Anyone that follows the New York City Taxi medallion markets can see that the bottom has fallen out of the market. Medallions used to sell for over a million dollars, but now they sell for less than $79,000. See the Taxi Medallion List
No medallions sold in April or May of 2020 because of COVID>
Even if the City council didn’t reject the offers made by Uber and Lyft to help Medallion owners is not nearly enough to help all of the drivers who bought a medallion when they were good investments. the $100 million fund to help struggling yellow taxi drivers reported by the New York Daily News was not even close to enough to help struggling Medallion Owners.
However, chapter 13 Bankruptcy has finally become an option for many drivers. A chapter 7 bankruptcy to walk away from the debt altogether only works if people have no other assets.
How to use a chapter 13 bankruptcy to restructure the debt on a Taxi Medallion.
New York City taxi drivers who own taxi medallions that are “underwater” can “cram down” the taxi medallion loan so that the only the portion of the taxi medallion loan equal the value of the taxi medallion. (This is called the secured debt.) The rest of the debt doesn’t go away but instead is treated as unsecured debt.
What this means is that the “secured” portion of the taxi medallion loan would be paid in full over a 3 or 5 year period based on your actual income and the unsecured portion would be paid pennies on the dollar if at all. You as a medallion owner would only have to pay the bank what the medallion is worth today and not what is worth prior to Uber and Lyft entering the market.
Limits on filing a Chapter 13 bankruptcy
Only people or spouses can file for a chapter 13 bankruptcy if their debt limit is low enough. If your secured debt or unsecured debt is too high, this plan will not work. A corporation or an LLC also does not qualify for a chapter 13 filing. The corporation or LLC could file for chapter 7 or chapter 11 bankruptcy. There is a complex relationship between filing as an individual who owns an LLC and the LLC filing on its own. Talk to a Bankruptcy Attorney to go over these relationships. If you have signed a personal guarantee for the LLC, there are also other factors to consider.
When does a Bankruptcy Cramdown on a NYC Taxi Medallion NOT Work?
Let’s pretend that a taxi medallion is only worth $79,000 under current market conditions. However, the loan owed on the Medallion is $750,000. This means the secured value is $79,000 and the unsecured amount of the loan is $671,000 for a total of $750,000. In this situation, a chapter 13 bankruptcy would not work. The unsecured debt is too high. So a chapter 11 small business subchapter v bankruptcy could be used instead.
To qualify for a chapter 13 bankruptcy unsecured debt has to be less than $394,725 and secured debt less than $1,184,200. In this case the most the loan on the medallion can be is $394,725 + $1500,000 = $544,725 for a chapter 13, but a chapter 11 does not have debt limits. If you also have credit card debt and medical debt, then this would wrap into the total amount of debt owed. You may need to file a chapter 7 bankruptcy to get all of your unsecured debt discharged prior to filing a chapter 13. This is jokingly called a chapter 20 bankruptcy a chapter 7 bankruptcy plus a chapter 13 bankruptcy.
Cramming down a secured creditor in a Chapter 13 Bankruptcy is detailed by 11 U.S. Code § 1325 – Confirmation of plan.
(The the full text of the law can be found at the attached link.)
How does a Bankruptcy Cramdown on a NYC Taxi Medallion Work?
Let’s drop the owed amount in the above example to $500,000 with an interest rate of 8%. Now the unsecured amount owed is under the max allowed. We would propose a plan to the bank on your behalf to pay off the medallion in a 5 year period. The bank still has a lien on the medallion, but as long as the plan is okayed by the chapter 13 court and you make your payments you will get to keep your medallion.
The plan we would propose is to pay the $79,000 over a 5-year plan. The bank is entitled to a small amount of interest (Prime interest plus 1% which is currently roughly 3.25% + 1% or 4.25%) and the chapter 13 trustee gets 10% added to the payment. (This 10% charge on the payments is used to pay for the chapter 13 and her staff to process the payments and work for the court.) S0, a 79,000 loan over 5 years with 4.25% interest plus 10% equals monthly payments of $1464 + 146.40 or a total of 1610.40. This still may be more than many people would want to pay for a medallion, however, as the value of medallions drops, this payment would also drop. So, every month the value of medallions has been falling on average.
Derek J. Soltis, Esq., MBA/MS is a New York State Licensed attorney, focusing on Foreclosure Defense & Bankruptcy in New York who has helped many people with defending foreclosure lawsuits in New York. If you have questions, call us at 973-200-1111 or email us at [email protected].