Should the Bankruptcy Code be changed to provide rent relief? Maybe, says the New York Times.

I represent a lot of landlords all over Tennessee. I also represent a lot of Tennessee small businesses who are, invariably, tenants.

Since COVID-19 hit, I’ve probably read 60 different leases. Sometimes, I’m looking at force majeure provisions or for ambiguities that would provide an argument against payment of rent. Other times, I am reading those same provisions (different leases) hoping for the opposite outcome.

Over the last 4 months, when scheduling my client calls, I’ve joked that “I do all my calls with my tenants in the morning, and I do all the landlord calls in the afternoon. I need to remember which argument to make.”

Even by lawyer standards, it’s rare to see such a equal distribution of misery on both sides of an issue.

So, today, when I read this New York Times Op-Ed, “The One Change That Could Save Your Neighborhood Stores,” I appreciated the generally even-handed approach to this nuanced topic.

The issue facing tenants?

[T]here’s no blueprint for how small-business owners should deal with their landlords during an economy-toppling pandemic.

Here’s one option: ignore your landlord and plan on resuming rent payments when sales hopefully improve, and try to not get evicted in the meantime. Another option? Stay current on rent and pray that the economy recovers before you run out of cash.

Neither one of these options are really good, but the tenant doesn’t have any better options. Making matters worse, the Bankruptcy Code isn’t much help, unless the lease assumption statute gets changed, to provide relief to tenants:

One possible solution is that Congress temporarily change bankruptcy law so that small businesses can be allowed to pay their landlords more reasonable amounts until the pandemic is behind us.

Some quick background: Under the Bankruptcy Code, a Chapter 11 debtor can generally stop paying its creditors during the time the case is pending and, even after a plan of reorganization is confirmed, that plan may provide drastically modified (reduced) payments to its creditors.

That’s not the case with landlords, though: Under 11 U.S.C. Section 363 of the Bankruptcy Code, landlords are entitled to demand their full monthly rent due the entire time, and, in order for a lease to be included in a bankruptcy plan, the landlord must be paid current. Long story short, a tenant’s bankruptcy filing is a temporary speed bump for landlords, but the path to payment in full for a landlord is pretty direct.

As a result, many landlords have been aggressive during the pandemic, emboldened by state and federal law. The article mentions that many landlords are starting to see the writing on the wall (and that, maybe, there aren’t any replacement tenants) and are considering “pay what you can” agreements.

States have offered limited help to tenants, in the form of moratoriums on evictions (though such efforts are not reducing or stopping the financial payment obligations for the accruing rent). Plus, deep-pocketed large retailers are cooking up some innovative legal arguments (the article cites Valentino and Victoria’s Secret, but it could have also cited the Nashville lawsuit filed by The Palm Restuarant against the Nashville Hilton).

To the landlord’s defense, the article notes that landlords, themselves, may be small entrepreneurs with mortgages of their own and who depend on the rental income stream. The article advocates for tax cuts for commercial lessors.

Again, the article presents a fairly even-handed consideration of a “no win” situation. If the landlords win, then thousands of small businesses go under in the next 6 months.

As for the landlords, it’s just one of many problems facing them during the pandemic. This Reuters article’s title says it all: Who still needs the office? U.S. companies start cutting space.

341: Bar Exams, Change of Plans, Buy a Bankruptcy Code

The Bar Exam has been canceled (sort of). July is usually bar exam time in Tennessee (as well as all over the country). Like nearly everything else about our lives, the bar exam is going to be drastically different in Tennessee in 2020.

As a result of this Order, Tennessee bar applicants now–for the first time ever–have the option of taking a private, online exam. As you can see from the responses to the Tennessee Supreme Court Justice’s tweet (really, people?), no decision is going to please everybody.

It’s either too much of a departure from tradition (for the older crowd) or too little of a change to the status quo (for the progressives).

Twitter can be pretty awful.

Speaking of how it’s impossible to make everybody happy. As law firms are trying new models as they pivot into the new world, this tweet spoke to me on a DNA level:

This is absolutely true. A law firm is generally full of highly critical (in a good way), smart, risk-adverse know-it-alls (in a bad way). I’ve seen hotly contested arguments about what soda to stock in the law firm kitchen. Good luck with your nimble pivots, managing partners.

Diversity Matters. The past few months have provided eye-opening lessons about privilege and opportunity for so many of us. Especially those in leadership positions at law firms.

In early June, I started to receive all the Black Lives Matters marketing e-blasts, so I know that many law firms recognize the PR benefit of supporting this movement.

But, I also know these law firms and judge them on their actions (as well as their words).

Law firms, what are you doing about diversity? And not just the 2020 associate class. I’m talking about the future years’ classes too. What support are you providing to nurture and provide opportunities to current law students? What about college students from non-privileged backgrounds who want to be lawyers? What about your staff (both present and future)? What educational or institutional policies are you introducing to your practices in response? What are you doing to support the movement in your community?

Separately, am I–personally–doing everything that I can? Are you?

Bankruptcy, Bankruptcy, Bankruptcy. I posted last week about the starring role that bankruptcy lawyers will play in the coming months. Others agree:

Bankruptcies are heating up in the Middle District of Tennessee. Every day, I’m getting calls for representation on a new creditor bankruptcy case filed in Nashville.

Buy a Bankruptcy Code book, young lawyers.

Nashville Post: The Bankruptcies are Coming, but Where are the Bankruptcy Attorneys?

If a creditor rights attorney appears in a movie or TV show, he is generally the bad guy who galvanizes the stars of the movie to assemble a dance competition to save the community center from foreclosure.

In fact, for a long time, my LinkedIn bio described my creditor’s rights bankruptcy practice as:

This is an area of law they don’t make movies about. In fact, the only movie about creditor bankruptcy attorneys that I know of is Heart and Souls, a 1993 movie starring Robert Downey, Jr. In that movie, his childhood guardian angels come back to Earth to re-visit him as an adult and are horrified by what he does for a living. Well, that’s my job.

As a result, insolvency attorneys tend to be slightly self-conscious about our role in the legal ecosystem. When our law firms’ clients host open houses at their glitzy new facilities or shiny, over-budget restaurants, it’s the bankruptcy attorneys standing by the bar who eyeball it all and wonder how much all it cost and whether they can pay for it.

(Note: I’m actually kidding about this…the bankruptcy attorneys actually never get invited to grand openings or fun events. Kidding.)

So, in light of all that, you can imagine how proud I was that the Nashville Post ran a magazine article this week showcasing the starring role to be played by bankruptcy attorneys in the coming months and years.

Step aside, corporate mergers and acquisitions counsel, this is a job for a Bankruptcy Lawyer.

It’s a well-done article, with spot-on analysis of the issues facing our local economy. This quote from local debtor counsel Nancy King really nails the current mindset:

Most companies right now are either in the stunned phase, or they’re in the ‘I want to work it out with my bank’ phase, or possibly the ‘I’ve gotten a PPP loan, I think I might make it’ phase. … When all that comes to an end, I think Chapter 11 is going to end up being an option for a lot of those companies.

One of the most interesting aspects of the article is the narrative that there aren’t enough bankruptcy lawyers in Nashville.

It’s absolutely true.

Nashville is widely known as having a sophisticated bankruptcy bar, due to the wide range of complex cases that get filed in our district (both consumer and commercial), our really smart judges, and a deep roster of sophisticated bankruptcy lawyers.

Nevertheless, when the Middle Tennessee economy rebounded so quickly from the Great Recession, local law firms simply didn’t restaff their bankruptcy practice groups. Instead, from 2013 to 2019, the smart young lawyers went into real estate, development, and corporate work.

As a result, most Nashville law firms have bankruptcy practices that are, basically, composed of the same bankruptcy lawyers who steered the ship in the last recession. Sort of like the 2012-13 Boston Celtics–a good team, but lots of veterans and hardly any young prospects.

We’ve known this is coming for a long time. In fact, at the 2019 Bankruptcy Lawyer Holiday Party (yes, it’s a real thing), the three most popular party guests were the three new faces (all under the age of 30). They were subjected to an endless barrage of business cards, lunch invites, and recruiting pitches that night.

In fact, one of those young lawyers has already been poached away by an out-of-state law firm that has one of the largest bankruptcy practice groups in the country.

So, my advice to young law school graduates (or students)?

Learn Bankruptcy. Read the Bankruptcy Code. It’s literally an inch thick. There’s always another recession around the corner.

You’ll have a great (and long) career.

Also, while you’re quarantined at home, watch Heart and Souls. It really is a fun, under-appreciated movie.

COVID forces old-school lawyers to embrace new technology

Tennessee Courts get yanked into the 21st Century. This week, I’ve had two telephonic court hearings.  They’ve both been a little strange.

On one, I called the Clerk’s office, who then gave me the Judge’s cell phone number. When I called the Judge on her cell phone, she was pretty clearly on a walk outside.

On the other, the court set up a call-in line for the docket call, with about 25 attorneys waiting for their specific matter to be called. When my matter was called, about 6 attorneys all spoke at once.

When my matter was over, I stayed on the line and listened to the next argument (on mute) to see how it flows and to plan for when I have to conduct my own complicated hearing. I learned that there is definitely an art to effective presentation via a phone call.  Also, it was weird, just silently lurking. A Bloomberg news reporter listened in on a similar court hearing, and she described it as “uncomfortable and oddly voyeuristic.”

I think all this can be figured out, but there’s definitely going to be learning curve.  The Tennessee Supreme Court conducted oral arguments via video this past week, and those went well.

Although, if I were one of the lawyers arguing, I would have 100% had to stand up for my presentation.

tn sup cort

Personally, I’m not looking forward to more telephone or video hearings. I go to court a lot, and there’s so much you pick up by physically present in the courtroom, whether it’s a good read on the judge’s demeanor that day, on opposing counsel, or just the ability to be physically present when you’re making a huge argument for a client.

There is simply so much that goes into oral argument, and there’s so little of that in a phone call.

Zoom. Maybe we don’t need to see each other.  Speaking of how technology maybe doesn’t always make things better, when all this first hit, everybody wanted to do a Zoom call. But, then, after a week of seeing the decorations in everybody’s guest bedroom, we sort of figured out that all this could have been done via conference call.

Personally, I can’t decide where I look: at who is speaking; at myself (which I’m usually doing); or directly at the camera. Bonus points to the participants who just leave their camera off the whole time.

Either way, I guess I fall in the middle on this app. In some situations, it makes sense to be able to see the person and get a read of their social cues or to establish a rapport. For example, I represent a large class of clients on a matter, and I like to communicate with them via video so they can see me and my team.

Slack.  I acknowledge that I sound like a curmudgeon.  So, to counteract that, I’ll provide a whole-hearted endorsement of Slack, the real time messaging platform.  It seems like a really effective and well-done way to manage work teams.

Side-note: If you’re navigating all of this, I can’t recommend the Lawyerist website enough, as well as the Lawyerist podcast.  It’s run by a group of very smart lawyers, and they constantly talk about remote work, law firm management, and law tech and innovations.

I really enjoy all that they do on that site to educate lawyers.

New Developments versus Custom and Habit. It’s hard to tell how much of this is temporary or here to stay. Some part of that answer will depend on the Court leadership forcing all counties to fully embrace the new rules, policies, and technology.

Yesterday, we were figuring out how to get a garnishment form notarized with all of us spread out over town.  One of the lawyers on the e-mail chain correctly pointed out that Tenn. R. Civ. P. 72 and the brand new Supreme Court Orders allow for /e/-signatures and declarations in place of a notarized signature.

This was a garnishment, though, in a very small county, one that probably hasn’t read the Order from last week, and where the front desk clerk would take one look at the form, see the lack of a notarized signature, and potentially reject the filing.

This is what makes collections so different than other aspects of the law. Once you get the judgment, instead of dealing mainly with a judge, you’re mostly dealing with court clerk staff. You can be technically and legally correct, but, if you don’t follow their habit and custom?

Long story short, we got it notarized. Our goal wasn’t to be right. It was to get our garnishment issued.

My hope for all of this is that the Administrative Office of the Courts establishes a commission to look at all these issues and to anticipate as many of these issues that could arise in the future. And I hope that they don’t just pick the usual same people from the usual same big law firms to participate. Those lawyers don’t talk to clerks. They don’t file e-file documents. They don’t go to court on all kinds of matters.

The decisions that are being made today may set the policies and procedures across the state for years, and it’ll be interesting to see what changes implemented during this pandemic become the new custom and practice.

The CARES Act’s Exclusion of Debtor-in-Possession may be a death sentence to pending bankruptcy cases.

The Coronavirus Aid, Relief and Economic Security Act of 2020 is a great legislative response in helping thousands of struggling businesses navigate the financial disaster presented by the coronavirus pandemic.  The response to COVID-19’s spread has shut down thriving businesses, put people out of work, and is having ripples throughout the economy.

Despite the intent to provide wide and sweeping economic relief to affected businesses, Congress made an ill-advised exclusion when determining what businesses can be an eligible participant in the CARES Act loan program:

“(V) the recipient is not a debtor in a bankruptcy proceeding…” 

As the plain language indicates, any business that is a debtor-in-possession in an active Chapter 11 bankruptcy reorganization is ineligible for relief under the CARES Act.

This is a terrible oversight.

When a business files for relief under chapter 11 of the Bankruptcy Code, it then operates as a “debtor-in-possession,” continuing its pre-bankruptcy operations under the oversight and subject to the approval of the Bankruptcy Court.

The goal for the debtor-in-possession is to address, correct, and overcome whatever financial or operational issues that caused the bankruptcy and then reorganize its operations, finances, or governance structure in a way that a more successful business will result.

So, in short, a business operated by a debtor-in-possession operates like any other business. It has employees. It pays rent. It pays taxes. It buys goods and inventory.

If the DIP struggles and can’t pay employees, rent, taxes, and other operational costs, it fails.  Just like any other business.

And, just like any other business, a global pandemic has a catastrophic impact on its operations.

The exclusion of CARES Act financial relief to a debtor-in-possession in a chapter 11 reorganization is, in essence, a death sentence to that debtor’s ability to reorganize. It lays off employees. It can’t pay rent. It can’t pay taxes. It can’t confirm a plan of reorganization. It simply figures out a way to survive, without any help, or close.

Here, I’m guessing that Congress wanted to exclude the shutting down or liquidating bankruptcy debtor’s ability grab some cash. But, by including a broad exclusion, they’re hurting legitimate businesses that may already be on a path to survival.

With this exclusion, the Act forces the debtor to ponder a strange choice: Whether to voluntarily dismiss an otherwise viable bankruptcy proceeding in order to apply for federal relief.

 

 

Prediction: Tennessee Bankruptcy Filings will hit all time in June 2020

About two weeks ago–about 6-7 days into the COVID-19 shut down–I had a work call with a debtor’s bankruptcy attorney.

After we briefly talked business, we talked about how everything else was going. I asked him if he was swamped with anxious debtor phone calls. He said he wasn’t, which surprised me. During that first week, the news was full of businesses closing and mass layoffs.

In fact, he wasn’t even at his office. As we talked, I could hear that he was at the store, buying groceries and navigating an entirely separate conversation with the check-out clerk.

As he was loading the groceries in his car, he clarified: “It’ll be busy, like 20 hour a day work-days. But not yet. Right now, nobody knows what tomorrow looks like. Right now, people are worried about survival, not about their bills. Starting in April, maybe early May, that’s when it’ll start. It’ll be when they finally realize that Bankruptcy is their only option.”

I’ve thought about that call in all my conversations with bankers and small business owners navigating financial relief under the CARES Act (the Small Business Stimulus loans, the Paycheck Protection Program, or the expansion of the EIDLP programs), under their business interruption insurance, or calling their lenders for help.

This sense that a bankruptcy filing isn’t the first choice, but, for so many people, it’s inevitable.

Today’s Wall Street Journal has an article, Bankruptcy Lawyers Gear Up for Surge in Filings Due to Coronavirus Fallout, which previews this potential explosion in bankruptcy filings.  “The spike hasn’t caused an immediate jump in corporate bankruptcies, which require financing and—absent an emergency—usually take weeks or months to prepare.”

The reasoning, there, is that a really complex corporate bankruptcy isn’t something that you can rush into. It takes internal planning,  a massive review of financial records, and, in many cases, advance negotiation with essential creditors. In a different time, that process can take 6 months. The coronavirus hit us like a tidal wave, taking us from healthy to destroyed (financially) in a week.

But, what about the average consumer? Well, as a result of quick action by the Tennessee court administrators and Tennessee Supreme Court, most in-person court proceedings are suspended through the end of April.  As a result, even the most aggressive landlord can’t evict a tenant, because there’s no court to sign the order.  Plus, there’s a good legal reason to avoid conducting a foreclosure in Tennessee during this time.  There’s a good chance these suspensions are extended more as this situation develops.

Many debtors file Bankruptcy directly in response to a financial distress, often to stop a pending credit rights action (a foreclosure, a court date, a deadline in a lawsuit). Without these prompts, will there be an urgency for a debtor to call a bankruptcy attorney? Maybe not.

Are bankruptcy attorneys even meeting with potential clients during all this? Most of the ones I’ve talked to aren’t.

Also, as a matter of timing, what’s the benefit of filing early? Right now, many people are out of work and don’t have regular income. A filing now would draw a line in the sand of their debts at a time when their finances are most uncertain. Candidly, their debts will most likely extend far beyond that line. Why not wait and see if you’re forced to go deeper in debt before you file?

As strange as it sounds, it’s likely that bankruptcy filings will not spike until the economy starts to recover, when businesses start to reopen and people begin to go back to work. That’ll be when people can stop worrying about survival and start worrying about digging themselves out a financial hole.

So, yes, Tennessee bankruptcy lawyers are going to be busy and, if 2008 is any indication, Nashville bankruptcy lawyers may end up being some of the busiest in the country.

I think that happens in June.

341: Rent is Due Tomorrow; Lawyer Webinars

Rent is Due Tomorrow, and It’s Going to be Bad. Tomorrow is going to be a terrifying day for lots of people across the country.  That’s because it’s the first of the month, and  rent and mortgage payments will be due for millions of families, and a good number of those people are out of work.

Clients in all types of industries are scared. They’re scared for their business. For their employees. For their personal finances.

cheesecake

Some businesses are taking aggressive action to preserve/conserve cash, but that’s a bold move and beyond what most small businesses or individuals can envision.  Who on earth imagined a future where “I’m not paying my mortgage next month” is a valid financial planning option?

It’s important that we, as lawyers, figure out how to help. This article in the Wall Street Journal, Bankruptcy Law Needs a Boost for Coronavirus, suggests that our financial and restructuring bar is thinner than it should be.

This is a real concern that I’ve heard from bankruptcy lawyers for about a year, even before people had any idea that a global pandemic was possible. There aren’t many bankruptcy lawyers under the age of 40. It’s because, basically, in the last 10 years, the economy has been strong enough that there hasn’t been growth in new practitioners.

This Bloomberg News article, Bankruptcy Phones Ring Off the Hook; Firms Prep for Deluge,  suggests that there will be big time growth in the practice area.

So, we get our coronavirus updates whereever we can, right?

Tony Roma Covid

COVID-19 Webinars are the real fast spreading virus. Ok, so what role can lawyers play?

First off, slow down with the webinars. There are so many lawyer webinars right now.

I loved this tweet from @catmoon:

cat moon tweet

This is great advice, and it’s a good reminder to judge your client marketing first from a place of “Is this Useful to the Client?

Now, don’t get me wrong. I have watched a fair share of coronavirus webinars, and I’ve learned a lot about the state of the economy and business interruption insurance. I even taught one (see below).

(Side Note: I’ve also learned that lawyers should do a test run before going live on a webinar. “I just heard someone grimace.”)

My advice? I agree with Cat 100%. Don’t make me listen to an hour-long webinar, when you could put that together in an article that I scan in 5 minutes. Everybody is busy, so let’s get to the point.

Also, maybe just call the clients and see what they need.  Again, handing the mic to Cat Moon:

2nd cat moon tweet

Call. E-mail. Text. Check in.

Separately, I taught a webinar.  Ok, ok, I know. Webinars.

Mine was a CLE for the Tennessee Bar Association. It was titled “Navigating Client Financial Issues During the Pandemic,” and I hope it gave good, practical advice for both creditors and debtors.

But, yeah, do what I say, not what I do.

tba cle

 

 

 

 

 

 

Does the Mayor’s Safer at Home Order Trigger Business Interruption Coverage? It’s a Billion Dollar Question.

On Sunday morning, Nashville Mayor John Cooper took bold action in response to the coronavirus spread: He entered the Safer at Home Order, which ordered Nashvillians to, generally, stay at home and ordered the closure of non-essential businesses.

Because the Order requires businesses that are “non-essential” to close, did the Mayor do those businesses a big favor, in the event that they decide to make a claim under a business interruption insurance policy?

Business interruption insurance is insurance coverage that replaces income lost in the event that business is halted for some reason, such as a fire or a natural disaster.

This coverage seems like it’d be very helpful to a business that was ordered by the government to shut down during a pandemic, right? Well, it depends on the specific language in the insurance policy.

Remember, insurance companies write these policies, so most will contain text that is as narrow as possible.

Duration of Shutdown? It will be narrow in duration (i.e. only as long as needed to re-establish operations).  As an example, after 9/11, one case held that, once the business owner could physically return to their building, the coverage ended (on 9/18).

But what about coronvirus, when we are prohibited from leaving the house by express order of the government and we definitely can’t go to our business? Seems like a coverable event. Again, though, look the the text of the policy.

Is it a shutdown or a “slow down”? Courts generally require a complete shutdown. Again, good for a Nashville business.

Some interesting questions:

  • If the entirety of your business activities cease; probably a suspension
  • If an entire portion of your business closes but another portion remains
    open?
  • If your normal business activities close, but you convert your business into a
    new but less profitable activity?

So, if you’re a bar that focuses on, let’s say, axe throwing but also serves nachos, and, after the coronavirus, you offer home delivery nachos, are you really shut-down?

Does your policy require the shutdown to be caused by a physical loss or property damage (like a tornado)? Is contamination from a deadly, contagious virus “damage to property”? Maybe…there are cases on dangerous levels of gases that are found to be damage to property.  But, do you have to show documented instances of COVID-19 at your business to get coverage? Also, maybe.

Is there text referencing an Order of Civil Authority? Some policies actually reference shutdowns when access to real or personal property is prohibited by order of civil or military authority.  Here, is the Safer at Home Order a recommendation or an order? Is your businesses clearly not an “essential” business that can stay open?

As a bankruptcy lawyer who rarely gets to fight the exciting fights, I really appreciate the interesting days and arguments that await the insurance lawyer bar over the next few weeks, months, and years.

My advice, today, is to: Pull a copy of your businesses’ insurance policy, and see if it includes business interruption coverage. If it’s a close call, make a claim and see what happens.

 

Is a foreclosure during a global pandemic an "irregular" and invalid sale? (Maybe)

During the coronavirus shut-down, there has been a lot of talk about there being no evictions in Davidson County, based on the Sheriff’s announcement that the Sheriff will not be serving non-essential service of process for the foreseeable future.

But, keep in mind, that announcement doesn’t stop landlord from using a private process server to serve the process.

In fact, the most critical obstacle to detainer proceedings is that the General Sessions Judges have cancelled court hearings through April 10. If there’s no court, then there’s no judgments for possession.

What about foreclosures?

Tennessee is a non-judicial foreclosure sale, so a foreclosing lender doesn’t need a court date, a judge’s approval, or an open courthouse. When they talk about a foreclosure “on the courthouse steps,” they are being literal.

So, as a practical matter, foreclosures can still take place in Tennessee over the next few weeks.

But, is a creditor wise to continue a foreclosure sale to a more stable time? Probably.

That’s because Tenn. Code Ann. §  35-5-118 allows courts to scrutinize the mechanics of a specific foreclosure, with an emphasis on whether a sale is “irregular.”

As I discussed in a blog post last year, pursuant to the Tennessee Supreme Court in Holt v. Citizens Central Bank, 688 S.W.2d 414 (Tenn. 1984), a conscience-shocking foreclosure sale price standing alone, absent some irregularity in the foreclosure sale, is not sufficient grounds for setting aside a lawful foreclosure sale.

What else did Holt say? “If a foreclosure sale is legally held, conducted and consummated, there must be some evidence of irregularity, misconduct, fraud, or unfairness on the part of the trustee or the mortgagee that caused or contributed to an inadequate price, for a court of equity to set aside the sale. ”

So, there remains a question: If a foreclosure sale occurs when the country is facing unprecedented restrictions in public interaction, when we are under orders from local government to “stay home,” is this an irregular sale? Did the unique conditions chill the attendance of competitive bidders?

These are unprecedented times, but we know that the economy is going to take a hard hit and issues like this are going to be litigated. A lender foreclosing on somebody’s business or home in this crazy time may be opening itself up to scrutiny and, yes, a legal challenge.

This would be a great time to continue a sale to a more stable sale date, which is expressly allowed under Tenn. Code Ann. § 35-5-101(f).

Insight from a Bank Attorney: How to ask a banker for help.

By 10am yesterday morning, one of my bank clients had already received five calls from worried borrowers.

These weren’t high risk consumer loans; these were commercial borrowers whose business has been impacted by the pandemic. A fitness studio who can’t have in person classes. Two AirBnB owners who have empty houses. Two restaurants. And that was just by 10am.

(Sidenote: Yes, I just referred to a fitness studio, AirBnBs, and restaurants as not “high risk” borrowers. This is 2020 Nashville, people. It was a different world until a week ago.)

In yesterday’s Tennessean, I told nervous borrowers to call their banker and talk about their concerns.

But what do you say? Here’s an idea of what banks are looking for:

Have a Plan. Don’t just call and ask to not pay for 90 days. Instead, explain to the banker how you are going to use that extra cash in the next 90 days to strengthen your recovery and maximize your chances of survival (and your chances to repay the bank).

Are there easy expenses that you can cut? Are you changing your operations in response? What are you going to do with “the bank’s money” during this time?

Do your Homework. Experts suggest that we’re going to be dealing with coronavirus for weeks and, maybe, months. Even though we have no idea how long this will last, can you give the banker a detailed forecast of your operations during this time?

Show them the bad news (i.e. the projected income), show them the easy and hard cuts you’ve decided to make, show them the fixed costs you can’t avoid (rent, costs of supplies), and show them that you’re trying.

Can you get more capital from other sources? Can you give the bank more collateral? If you can (or can’t), let them know you’ve explored that before asking the bank for help.

The banker probably wants to help you, because your success helps their bottom line too. Here, your goal is to make it easy for her to help you. Provide a roadmap that relies on numbers, solid projections, and is something that your banker can show his bosses when he advocates for you (or, months later, explains why he said “yes” to you).

Have a clear request. If you’ve done your homework and have a detailed plan, you should also be prepared to have a specific “ask” of the banker.

Do you need an extension of your line of credit amount? How much? How did you get that figure?

Do you need a 90 day payment forbearance? Why 90 days?

Do you need a re-amortization of your debt or to make interest-only payments for a few months? How does the lowered payment fit into your budget?

Be a pessimistic optimist. When you call your bank, you’ll be inclined to ask for as little relief as possible, because you’ll want your “ask” to be granted. Maybe you’ll commit to a reduced payment that’s still a little too high.

Here, if you’ve done your homework and come up with a detailed plan, you’ll have a good idea of what you really need from your bank. Ask for that, but maybe a little lower (give yourself some wiggle-room).

You don’t want to get some relief from your bank, but, then, a few weeks later, realize that you can’t perform and need more adjustments.

Long story short, err on the side of being a pessimist, and give yourself some room to under-perform (or over-deliver).

Again, I encourage immediate contact. In my experience, bankers appreciate transparency and dislike surprises (in this context, because these are generally “bad” surprises). Call them, talk to them, and let them know you’re fighting to protect your business.