. Bluff City Sports, a business that produces t-shirts, and other items with logos, etc., was shut down during the initial part of the pandemic. Brent Barret, owner of the business, had to let go most of his employees because very few groups were ordering t-shirts, etc. He kept two employees, his sons, who helped him keep the business alive. Barrett also owns Start2Finish, a business that produces running, biking and triathlon races throughout the United States with offices in Memphis and North Carolina. Due to social distancing various governments orders enforcing it, Barrett had to cancel 100+ races. Barrett said: “The PPP money helped keep us in business.” Restaurant sales bottomed out in mid-April, down 1/3 of their usual business, according to Earnest Research Data. Fast food restaurants fared better as people could drive through to pick up the food and didn’t have to come into close contact with restaurant workers. Lauren Robinson, co-owner of Huey’s restaurants, said that they closed their in-house seating portion of their restaurants when Mayor Strickland’s order went into effect but stayed open for take-out and delivery to meet the needs of their customers. Robinson said: “Our sales were down 60% across all locations during March, April and most of May. We were doing takeout, delivery and curbside only until May 20, when we opened the dining rooms of one of our 9 restaurants. We opened at about 40% capacity. We slowly opened the remaining 8 locations over the weeks following. By June 3, all 9 restaurants had open dining rooms.” She also said, “We are still at only 50% capacity due to the fact that 6 feet of social distancing must be in place. Our sales are down compared to June of 2019 by about 20% across all of our stores. Dining-in is about 45-70% of the mix depending on the location.” They are following the City Council Ordinance and asking their guests wear face masks until being seated in the restaurant. All of their employees have been wearing masks since they reopened. A small business that has benefitted from the pandemic is bike shops. People are stuck at home with nothing to do, so they are wanting to ride bikes. Bike shops have long lines to get in because of the Mayor’s order regarding occupancy and social distancing. And bikes are FLYING off the shelves in Memphis! Local bike shop owner, Malcolm Clark, owner of Bike the Planet, said that he sold 250 bikes in April and May this year, which is half of what he sold for all 12 months during 2019, so the store is on track to have a record year. It is difficult to get a bike now because they were not being made due to the economic shut down. “The supply chain is thin and the resources are eaten up. We are taking orders for bikes to arrive in 2021.” said Clark. However, Clark said that some bike companies like Cannondale and Marin, are starting to deliver on back orders so Clark’s stock is building up but not at the rate of sales. Clark also said, “Another bright note is that repairs are up 200%” With all of these things happening, don’t expect a large increase in spending because there are too many variables looming. Many sources are predicting that when the PPP loans run out that many small businesses will be out of money and unable to continue unless they receive some kind of help. That answer might be to try to do a workout with their creditors. Attorneys can usually lend a hand in trying to work out financial issues with creditors. Attorneys can negotiate repayment agreements, new leases that tack the missed lease payments onto the end of the lease or gradually pay back the missed payments. Attorneys can help make sure that the Small Business Administration’s rules for the PPP loan are complied with in order to make sure the PPP loan is treated more like a PPP grant. Small businesses can also protect their assets by filing for a Subchapter V bankruptcy. Subchapter V is a subset to chapter 11, which is where businesses and individuals devise a plan to repay their creditors. (See my article in the Memphis Business Journal (link to article) to learn more about Subchapter V.) Bankruptcy is one tool that small businesses and individuals can use to help during these unprecedented times. Facebook LinkedIn Twitter