Roy: Morning, or good afternoon. This is Roy Oppenheim, we’re just waiting for a few more people to join us as they log in, and then we’re going to start. While we’re waiting, I would like to thank all of you, my clients, my friends, my supporters, over the years for helping support this endeavor. This is our third “Zoom at Noon” during this crazy crisis I would never have envisioned in a million years other than maybe certain movies that we’ve seen in our lifetime. This is meant to be an interactive process. So, I’m hopeful that those of you that are on there will ask questions or some of you who could make some comments. I know quite a few of you who have been on these seminars with me before are on again today. And I appreciate that. I know there are a lot of new folks, so there’ll be a lot of new information today. And we’ll also backtrack a little bit for those who haven’t been on the seminar before to give them some context of where we have been and where we’re going and how we’re all going to get there.
At the end, we’re all in this together and somehow we’re going to get out of this together. But it’s going to require some ingenuity, some creativity, and some skills that we all didn’t know we even had. I want to thank, of course, my son, Lance, for helping put this together again today. And it’s unusual that he’s back home, as well as our other kids. And it’s just part of this crazy world that we are now in that we all are experiencing. And it’s a wonderful experience to be back with our nuclear family. And that’s certainly a silver lining to all of this. I also want to thank Paula Vergara who helped put this PowerPoint together and we’ll be hearing later from Paula as she talks about some of the new grant loan programs that are coming through with the SBA. Zach Shelomith will also be joining us. He’s a bankruptcy lawyer, a board-certified bankruptcy lawyer. He’s the immediate past president of the Southern District Bankruptcy Bar and Zach did a wonderful job last time and we’ve asked Zach to return today with us.
We can go to slide two, Lance, if that’s okay with you. it. We’re going to be talking about a number of things. First, we’re going to be talking about what an ELE is. We’re then going to go and talk about resources to keep your businesses afloat. And then we’re going to talk about the first aid kit for individuals and their personal finances. And then lastly, we’ll talk about how bankruptcy, both personal bankruptcy and business bankruptcy, may become a strategy through this whole process.
As many of, you know…go to slide three. As many of, you know, the history of our firm, we’ve been in business for 31 years, Elena and I started this firm 31 years ago, and we then formed our title company. And during the last crisis, we were advising lots of homeowners in the thousands of how to navigate the banking process during that crisis. You can go to the next slide. All things in life have stories. And there’s an allegory here I want to share with you if I may. Last time around, the banks were the perceived villain, although the banks to some extent thought that the homeowners had abused the system and taken to borrowing too much money. But as we all know that the process really ended because the banks had pushed mortgages and refinanced and repackaged the mortgages onto Wall Street and really did a disservice to the entire economy. That crisis, of course, dealt with people being thrown out of their homes and having to move in with relatives or to rent or reorganize or go bankrupt.
This crisis, of course, is very different. The villain is not the bank system. In fact, the banks are as much victims as we all are. And this time the villain is, of course, something we can’t see. It’s an existential threat and it’s invisible. But there are heroes and the heroes last time some would argue may have been some of the lawyers who helped keep people in their homes. I would argue that. But this time the true heroes are those people that are delivering our food every day, the folks who are picking up our garbage every day, the folks that are delivering our mail, and of course, the health care workers. And so those folks are the true heroes because most of you are probably at home listening to this and it’s but for those folks that we’re able to do that, and so we thank them and we salute them. And I hope you all feel the same way.
I’d like to go to poll question number one, if we can, Lance. And I’ll read it while we’re getting there. During the Great Recession, did you lose your job or lose your home? I’m pulling it up as we speak. Now, you can answer it, lost both, lost my job and lost my home. And I want to put this in some context of what we’re going through here so we understand the magnitude. Anyone voting? Is the poll working? Not sure what happened here. Okay, relaunch, continue. Try it again. Okay. If you can…Hang on, a little technical issue here. Now we’re good. Sorry about that. During the Great Recession, did you lose your job or lose your home or both? And just so we have some context, a lot of people lost their jobs about over half, 56%. A lot of people, 45% lost their home and about 7% lost both. So, as we can see, that was a huge problem here in South Florida, 56% lost their job, 38% lost their home and 6% lost both. If we can, go to the next slide.
One of the things I want to talk about is why this situation is so different. Last time around while the government did provide a bailout, it came slow. It did not go to the people. It went to the banks and went to big companies and those companies did not use that money necessarily to help the little guy, to help the family member, to help our families, to help homeowners. A lot of the money went to stock buybacks, other money went for other purposes, but it didn’t go to help people reduce their mortgage payments when the real estate value side plummeted.
This time around, there’s a $2 trillion bailout. It’s the largest stimulus package in the history of the United States. It is not going to be the first or second or only bailout, there will be other ones, unfortunately. But I want to talk about how small and medium and mid-sized businesses are the thread and fabric of our economy. They employ people and maintain the services that make up our lifestyle. Individuals without money in American pockets, the economy would perish and collapse. We need people with income to restart the economy. That is why in the next several weeks, most people will be getting checks in the amount of around $1,200 deposited into their accounts just to keep the economy afloat. Let’s go to the next slide, please.
Okay, we’re going to talk…go to the next slide after that. Okay. We have here, “Did you get the memo?” My first question, and we can do a question on this is, does anyone know what movie slide this is from? Can you post the poll question, Lance, if you can? Okay, the answers are, is it “The Big Sleep,” “While You Were Sleeping,” or “Jaws?” Anyway, just to move this along, I’m going to tell folks the answer, and of course, it is “While You Were Sleeping.” So, what is the memo here? We basically have a 90-day period, it could be 120 days, but most folks in business think it’s going to be a 90 to 120-day to a 150-day period where things are basically stopping.
So, if you have rent to pay, if you ask your landlord and you may need a lawyer to do this, but you could do this on your own, you should be able to abate your rent for three months and have it tacked on to the back of your lease. If you have a mortgage payment, whether you are a homeowner, whether you are a landlord, you should be able to get your bank to defer your payments to the back of your mortgage. There’s effectively a 30 to 90-day shift in what is going on in the world. And so if all the bills are paid in 90 days, it would not be the end of the world. So, many landlords are working with their tenants right now to see if they can defer their payments…or tenants are working with the landlords to defer their payments 90 days and pay those payments at the end of the lease by extending the lease those 90 days.
If you have a personal mortgage and you don’t think you can pay it, the best thing to do is you call your bank or have your lawyer call your bank and simply tell them that you would like to defer payment. Some banks are going to knick your credit scores, which I don’t think is right. But that may be a consolation that you have to accept. Other banks are not necessarily going to do that. Credit card companies also are working with people. And so the most important thing is that during this period of time, that we are able to sustain where we live in a safe place and make sure that we have food for our families.
We can go to the next slide. Now, this is very interesting. This slide I think comes either from the “Wall Street Journal” or “The New York Times.” It’s from the Department of Labor, and it reflects the difference between this crisis and the last crisis. The blue line is how unemployment continued to increase during the ’08 crisis. The red line, which is like this giant ‘L’ or golf stick, golf club shows that that was the weekly rise in unemployment last week. And I suspect that this week, the rise may be comparable and there will be two sticks. And some are arguing that the stick may be even higher. Just this morning Macy’s and the GAP announced that they’re each laying off hundreds and hundreds of thousands of people. Macy’s, 300,000, and I think the GAP around 100,000. And there will be many other employers that will be doing that.
And so this crisis is very different. And that’s why the government is responding much quicker and much faster because of the nature of this threat. Next slide. And here again, we’re seeing what unemployment looked like from the year 2000 to the year 2020 and how it just shot up to around 3 million people this past week. They’re suggesting that unemployment may increase to 32%, a level that I don’t think has been seen maybe since the Depression. So, it’s going to be an interesting problem for all of us.
Okay, is this an ELE? What is an ELE? This comes from another movie. Lance, do you want to see if we can pull up what movie this is or not? Okay. Okay. An ELE is an extinction leveling event. And typically, it’s referred to for the entire planet. But in this particular case, what a lot of the folks, policymakers are concerned about is that we’re looking at an extinction leveling event, particularly for small businesses in the United States. Small businesses in the United States typically do not have the cash flow to sustain a 30, 60, or 90-day pause in business. What we’re also finding is a lot of large businesses, particularly in the airline industry, and other industries, some retailers don’t have the capacity to do that. We find that other businesses have the capacity to sustain a 90-day or even a one-year ability without any cash flow to sustain their operations.
Okay, so what movie was that from? For you movie buffs, what movie is this? “The Big Sleep?” Well, excuse me. Next one. Sorry. Sorry. For you movie buffs, was it “Deep Impact” “The Day After Tomorrow” or “Contagion?” And the answer…Okay, I guess these surveys are not kicking in today for some reason. Okay. It was “Deep Impact,” right? Okay. The concern, of course, here is that most restaurants have terminated all their employees. And the question is, can they quickly recover after the crisis is over, or if they will not be able to do so? That goes for lots of other folks. And so you have tiny shops, like maybe a nail salon or some sort of other little salon that may not even have any employees and they have the capacity to recover very, very quickly because they can reopen.
But the question is, a place like a restaurant that has lots of employees, will they be able to recover their chefs and their other key employees once this crisis is over? And the answer is maybe, maybe not, because some of their employees may have gone on to work for Amazon or Whole Foods or for a distribution company or Postmates where, in fact, they’re able to generate income right now. So, we’re not sure what is going to happen to these folks. But there are a number of programs that businesses, and we’re going to get into them, can use to try and sustain themselves during this crisis. Go on to the next slide, please.
And let’s talk a little bit about what these programs are going to be. An Economic Injury Disaster Loan Program. Now, it’s interesting because in the past the SBA had these disaster programs. You know, if there was a hurricane, a flood or a tornado for a particular region of the United States. This is the first time in history the United States that the entire country is deemed an economic disaster zone. And so the opportunity to invoke these programs as businesses or as individuals is unusual because you have that capacity this time around which in the past we have not. So, there’s the Economic Injury Disaster Loan Program, an SBA Debt Relief Program, an SPS Express Bridge Loan Program. And then there’s Guidance for Businesses and Employers, SBA Products…there’s a whole bunch of stuff that if you want to try and stay in business, you will be able to.
And of course, it’s a tough question if you’re better off closing your business down, getting rid of all your employees, going into a hibernation mode, going into a deep sleep and then re-emerging or trying to remain relevant, trying to remain in existence during this crisis. And that decision should not be made alone. That decision needs to be made with your accountants, that decision needs to be made with your attorneys, and that decision needs to make probably also with your bankruptcy attorneys. So, it’s kind of like a holistic approach and no one individual has the answer to that. And you yourself probably don’t have the answer to that because you need to have the resources and capacity to understand that the variations of your particular situation.
And so, fortunately, through the crisis last time, we have been trained to deal with these issues, but obviously not at the magnitude that we’re dealing. Little did we know that 12 years ago we were being trained for this crisis. And we were hoping that we would never have to deal with what we dealt with 12 years ago. And we’re dealing with something now that is at a different magnitude. Next slide, please. Okay, Economic Injury Disaster Loan Relief. If Paula’s on, I’m going to have Paula join us here if that’s okay. Let’s see if that works today. Paula? Hang on.
Paula: Hello? Hi.
Roy: I’m going to unmute you. You’re live. Say hello to everyone. And I’ll let you go through these slides because you’ve been so wonderful in preparing this and getting me up to speed on these things.
Paula: Okay, perfect. So, the first thing, hello, everybody. So, first thing to say is that all of these loans and programs are not new. As you were explaining, the SBA has always provided these kind of loans and grants for businesses in areas where disaster is active. And this is the legal importance of the declarations of the government. At federal level, state level, once they declare a disaster, these funds are released and are available, but of course, because the whole nation is now basically an economic disaster area, they had to increase not only the amount but also the scope of coverage. So, there are several types of help available right now. So, some of them have to be repaid, some of them can be…Everybody is going to have six months to start repaying, but some of the funds will not have to be repaid if you use them for approved purposes. So that is, of course, the main objective is to allow small businesses to survive so they can keep paying their employees because unemployment is a big issue. So, if you want to go ahead and and go on the next slide.
So, basically, the federal government did not want to reinvent something because time is of the essence in these circumstances so they will use the same agencies and the same pre-approved networks that they have not only for small businesses but also for individuals. So, the IRS is going to send you the check for nutritional supplement programs. That week they’re going to still be giving these funds. And for small businesses, the SBA has been working with certain pre-approved lenders, and that marketplace will still be working for this. There are going to be some differences but those are in terms of their requirement of the amounts and of the people or business owners that can apply for this.
So, they also created something that is different for this emergency compared to the other programs that they had available in emergencies before, which is the grant or the advance, which is $10,000 that you can get within 3 days. And even if you’re not approved for a loan, you still can get it and that’s kind of like a quick grant. And it’s designed to basically allow you to stay at home and survive for these first weeks. Then after that, you’ll have, the Bridge the Gap Loan, which is an advance on your loan. So, that will be paid in part or in full. It depends on the amount that you are going to get on the loan, on the main loan, and, of course, then you will have to check whether you’re spending that money on pre-approved expenses, which are payroll, paid leave, lease, mortgage, and increased costs. So, if you want to go ahead and go to the next slide.
Okay. So, as I was explaining, these loans are not new. The main changes are on the backing up of the loan before…Hello? Yeah, Roy, you want to say something?
Roy: Keep speaking. I’m going to speak later. Okay, go ahead.
Paula: Okay, so, before this disaster, those loans were only backed up a portion of the loan, 75% to 85% depending on the amount of the loan. Now, they are going to be backed up 100% by the SBA. And that makes a big difference and is relevant because there are some penalties and some conditions related to being backed up by the federal government. So, Roy was talking about the importance of being respectful of the 90-day mandatory nap you’re going to go. So, if you have a loan like this one and you’re not paying for six months, then you cannot…let’s say that you are renting space, you cannot go and take out your tenant because the government is actually giving you some chance to catch up so you have to…Basically, this is a domino effect, and the government expects that this domino effect is going to be a positive one. So, if the government is helping you, you’re supposed to be helping the other and it’s supposed to kind of trigger an economic reaction in a positive way.
Roy: What I want to add is, what’s really nice about these loans is they’re unsecured and you’re not guaranteeing them for the most part, is that right, Paula?
Paula: So, that’s another of the difference. So, the cap was changed, the interest rate went from 6% to 4% maximum on these lenders, you don’t have to have a collateral. So that means you don’t have to sign anything allowing the lender to get a lien on your house or your office or anything like that for up to $200,000, that is for sure, then you have to negotiate with the lenders. But it is going to be most likely for any amount, but it’s still, you have to negotiate with the lenders. The same thing happens with the interest rate. So, the maximum they can charge you is 4% but still, there is a marketplace and you can shop around with the lenders. There is a marketplace. So [crosstalk 00:21:50]…
Roy: If I may add one thing, Paula. One of the purposes of these loans is to just get money infused into the economy. Because if there’s no money in the economy, there is no economy. And so this is effectively what is called helicopter money. And while it was talked about in the primaries, it’s not a new concept. It’s something that’s been around for 400 years. It’s an economic theory, that by pouring money into an economy, and it’s really just Fiat currency, it’s just being papered in, it will stimulate the economy and create the economy so that people will have money to pay for their rent, to pay for their mortgages, pay for their credit cards, pay for their cars. But without that, the economy slows down and the dollars stop flowing. And when they stop flowing, the economy starts shrinking, and you don’t have inflation, but you have massive deflation.
And so that’s really what the economists are trying to achieve here. And they’re doing it through these programs through businesses that that can use the money to stay afloat or to grow. Now, if you’re going to grow, then you may actually have to pay that money back. But if you don’t grow and you’re just surviving and you can prove that you’ve been harmed, most of these loans will end up turning into grants if you use them for the particular items. And so these kinds of rules is where you’re going to need accountants and lawyers to make sure that you can strategically figure out how to maximize your situation. It’s just kind of a game and we are all almost in a simulated game and we need to know the rules so we can at least survive in this game and not be killed.
Paula: And there is something important to remark on is that these requirements were lowered because of the time, there is a timing concern where the government thinks that people are not going to be able to survive. However, you will need to self-certify that what you’re saying is truthful. And that is under penalty of perjury. So, that is something very critical because also, you don’t have to provide documentation, you are basically risking under penalty of perjury to get into trouble. So, it’s best if you request the help of an accountant or your lawyer and you make sure that you understand what you’re asking. These applications are streamlined, so it’s just one application for the whole package that is available for small businesses.
Roy: [crosstalk 00:24:24] Paula, I don’t mean to interrupt but I want to add something here. When you hire a lawyer and you are under the advice of counsel, as long as that lawyer is not committing a criminal offense at your behest, you actually are buying protection just like an innocent spouse gets protection from a husband in a divorce when it comes to the IRS. And so, here you are actually getting immunization and protection by having a lawyer advise you as much as a CPA when you fill out these applications because most of us are not schooled or skilled in these particular fields and a mistake can easily be made. And it could be a mistake that ultimately could haunt you later on. So, you want to do this, you want to do this right, you want to play by the rules, and you also want to win and survive. Go ahead, Paula.
Paula: Okay, yeah. And actually, sometimes it is about the terminology. There are some terms of ours that have legal meaning. And the government wants to make this as easy as possible but there are some things that cannot be avoided. So, you have to make sure that you’re understanding what the question is, and that you’re being truthful, and that you’re not double-dipping. For example, you can apply for this…So, those are the type of loans. So, the 7A loans are the flat loans of the SBA, those are the ones that have been always there. There are nine types of loans. And those are some of the examples of the loans that you can get. They all have different terms and they all have different possible lenders. But what you have to keep in mind is that the government is giving you an opportunity and you have to take it.
And so, for example, one of the things that also was removed was a prepayment penalty. So, what the government wants to do is to make sure that you are in a good position, as good as you can feel right now. But if you experience an increase on your revenue, let’s say everybody is out again, and then you’re in one of those industries that is actually getting an increase on the revenue, you can actually just repay the loan without having to [crosstalk 00:26:46]…
Roy: And it’s a free loan where you’re not going to pay interest for, you know, what is it, six months, correct?
Paula: Yeah, you are not going to pay interest and then you don’t have a prepayment penalty. And if you incur any expenses due to the emergency, those expenses can be forgiven. So, you will have to repay the portion that you didn’t use minus whatever you use for paid leave, for your payroll, for your lease. So, it’s not a bad thing to do if you do it carefully.
Roy: Paula, I want to just add something. So, this first $10,000 loan for business is basically not a loan. It is a grant provided it’s used for somehow related to the losses that you’re incurring. So, if you’re going to use it to pay employees, whether you’re going to use it to pay utilities, whether you’re going to pay rent or mortgage payments, that money is forgiven, and it’s not going to be deemed income. So, you are basically being asked, as part of your duty as a citizen to take that money and spread it into the economy. And so we all should be doing that to the extent that you have a legitimate business that has been in business by a certain period of time.
I want to go to some of the questions. The poll system is now working. I want to go to which question? Question number four. Have you applied for unemployment? I’d like to see how many of us have applied for unemployment so far. Unemployment. Let’s go to question for business owners. Have you kept your employees on the payroll? Let’s do that one, Lance. Can we, question three? Okay. For business owners, have you kept your employees on the payroll or have you laid them off, laid off some employees during the crisis? Okay. [inaudible 00:28:38] Here we go. Okay, 20%. No? Okay, so, about half the folks on the phone was…Not that many, okay. Here we go. Okay, so about 5% have done both. A number of people have already, about 35, have had to lay some employees off and and 33% have kept their employees. But half of you are not business owner so it doesn’t apply to you. Okay, that’s good.
And then let me see, we have another one here. People have said, are you not paying your business or commercial rent or mortgage? This is a very good question. Still paying, 35%, not paying, 8%, not applicable, half. Okay. And this is something very important. Again, if you’re not going to pay that rent, or you’re not going to pay that mortgage, you cannot just do it without talking to your landlord or your bank. And you need to do that either through your counsel, or you need to do it yourself. We’re doing it for a number of clients and I highly advise that you do it professionally so it’s properly documented, and that we don’t get into problems. To be clear, the courts are not evicting people right now. They’re not foreclosing people. There are no ejectment actions going on right now over this next 60-day period. But once this crisis lifts, those restrictions will be lifted and people will be evicted, people will be foreclosed upon, and all hell will break loose. So, we need to make sure that this is done in an efficient manner, a little bit different than last time. We can go to the next…Are there any other questions that people answered? Let me see.
Okay, a lot of people have answered questions here. We have some questions. Let’s go to the questions before we move on, Paula. Is there a quick…? Does the $10,000 quick grant apply through some SBA disaster portal? Yes, that portal is on the last page of our website and it will also be emailed to you and it’s also on our website, but it’s on the last page of this presentation. Next question. Is the bankruptcy about the SBA grant? We’re going to talk about the relationship between bankruptcy and the SBA grants and loans in a little bit. And someone did correctly guess “Deep Impact.” Thank you very much. Do the grants apply to real estate agents? So, that’s a very good question. And the answer is, if the real estate agent is literally unemployed, has no business, has employees that they’re paying or has a mortgage payment or rent payment that they’re paying, then yes, the grant could be used by a real estate agent. The question [inaudible 00:31:32]…
Paula: Actually, if you want I can answer that question. So, the requirements were expanded also in the businesses that can apply. So, before this disaster, the SBA required a comparable on the revenue and it was a whole chart. Now the only requirements are that you have 500 or less employees and that you were a business before January 31, 2020. And now independent contractors and people that are just only sole proprietorships are also eligible for this grant and the loans as well. So, a real estate agent will be able to apply. And the decision will be based on the credit score or their ability to repay the loan, only that. So, they…
Roy: Unless it’s a $10,000 grant.
Paula: Well, because you have to apply for…it’s a single application. So, you will be applying for the grant, the advance, and if you’re not approved for the other loan, it doesn’t matter. And there is something also that was removed from the requirements and it’s, you no longer have to prove that you are not able to get financing from other places. So, before, the SBA would require that you give them some decision letters from other banks because they there were kind of like the last resort. Now there is a presumption of economic damage on every single business in the nation, big or small. So, you don’t have to prove that you were not able to secure financing in other places.
Roy: I want to go to the Payment Protection Plan Loans, Paula, because they’re very important. But in terms of realtors, I want to go back, because I know there are a number of realtors on the phone, they may also be eligible to apply for unemployment. And so your lawyer and your accountant are going to have to decide which way you’re going to go. Are you going to go as an independent individual who’s a gig employee, a 1099 contractor who’s now eligible for unemployment when historically you were not, or are you going to go as a small business and go the business route? And we’re not going to go through that deep analysis now because that could take too long. But be mindful that you have a choice. And the likelihood is you can’t go in both directions at the same time. So, you’re going to have to figure out, what is the best way to go? Now the…
Paula: You cannot. You cannot. As an individual, you cannot double-dip. And as a small business, you have to be careful because you cannot ask for a loan and the payroll protection loan for the same purpose. So, you cannot ask for the two just to pay for your payroll.
Roy: Right. So you’re going to have to decide which way to go. Now, the Payroll Protection Plan is the loan that everyone is looking for. And I understand from all of the banks, if there are any bankers on the phone, I’d appreciate you letting us know when these applications will be available. But from my latest discussions with my bankers, they told me it could be another two to three weeks before the final application is completed because of the whole payroll module that’s never been really considered before. But in broad strokes, let me give it a quick shot, Paula, and then you can fill in the blanks. But the bottom line is that you will be able to cover 225% of your monthly payroll and get a loan for that amount for employees up to $100,000 a year. The loan is partially or completely forgivable depending on a number of circumstances. Lance, can we go to the next page? And, Paula, I’ll let you go over under what circumstances a loan would be forgivable.
Paula: So, basically, the main objective is that you keep your payroll. So, if you keep 90% of your payroll, your units, so it might be the number of people, it might be the number of hours and it’s a gray area on businesses that work on hours, for example, restaurants. It’s clear when you have an office because you have a number of people and they just come in. But that’s something that you also will have to talk to an accountant if you are one of those businesses that has units or hours that is changing. But it’s basically 90%. And if you have to lose some of your employees, it doesn’t mean that you’re going to have to repay the full amount, it decreases with the number of employees. And everybody is going to have six months for the principal and the interest. So, you don’t have to pay for those six months if your loan is approved by September 27. So you have to also be mindful about applying as soon as you know that you will require help because the SBA said that they’re going to try to process all these loans as soon as possible and that once you’re approved, you can expect to have the funds available within one to three days, but they expect a big wave of applications.
Roy: Okay. And the bottom line is that you should probably apply for all of this stuff and then decide what you want and don’t want once you’re approved. Just because you’re approved doesn’t mean you have to take it. But if you don’t apply soon you’ll be at the back of the bus and it’s going to be forever and by then your business may not exist. So, we’re encouraging our clients to apply now, apply early, and apply for everything so that you can then figure out what you want and don’t want. There is also some economic issues concerning tax credits that you’re entitled to if you don’t take the loans. And so what you have to do is before you pull the trigger to take the loan, you have to sit down with your lawyers and CPA and do an analysis and see if those tax credits are going to be more valuable than if, in fact, you take the loan. But if you don’t take the loans and don’t apply for them, you don’t have an opportunity to get the loans.
I want to move on now to help for individuals since over half the folks are individuals and not businesses. And I don’t want to leave that component of our audience out this morning. The additional unemployment benefit you all have heard is, if you’re applying for unemployment, while Florida was paying in the mid-$200s, my understanding, maybe $235 a week, that money is going to now go up to an excess of $600. And then depending on what your salary was, you would get as much as $835, or something or maybe less than that. But everyone will get a minimum of $600 during this crisis. And in addition, there’ll be direct payments to individuals, there are cut-offs depending on your salary of around $1200 dollars for married couples…excuse me, married couples, $2400 and $1200 for unmarried couples and $500 per child. These numbers will reduce themselves as your salary and the family income goes up.
But again, this is helicopter money to be infused directly into the economy, something that has only been talked about in a theoretical nature in this country for maybe 50 years or 100 years, but has never been done before. And it’s something that hopefully is going to keep the economy and our polity together. And if anyone thinks that we are not under a real risk here of breaking up, I’d like to hear why they think we’re not. But I will tell you one thing, that every crisis this nation has had, we always kind of start off a little bit slow. But when we get going, we get going. And as a country, we have always pulled together. So, I have no doubt that we’re going to pull together here. But we are, you know, at a very unusual precipice in our nation’s history right now. Also, for student repayment benefits and student loans, they’re all there. There are lots of benefits and those payments are being referred to in many cases, and we can go over that with you also since student debt in this country is probably as large as the foreclosure crisis was last time, but no one wants to talk about it.
I want to turn this over to Zach now and go into bankruptcy. And Zach, we’d like to talk about the interaction of a plan of trying to get grant money, trying to get money and then if that’s unsuccessful, you know, how bankruptcy would then come into play for businesses and, of course, for individuals. And again, this is Zach Shelomith, a good friend, and buddy and someone I’ve worked with for 12 years now, and I highly respect as a bankruptcy lawyer. And we are working together in tandem now for our mutual clients. Go ahead.
Zach: Thank you so much, Roy. Thanks for having me. And hello, everyone. So, I’m going to talk a little bit up a little bit about bankruptcy and how it fits in with the CARES Act, with the new stimulus bill. You know, first I want to mention that what most people want to do is to take advantage of all these programs first, and try to survive with those funds with everything that the government is giving to its citizens. And hopefully, businesses can survive. Hopefully, people do not have to file bankruptcy. But what you want to do is first take advantage of these programs, and then bankruptcy would be the second option or the third option. So, there’s going to be a lot of bankruptcies filed, but hopefully, people take advantage of these programs first and wait it out once this pause is over.
Also, generally about bankruptcy before getting into some specifics, I have had some clients tell me, “Well, I guess my bankruptcy is on hold because the bankruptcy courts are closed.” And I’ve had some potential clients wonder if they could file bankruptcy because of everyone being under quarantine. The answer is bankruptcy courts are open. And actually, the bankruptcy court is taking a large effort to make the courts accessible for everyone. When I say the courts are open, everything is still being done remotely. You can’t walk up to the bankruptcy court and file bankruptcy. But if you file through an attorney, that attorney can file electronically as we have been for many years. If you don’t have an attorney, you can mail in your bankruptcy petition to the clerk. Obviously, that will take some time. There’s a designated email address for emergency bankruptcy filings if you don’t have an attorney. For those who are familiar with bankruptcy, there’s always a first meeting of creditors that historically has been done at the courthouse. Now they’re doing them telephonically and they may even go to video conference. So, the point of matter is, bankruptcy is an option. And the bankruptcy courts are open and available for people who need that help.
So, getting into a little bit about bankruptcy and I know we’re limited in time, so I’m not going to go much in-depth. But we start at this slide right here. For individuals…well, for individuals, there’s a few different bankruptcies available, but the most popular bankruptcies are Chapter 7 and Chapter 13 and both are bankruptcy proceedings done under federal bankruptcy court. Chapter 7 [inaudible 00:42:35] liquidation. [inaudible 00:42:39] Chapter 13. And Chapter 7 is available for both individuals and businesses. Chapter 13 is available only for individuals, not available for businesses. And Chapter 13, it’s a personal reorganization where you keep your property and you propose a repayment plan to your creditors. That repayment plan depends on your income and your assets. Sometimes it could be as little as 1%, sometimes it could be high as 100%. It just depends. But the point being is it’s a repayment plan and a lot of times you can get rid of discharge some of your debt.
In the next slide is Chapter 7 bankruptcy. Again, it’s the most common type of bankruptcy filed by individuals. A Chapter 7 trustee is appointed. What I want to point out here is, and if you look towards the bottom of this slide, income requirements may apply. And those are for individuals whose primary debt are consumer debt. Non-consumer…people who have the majority non-consumer debt, business debt, this is called the Means Test and will not apply to you. But the Means Test, what they did with the CARES Act is any money that you get as part of one of these programs that Roy and Paula went through, any money that you get is not considered income for purposes of the Means Test. So, what this will do is make bankruptcy more available for people, you know, given this situation and it will not penalize people for receiving money under one of these programs, it’s not going to count as your income. So, that’s a good thing. The next slide is…
Roy: Zach, we have several questions that may be applicable here, so I want to kind of go through them for folks, okay?
Zach: Okay, you want to do that now?
Roy: Yeah, we’ll just go through a few questions. H&M and bigger places like Cheesecake Factory are sending out letters stating that they’re not paying rent. The courts are not evicting, then why do this? What is the benefit? Is this a good strategy for a business owner paying rent? So, they’re saying that they’re not paying rent. Is that a good strategy? I’ll let you take that [inaudible 00:44:54], Zach.
Zach: Read the question again. The courts are not evicting then why…?
Roy: Yeah, they’re sending letters to their landlord saying they’re not paying their rent, and the courts are not evicting.
Zach: Well, why do this? You know, in this time, it’s very important to communicate with your creditors and your landlord is, for many small businesses, your biggest creditor. So they’re being proactive and being proactive is a good thing and something that I would encourage. You know that in our last webinar, you know, something that was encouraged, communication is key. And that’s what they’re doing.
Roy: Right. Well, I think that’s right. And I think ultimately, they will work something out with their landlord and just tack on the missing rent to the back of their leases, which is what we talked about. So, I [crosstalk 00:45:49]…
Roy: Okay. Why don’t we continue with another question [inaudible 00:45:57]. Okay, let me see here. There are a lot of folks here. I’ll need your help. I’m sorry. Any updates for student loans? Not federal. Thank you. I guess that could be a bankruptcy question because historically they’ve not been dischargeable, Zach.
Zach: Right. As of now, student loan debt is generally non-dischargeable. This legislation might come in waves, so there might be additional…there probably will be additional legislation down the road in the coming months. Could be that there’s a change to the student loan non-dischargeability laws, we don’t know. But I can tell you, as far as federal student loans, right now there is a deferment of federal student loans, principal and interest, for six months. But your question was regarding private loans and right now, in the legislation at least, there’s nothing new about private loans. But I will say that there’s undue hardship rules in bankruptcy, that’s the current rule. It’s very difficult to discharge student loan debt because of that. And, you know, the situation we’re all in right now is an undue hardship. So, who knows?
Roy: That’s right. Someone asked a question, if you can apply for these loans, even if you have cash in the bank? And the answer is, of course. In fact, having cash in the bank would make you a better borrower. This isn’t like a loan modification where you have to show that you have no assets. They want to see your ability to pay. And so if you are a business that has cash in the bank, but you’re suffering tremendously from this big nap of sorts, then the question would be that, yeah, having that cash will just validate your ability to stay in business. So, you don’t want to apply for these loans when you are basically on life support. You want to apply for this when you’re a viable business that could either rebuild, grow, or employ even more people when this is over. The whole idea here is for you to be employing people, and to have a bigger payroll. I mean, that’s what this is all about. And so it’s to keep your people on the payroll and to grow that payroll. That’s what this is about. And so, having cash in the bank would suggest that you have the ability to grow your business and to sustain and be a survivor.
This is like the game of survivor. You have to figure out strategies to survive and you’ll be given these tools. It’s almost like a jigsaw puzzle, you’ve been given these puzzle pieces and you have to figure out how these puzzle pieces connect. And that is really one thing that our firm has always done. In fact, we used to use Gordian Knots to explain what we do, and that we would untangle the most complex knots and we would always look for the most complex knots for our internet site. But the reality is, this is a knot that we’ve never seen before in our life. And so it’s a challenge, and we’re being given tools and the ability to try and survive and ultimately thrive. I turn it back to you, Zach.
Zach: Thanks. Yeah. And, you know, having cash in the account now, that’s why, you know, like I said in the beginning, bankruptcy is really, I think the last option, and usually there is a trigger, an event that would trigger a bankruptcy such as a foreclosure, a foreclosure sale, a garnishment, you know, lawsuits. And right now, I mean, there’s lawsuits that are happening, but the triggers that people usually have when they file bankruptcy, they’re not happening right now. So, bankruptcy is something to plan for now. And if you’re keeping cash in your account as you should to pay your employees, to keep your business alive, now is at least the time to think about bankruptcy and to speak to someone about the dos and don’ts because what you don’t want to be in a situation where six, eight months from now you’re filing bankruptcy but you made choices today in March, or soon to be April, that is going to negatively impact that bankruptcy.
Roy: And I want to add something. There are a lot of bad choices you can make with cash in the bank, using it to pay the wrong people, deprioritizing certain folks that should have been paid first. And so you need to have the proper advice of counsel before you’re making your payments with the cash that you have. And certainly, if you’re going to go into bankruptcy, having cash would also suggest to your creditors that you have the opportunity to actually get out of bankruptcy and survive and be able to take care of your creditors once you reorganize.
Roy: What page are we on? Are we on page 24, 25?
Zach: It’s 25. I know we’re almost running out of time, so I just want to briefly mention how the new stimulus package affects bankruptcy, there’s just a few more things to mention. I mentioned how the money that you receive from the CARES Act does not count as income for Chapter 7 Means Test purposes to get you to qualify. For chapter 13 purposes, I mentioned before that what your payment is depends partially on your income. There’s also an exclusion for any money you received from the CARES Act as to income in a Chapter 13. The other powerful thing in a Chapter 13 is if you are in an existing Chapter 13 and you’re suffering from financial hardship, which many people are as a result of the coronavirus, you can extend your plan to 7 years. Right now, there’s a limit of five years, there’s always been a limit of five years. But you can extend your plan by two additional years if you’re suffering from that hardship.
Roy: And all of us will be able to say that. I mean, it’ll be a rare circumstance unless you won the lottery to suggest that you didn’t suffer from this.
Zach: Exactly. And they made that a specific part of the statute, they actually named the pandemic that we’re going through right now. The other thing I wanted to mention is towards the end of the last slide. The last couple slides are 28 and 29. When we get into business bankruptcy, you know, there’s Chapter 11. There’s traditional Chapter 11 and then there’s this brand new law for small businesses, which is a Small Business Organization Act. It was enacted in…actually, it was signed by the president last year before any of this happened, came into effect in February before really this affected our country. It was meant to help small businesses before this even happened. And it’s a streamline Chapter 11.
The point I want to make is, if you go to the next slide, since it’s a small business bankruptcy, when the law was originally enacted the Small Business Reorganization Act, there is a limit of how much debt you can have to qualify, and that’s there in the slide, $2,725,625. Well, under the CARES Act, they just increased that amount, almost by 3, to $7.5 million. So now, a wonderful new law for small businesses is now available for any business that has less than $7.5 million of debt for one year. It’s a one-year sunset, but who knows what’s going to happen between now and that sunset. If they’re going to keep it at that $7.5 million, my personal thought is, it’s going to be hard to roll that back if we’re in a year under the higher amount, but, you know, this was a wonderful addition to the package. There’s probably going to be more legislation. There’s some chatter about increasing the debt limitations for Chapter 13 as well, which is going to allow more people to file Chapter 13. So, I would say, stay tuned.
Roy: How about the Means Test with Chapter 7? They’ve always been so low, Zach. And I’m curious if they’re going to be brought up to like, you know, what true middle-class people are making or upper-middle-class, you know, as opposed to keeping it at some very artificially low number.
Zach: Right. Right. You know, there’s nothing that I’m aware of in the pipeline to affect that. But I think there shouldn’t be because, you know, the Means Test is based on the average monthly income for household, your size, in your county. Well, everyone’s numbers are going to dip. So I think that’s going to actually have a negative impact on qualifying, which I think we got to fix.
Roy: I mean, that would bring it to around like $35,000. I hate to say that, but am I right, that if you have a median income of more than $35,000 you probably wouldn’t qualify for a Chapter 7?
Zach: Yeah, and it’s a moving target. You know, it depends on the type of debt you have. But generally speaking, your average income has been in that range for a single person.
Roy: Right. So that would be tough.
Roy: Okay. I want to go over some questions here because we do have a few minutes and I want to see what we can pull out here. We have about 20 people that have questions. Okay, we did that one. Do you need a copy of the lease agreement or only proof of payment of rental payments? Does it include lease payments, covering taxes, covering association fees covered by the tenant? I guess that would be for maybe the grants themselves. I’m not sure if you’re going to actually need the lease agreement, but you probably will just have to say how much your lease payments are. Remember, these are going to be streamlined approaches, they’re going to be getting hundreds of thousands of applications. The purpose of these loans is to get money into the economy. If they start asking too many detailed questions, it’s going to hold things up, and it’s going to destroy the very essence of what this program is about. The program is about getting money into the economy.
I’m not sure if anyone has mentioned, but to the extent that you don’t pay back the money and there is what’s called loan forgiveness. Historically, you have what’s called loan forgiveness income, and that means that’s income that drops down on your tax return. I understand that in terms of any loan forgiveness that you receive in connection with these loans from the SBA, there will be no loan forgiveness income, meaning that if you get the grant, it will not be deemed as taxable income to you or your business.
And so, it would behoove all of us who are on this call, and anyone else who knows a business, to make sure that they get the memo and understand that A, we’re in a deep sleep, but while we are sleeping, we need to be figuring out how we’re going to pay our debts when we come out of this and that these debts can be paid through money that’s going to be given to us A, as loans, and B, as forgiveness income by the government. And to the extent that we’re not successful with that, we can then throw these businesses into either a Chapter 11 or 13 bankruptcy through the courtesy of our firm and Zach’s and we can start over and renegotiate our debt and continue. This is not a death knell for any of us. It is just a detour and we can figure out how to do this if we know what tools and what pieces in the puzzle we have.
Next question. What if you are an employee, however 100% commission, and have been impacted by the loss of commissions? You are entitled to unemployment insurance, you are an employee and now you are unemployed. And I suggest you apply today. Do you presume or predict that we will have a tsunami of foreclosures bigger than 2008? You know, that’s a great question. I think we’re going to see a lot of foreclosures. But I think we’re not going to see as many because I think the bank is getting enormous pressure from the Federal Reserve and from the administration to do workouts, to do modifications, to do deed and lose, to basically work with the homeowners to the extent possible. And I think that the court system, again, is not going to be prepared for a deluge of foreclosures.
And so a lot of this is going to have to be done in mediation and through discussion. People are going to have to hire attorneys to figure this out so they’re not abused by the system. But I think that while there’ll be a huge increase, I’m not sure if it’s going to be a tsunami. I also know that if it is a tsunami, it’s not going to happen for a few months, because during this period of time there is an abatement of foreclosed or final foreclosure sales and actually ejecting people from their home. Foreclosures can be filed right now, in some cases, but they’re not going to go very far during this current crisis.
As an independent contractor with no corporation, may I still apply? If so, what information do I provide under company info and business agent? Okay, so if you’re an independent contractor, and you don’t have a corporation, you’re a sole proprietor, and I think Paula, you can correct me, but independent contractors and sole proprietors could either go under as an unemployment or they could go as a business if, in fact, they have the requisite costs as a business such as rent, mortgage payment, utilities, and employees. But if you don’t have [crosstalk 00:58:29]…
Paula: You can choose one of those. The only thing is you cannot double-dip, basically.
Roy: Right, but if you’re not paying rents, and you’re not paying mortgages, and you’re working out of your house, and you don’t have extra utility bills, and you don’t have employees, you are unemployed, and you’re entitled to that 600, 800 bucks a week, which I suggest that you apply for because you are entitled to it. On the other hand, if you have a legitimate business with the accouterments of employees, leases, mortgages, and utility payments, then I highly recommend you go for the $10,000 grant immediately. And then you go for the other loans, which is the emergency loan from the state, as well as the PPP loan to cover your payroll, which again is 225% of one month’s payroll. And remember, if this crisis continues, it is likely that these programs will then be extended. So, the key is to get into the soup, you know, accept where we are and start swimming. Next.
Okay, what about payroll limit on salary of $100,000? Is it per employee? You know, those are the rules that aren’t out yet. And that’s why there is no application. Is it going to be on average or is it going to be per employee? So, if you have a $50,000 employee, and $125,000 employee, does that mean you lop off the 25,000 from the $100,000 or do you average it to $125,000 and have 2 employees at $75,000 or whatever the math is, or $60,000, $65,000 or whatever? And the answer is, I don’t know that and I don’t think the people who are making the rules know that. But it doesn’t matter. We should identify what banks we’re going to be working with, you’ should identify what lawyers and accountants you’re going to be working with, you should make sure that you have a good set of QuickBooks, and that your stuff is available to the folks who are going to be helping you apply for these loans.
Okay, how can you apply for unemployment if you’re a 1099? That’s a great question. And the answer is, you can because under the new rules, you are now deemed a gig employee. And this is a big, big change in the definition of unemployment insurance. And Paula, do you want to chime in on that for two minutes?
Paula: Yeah. Well, so basically, you will have to apply in the same way that any other person will apply. We have the link on the last page of our presentation and you only apply for unemployment if you have decided that you are going to be applying for unemployment as opposed to as a business owner. So, you have to think about it first, as Roy explained, and then you follow the same steps that any other person who had followed before this crisis.
Roy: Right. The website, the unemployment site, was not allowing people who are self-employed to apply. And so the question is, did the state of Florida not update their site or is that a mistake or are we wrong?
Paula: Well, the server collapsed, so that was part of a problem. And some clients are experiencing that it can go up to half of the application, and then it breaks down. So there are still some issues with the system, but it’s because of a number of applications. But you have to follow the State of Florida procedure for unemployment still.
Roy: I’m going to do a self-promotion question here. Someone says, “What’s your phone number? I need to talk to you.” Our phone number is 954-384-6114 and make sure you go through the phone tree because that will get you to the right person since we’re all working remotely. I see the presentation is recorded, how do we get a copy? Everyone will get a copy, don’t worry about it. And then what’s next? Are there programs for citizens only or are they for green visa residents on work visas? Paula, could you answer that? I’m not sure about the answer to that if they are for folks who are [crosstalk 01:02:20].
Paula: So, unemployment is available for anybody that is authorized to be employed. And the business part, it’s for businesses that were in existence, so it’s for the business, and the individual will have to have the credit rating. So that means that you have to have a social security number or otherwise have a credit rating. Some businesses have their business credit rating so that will be the option but because of the credit score requirement, then you’ll need a social security number.
Roy: Okay. Folks who have short-term rental businesses, which are very big in Florida, someone’s asking, will they qualify? And again, it’s going to depend on if you have mortgage payments on that property. If you do, you’d qualify. If you have employees, you would qualify. And if not, maybe you’re just unemployed. And so those are the kinds of exercises we have to go through. And I highly recommend you not do it yourself because if you screw up, and they end up claiming that you’ve committed some sort of fraud, you won’t have the ability to say, “Well, my lawyer told me to answer this way.” And that is the purpose of why people have lawyers. It gives them that shield to say that “I followed the advice of counsel.” And that advice of counsel in this particular situation, when you’re doing bank applications that are subjecting you to perjury, and the potential for jail if you do this wrong, you want to spend that extra money as your insurance policy. You know, it doesn’t matter who you use. Use us, use Zach, use your accountant, but use someone that you trust and hopefully, you know, we can assist you.
More questions. Will the $600 weekly be automatically added to the weekly unemployment benefits check that is a separate application? If you were previously getting unemployment, it probably will be added, but if you haven’t yet received it, your first check will include the $600 is my understanding. I’m a realtor, I have a PA, so I pay myself a salary. But I also receive a 1099 income from other sources. Can I apply for unemployment? Under the new rules, you are a 1099 and you could apply. But you could also argue that you do have an employee yourself and that, therefore, you might be able to also consider yourself a business.
I’m going to look at some more questions here and then we’re going to wrap up because I know we went over today. So, the first step for business owners is to apply for the $10,000 loan through the SBA. I think the two steps for a business is A, get the Emergency Bridge Loan from the State of Florida, which is a true loan. You don’t have to take it but it could tide you over. And I think those are…Paula, those are $25,000 or $50,000 a company, correct?
Paula: The Express Bridge is $25,000. The advance is $10,000, which is the grant.
Roy: Right. And so you get the $10,000 grant, you can get the $25,000. The $25,000 you don’t pay interest for 6 months and then the interest rate’s kind of high. Was it 12% on the bridge loan after six months?
Paula: No. Well, once you’re approved, the cap is 4%.
Roy: Oh, 4%. Okay. So, you, first of all, don’t have to pay interest for a period of six months. And you could also return the money. But that one is not a forgivable loan, but it will get you over the hump. Okay, this is a question for Paula. I think Paula speaks Spanish. I’d like to discuss the same topics with her and the possibility of doing the same webinar in Spanish. Can you please contact me? Of course we will do that. And thank you. And that’s one of the things we were talking about is how to get this all translated to our Latin population community and we’re working on that.
Okay, anything else? That is it. Can you get copies of the slides? Yes, the entire presentation will be available online with the video and we’ll speak to our folks to do that. Next week, next Tuesday, Zoom in again as we talk about the long-term implications of the South Florida real estate market, are we going to use physical space the same way once the emergency is over? In addition, we will be, of course, updating all the programs that are coming out, especially the Payroll Protection Plan. The minute that comes out, we will be sending everyone notices and then letting them know how that application is going to go. There is a payroll and HR component to it and you have to compare your payroll for this year compared to your payroll last year.
Finally, especially to my realtor friends out there, I want to remind you that our title company is up and running. We’re doing remote online notarization. We’re also doing closings through going to people’s homes or meeting them in a socially distant way when applicable. And on top of that, we’re advising folks who are in the middle of their real estate deals, whether they’re buyers or sellers or realtors, and these deals are collapsing and what the application of force majeure may be to those agreements. And it’s a kind of crazy time. And again, if you’re a landlord, or if you’re a tenant, or if you’re a realtor that represents landlord and tenants, we’re here to advise all of you how to get through this.
And I think in this particular case, my final words are going to be that I highly recommend that you try and play nice in the sandbox because if you don’t, you will end up having a lot of sand kicked in your face at the end of this. So, we are trying to have people do the right thing here so that everyone can get through this together. Because after all, we are all in this together. So Roy Oppenheim, from the trenches, I thank all of you. And to those of you who weren’t able to get on this seminar and are going to be watching it on video, I suggest you just get in a little earlier. And we’ll see if we can open a few more spots next time around. Thank you very much again, and God bless. Thank you. Have a good day.