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Article from ABF Journal Explains how Courts have Treated Merchant Cash Advances (MCA)

In the November/December issue of the ABF Journal, attorney Jefferey Wurst explains the different types of MCAs and how Courts have ruled regarding the vehicle. According to Mr. Wurst, first there “are MCAs that advance money and get repaid solely from the collection of future receivables (assuming the risk of collection) and those that advance money and get repaid by taking daily or weekly ACH payments from the client’s bank account whether or not any receivables actually exist.” “Second are MCAs that rely on the performance of receivables found in factoring, which are generally based on true sales of the future receivables and without recourse.” Mr. Wurst goes on to explain that one of the key issues involves the characterization of the MCA as a loan or a purchase of a receivable. The answer to this question determines whether the MCA is subject to usury statutes (to the extent they exist). According to Mr. Wurst, under “New York law, the penalty for lenders making a usurious loan is not being deprived of any interest payments, as it is in many jurisdictions, but being deprived of receiving both interest and principal. In other words, the borrower gets a windfall by forgiveness of debt when it has borrowed money under usurious terms. Thus, it should not come as a surprise that when confronted with a lawsuit to recover on advances made to a merchant, that merchant attempts to claim the high cost of funds they are paying is usurious.” Mr. Wurst then explains that “[w]hether an MCA is a usurious loan first depends on whether the merchant sold the receivable or borrowed money with the receivable as collateral. Whether the sale of the receivable was a true sale under applicable law determines this.” The analysis regarding a true sale or a loan is complex and not suitable for a discussion here, but if you have any questions about how an MCA will be classified (i.e., true sale or loan), the attorneys at FactorLaw can assist. If would like to speak to one of our experienced attorneys, please call (312) 878-6976 or fill out a contact form here. Read More
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According to a Recent Businessweek Article - Merchant Cash Advances are Wreaking Havoc on Small Businesses

In an earlier post FactorLaw discussed Merchant Cash Advances, which is a form of financing that appears to be marketed to certain types of small businesses, according to an article dated November 20, 2018 published in Businessweek (the “BW Article”). The BW Article offers what we believe is an in depth treatment of how Merchant Cash Advances work and how they can be abused to the detriment of small businesses. The major premise of the BW Article is best summarized by the following lead-in: “How an obscure legal document turned New York’s court system into a debt-collection machine that’s chewing up small businesses across America?” That “obscure legal document” is, of course, the confession of judgment that often accompanies the documentation for a Merchant Cash Advance. According to the BW Article, “some lenders have abused this power.” The BW Article also indicates the authors conducted “dozens of interviews” and reviewed “court pleadings” and based upon those sources the BW Article reports that “borrowers describe lenders who’ve forged documents, lied about how much they were owed, or fabricated defaults out of thin air.” The BW Article further reports that: “Cash-advance companies have secured more than 25,000 judgments in New York since 2012, mostly in the past two years, according to data on more than 350 lenders compiled by Bloomberg Businessweek.” The authors of the BW Article opine that “New York’s courts are especially friendly to confessions and will accept them from anywhere, so lenders require customers to sign documents allowing them to file there. That’s turned the state into the industry’s collections department.” FactorLaw continues to handle cases for companies or individuals that are dealing with Merchant Cash Advances and continues to believe that a bankruptcy filing sometimes is a viable option for dealing with a Merchant Cash Advance. The automatic stay generally stops all collection actions, and in a chapter 11 case individuals and businesses sometimes are able to restructure debt obligations, including secured debt or debt arising from a confession of judgment. Chapter 13 also is available to individuals and, like chapter 11, generally allows individuals to retain property while they are working to repay debt over time. If you would like more information regarding bankruptcy filings and would like to speak to one of our experienced attorneys, please call (312) 878-6976 or fill out a contact form here. Read More
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Bankruptcy Filings among Elderly Increased Exponentially over Last 25 Years

According to an article posted today in the New York Times by Tara Segal Bernard, “[f]or a rapidly growing share of older Americans, traditional ideas about life in retirement are being upended by a dismal reality: bankruptcy.” According to Ms. Bernard, “[t]he signs of potential trouble — vanishing pensions, soaring medical expenses, inadequate savings — have been building for years.” A large part of her conclusions are drawn from a recently published study by the Consumer Bankruptcy Project, which found that the “rate of people 65 and older filing for bankruptcy is three times what it was in 1991, the study found, and the same group accounts for a far greater share of all filers.” Ms. Bernard further reports that: Driving the surge, the study suggests, is a three-decade shift of financial risk from government and employers to individuals, who are bearing an ever-greater responsibility for their own financial well-being as the social safety net shrinks. The transfer has come in the form of, among other things, longer waits for full Social Security benefits, the replacement of employer-provided pensions with 401(k) savings plans and more out-of-pocket spending on health care. Declining incomes, whether in retirement or leading up to it, compound the challenge. As the study, from the Consumer Bankruptcy Project, explains, older people whose finances are precarious have few places to turn. “When the costs of aging are off-loaded onto a population that simply does not have access to adequate resources, something has to give,” the study says, “and older Americans turn to what little is left of the social safety net — bankruptcy court.” “The forces at work affect many Americans, but older people are often less able to weather them, according to Professor Thorne and her colleagues in the study. Finding, and keeping, one job is hard enough for an older person. Taking on another to pay unexpected bills is almost unfathomable. Bankruptcy can offer a fresh start for people who need one, but for older Americans it ‘is too little too late,’ the study says. ‘By the time they file, their wealth has vanished and they simply do not have enough years to get back on their feet.’” Ms. Barnard also cites statistics from the Federal Reserve’s survey of consumer finances, via the Consumer Bankruptcy Project, showing that filings by people in the 55 to 64 age group increased by 66% from 1991 to 2016 and filings by people in the 65 to 74 age grou increased by 204% over the same period. According to Ms. Bernard: The data gathered by the researchers is stark. From February 2013 to November 2016, there were 3.6 bankruptcy filers per 1,000 people 65 to 74; in 1991, there were 1.2. Not only are more older people seeking relief through bankruptcy, but they also represent a widening slice of all filers: 12.2 percent of filers are now 65 or older, up from 2.1 percent in 1991. The jump is so pronounced, the study says, that the aging of the baby boom generation cannot explain it. If you would like more information regarding bankruptcy filings and would like to speak to one of our experienced attorneys, please call (312) 878-6976 or fill out a contact form here. Read More
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Law360 Satisfaction Survey finds that student loans are burdening lawyers too.

According to Forbes magazine, “student loan debt is now the second highest consumer debt category – behind only mortgage debt – and higher than both credit cards and auto loans and according to Make Lemonade, there are more than 44 million borrowers with $1.3 trillion in student loan debt in the U.S. alone. The average student in the Class of 2016 has $37,172 in student loan debt.” Law360, a legal publication that covers a wide range of practice areas and topics, conducted a Satisfaction Survey of lawyers to ascertain how student loan debt affects today’s practitioners. According to their data: 1. There was a correlation between high levels of debt and high levels of stress among lawyers. 2. Nearly a third of attorneys who graduated within the past five years reported having six-figure student debt, and attorneys in this category were more likely to report that they feel stressed all the time. Debt also correlates with delays in major life events like marriage or having children, as well as a desire to leave a current job. 3. Nearly three-quarters of the respondents who had accumulated between $100,000 and $250,000 in student loans said they had to delay a major life event for financial reasons. That number jumped to 78 percent for those with more than $250,000 in student debt. 4. The portion of attorneys borrowing more than $100,000 for their education hit 60 percent in recent years, up from 26 percent during the 1990s, a Gallup poll has found. And the average median starting salary for 2016 law school graduates, according to the National Association for Law Placement, was $65,000. Read More
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America is heading for a level of income inequality that hasn't been seen since 1928

Economists have noted that the level of income inequality between the top 1% and the rest of the country is approaching levels last seen in 1928, which, of course, was just before the tragic financial meltdown that pre-dated, or even caused, massive impacts in the U.S. and the rest of the world. The obvious implication of this data is that another meltdown looms on the horizon. For further insight into this dynamic, FactorLaw recommends the this article published in Money Watch. Read More
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Ariane Holtschlag Interviewed at ABI Winter Meeting

We are proud to share an exclusive interview conducted by Bill Rochelle of the ABI with Ariane Holtschlag, FactorLaw’s bankruptcy attorney, regarding some of the cutting edge consumer issues in the Northern District of Illinois. Watch the interview below: Read More
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Credit Scores May Improve After Bankruptcy

One question people often have about bankruptcy is how it will affect their credit scores. In a recent article (link), Paul Goldsmith-Pinkham, an economist with the Federal Reserve Bank of New York’s Research and Statistics Group, shows that credit scores and credit limits actually go up after bankruptcy. Source: Paul Goldsmith-Pinkham, “Do Credit Markets Watch the Waving Flag of Bankruptcy?” Federal Reserve Bank of New York Liberty Street Economics (blog), May 15, 2017, http://libertystreeteconomics.newyorkfed.org/2017/05/do-credit-markets-watch-the-waving-flag-of-bankruptcy.html. Goldsmith-Pinkham used a database based on consumer credit reports. When a person files for bankruptcy, a “flag” is marked on the person’s credit report. Using this flag, Goldsmith-Pinkham tracked credit history for people in the database before and after bankruptcy. Goldsmith-Pinkham found that credit scores were at their lowest just before a bankruptcy filing (which takes place at the “0” mark on the graph above). Once the bankruptcy was filed, credit scores rose significantly. Scores continued to rise over time, with another noticeable increase when the bankruptcy “flag” was removed from the credit report (10 years for chapter 7 cases; 7 years for successful chapter 13 cases). Goldsmith-Pinkham also found that credit limits increased after a bankruptcy filing, especially around the time that the “flag” is removed from the credit report. It is important to remember that these findings are based on general analysis of one set of data. The results will not necessarily hold true for every person’s situation. But as a whole, it appears that a bankruptcy filing is a step along the way to repairing credit, rather than a cause of poor credit. Posted by Jeffrey Paulsen. Read More
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Student Loan Resources

I ran across an interesting and useful website for those facing student loan issues: http://thestudentloanlawyer.com. I found the site informative and helpful. If your financial distress involves student loans, you might benefit from visiting this site. We would be happy to discuss these issues with you as well. Read More
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