Daily Archives: July 4, 2020

J.C. Penney has filed for bankruptcy and is closing their doors after being around for almost 120 years. So why does it hurt to see them go? USA TODAY

Twelve midsize to large corporations all with more than $10 million in debt filed for Chapter 11 bankruptcy protection during the third week of June, another consequence of the coronavirus pandemic and continuedtrouble in Americas oil industry.

The filings representthe highest weekly total of the year, and experts believe this is just the beginning of a bankruptcy tsunami that will wash over the countrys largest companies this summer and then drench both smaller businesses and individuals if government stimulus money dries up.

I very much expect to see the numbers continue to rise said Ed Flynn, a consultant for the American Bankruptcy Institute, a nonpartisan research organization. Every day there are more rumors of this or that company, and the rumors are almost never wrong.

The types of companies affected are unsurprising.Since the start of the pandemic, they have included businesses that consumers have studiously avoided, from rental car companies, restaurants and department stores to gyms and health care companies offering elective surgeries and procedures. The fitness studio chain 24 Hour Fitness Worldwideand AAH holdings, which operates clinics that help clients overcome addiction, were among the latest batch of filers.

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Companies seeking protection from their creditors also includeoil and gas producers and suppliers that have been battling oversupply and low prices in world markets for more than five years now. When prices plunged again in February due to concerns about a global economic downturnbrought on bythe coronavirus pandemic,an increasing number of energy companies were forced to file.

At least 24 oil and gas companiesfiled from April through June nearly twice as many as during the first three months of the year, according to Haynes and Boone LLP, an international law firm based in Texas. Fourof those companies Texas-based NorthEast Gas Generation, Colorado-based Extraction Oil & Gas, and Chisolm Oil and Gas and Chesapeake Energy, which are both from Oklahoma filedin the last two weeks of June.

This trend should continue through the remainder of 2020 and into 2021, said Charles Beckham, a partner in Haynes and Boone's restructuring practice. Unless commodity prices have a majestic increase, many producers will seek relief in bankruptcy court with the hope that will bring them back to a rational place where they can continue to produce and service their debt.

Charles Beckham, a partner in Haynes and Boone's restructuring practice.(Photo: Courtesy)

Besides the catastrophic events that sent everything from oil and gas producers to major retailersinto a tailspin plunging oil prices and the coronavirus pandemic there is something else that they all have in common: High levels of debt.

Given the extraordinarily low-interest rates of the past decade, companies in the United States now have higher debt loads than at any time in history, according to Jonathan Lipson, a professor at Temple University Beasley School of Law.

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Its all that debt, which was taken out in good times often with the help of private equity investors that's put themin a tough spot now theirrevenues have been disrupted, Lipson said. Many of these companies cant make interest payments and an increasing number will need to reorganize under Chapter 11 or liquidate their holdings and go out of business under Chapter 7.

Chesapeake Energy, a shale drilling pioneer that helped to turn the United States into a global energy powerhouse, filed for bankruptcy protection June 28, 2020.(Photo: AP Photo/Ralph Wilson, File)

The good news, Lipson said, is that the financial system is not as skewed as it was at the outset of the Great Recession in 2008. The people who took on all this debt are sophisticated businessmen and women, and the loans they are dealing with are more straightforward than the convoluted mortgage products that roiled financial markets a decade ago.

There will still be a lot of pain that theyll have to go through, Lipson said. But it will be a different kind of pain, and the recovery might not take as long because it involves fundamentally sound companies. Their debt may be overpriced, but it can be renegotiated.

More bankruptcy court judges might be needed as the number of cases ramps up, Lipson added,but the system should be able to handle the flow.

At the moment, the system is far from overburdened, experts say. The busiest courts are in Texas, Delaware and the Southern District of New York. That's where the bulk of the oil and gas bankruptcies are taking place and where the really bigChapter 11 filings like retailers J.C. Penney and Nieman Marcus andrental carbehemoth Hertz are taking place.

Other bankruptcy courts are less busy than usual. Thats because personal bankruptcies for January through May are down by 22% compared withlast year, according to the American Bankruptcy Institute.

Edward Altman, the Max L. Heineprofessor emeritus of financeat New York Universitys Stern School of Business, credits federal government stimulus, saying small business loans, stimulus checks and additional unemployment insurance haveallowed people to avoid bankruptcy so far.

Edward Altman, the Max L. Heine professor of finance, emeritus, at New York Universitys Stern School of Business.(Photo: Courtesy)

But these measures are only temporary," Altman said. "At some point, theyll run out and personal bankruptcies will surge.

In the meantime, Altman believes corporate bankruptcy filings will continue to rise, and that 2020 will prove to be one of the busiest years since the Great Recession especially for companies with more than $100 million in total liabilities.

A total of 93 companies with more than $100 million in debthavefiled for Chapter 11 bankruptcy protection through June 22, he said. If that pace continues,196 will file by the end of the year, which will be the second-highest total ever after 2009.

There is some talk of the economy opening and unemployment coming down, Altman said. But Im pretty convinced bankruptcies will continue to go through the roof.

There are plenty more restaurants, department stores, movie theaters, hotels, cruise lines, rental car companies and even airlines that will need protection before the year is out, Altman said, and hesnot the only one that feels that way.

Melissa Kibler, senior managing director in the Chicago office of Mackinac Partners - a turnaround and restructuring firm also believes the U.S. economy is at aturning point andbankruptcy courts will play a major role in determining the way forward.

Melissa Kibler, senior managing director in the Chicago office of Mackinac Partners - a turnaround and restructuring firm.(Photo: Courtesy)

Any time you have a significant disruption like this its going to create winners and losers and systemic change, Kibler said. We have industries that are evolving, and on top of that we have overlaid the COVID pandemic and that has forced a lot of changes.

This isamoment when the weak companies are purged, she said.

Pier 1, for example, had plans to reemerge from bankruptcy after selling off half its stores. But when the pandemic hit, the eclectic home furnishings retailer lost itspotential buyer and now mustliquidate its holdings and go out of business.

A lot of other physical retail storesand restaurants will follow retailers because theyre already struggling againstAmazon and other online sellers and restaurants because there aretoo many of them.

Theyve survived because theres been a lot of stimulus focused on them," Kibler said, "but their longer-term recovery is less certain. People need a vaccine before they'llbe comfortable resumingtheir former dining habits."

Pier 1 had plans to reemerge from bankruptcy in 2020 after selling off half its stores. But when the coronavirus pandemic hit, the eclectic home furnishings retailer lost itspotential buyer and now mustliquidate its holdings and go out of business.(Photo: Pier 1)

Real estate falls smack in the middle, Kibler said. As business moves away from the malls, as shoppers buy more of their groceries online, as more and more companies abandon expensive urban office space, allowing employees to work from home, commercial real estate will have to be repurposed.

Then there's thetravel business airlines, rental cars, hotels, cruise lines.

There will be a lot of turmoil until the travel sector becomes normalized, Kibler said. The question is whether you can last long enough to get to the other side.

As far as the oil and gas industry goes, few are predicting a recovery soon.

Energyproducers got themselves into this mess back in 2010 through 2014 when they borrowedmoney and bidagainst each other to buy up prospective shale reserves around the country suitable for fracking, explainedBeckham, the partner in Haynes and Boone's restructuring practice.

When prices were high, oil and gas companiesmade money and transformedthe United States from a net oil importer to an exporter. But Saudi Arabia didnt like losing market shareand fought back by opening its spigots, creating excess supply and causing oilprices to plummetfrom above $100 a barrel in the summer of 2014 to half that price the following year. Dozens of heavily indebted American companies were forced to file for bankruptcy protection.

Instead of capping their wells and going out of business, U.S. producers adjusted to the new costs, said Buddy Clark, a partner with Haynes and Boones energy transaction group. "Technology rose to the occasion. The industry came up withsignificant cost-cutting innovations and production continuedat $55 a barrel."

Buddy Clark, a partner with Haynes and Boones energy transaction group.(Photo: LeadingShot Photography)

With the onset of the pandemic, however, oil prices plunged again, dipping briefly below $20 a barrel in April, before recovering to just under $40 a barrel in June.

Clark said it costs U.S. producers anywhere from $12 to $35 a barrel to get the oil out of the ground depending on where they are operating. Thats called the lifting cost. On top of that, they havethe cost of servicing their debt. As long as oil prices are higher than the lifting cost, companies have an incentive to keep producing and torenegotiate their debt.

But times are grim. Morgan Stanley, the giant American investment bank,is predicting oil prices will not rise above$40 a barrel for the next two years.

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Even if companies are able to reorganize and emerge from bankruptcy, it will be difficult for them to find investors willing to pump more money into expanding production.

Until investors foresee a rebound in oil demand and increasing commodity prices,"Clark said, "producers will have a hard time attracting any new money in the industry.

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With bankruptcies surging, 2020 may become one of the busiest years for Chapter 11 filings since the Great Recession - USA TODAY

Pacific Gas & Electric has emerged from a contentious bankruptcy saga that began after its long-neglected electrical grid ignited wildfires in California that killed more than 100 people.

The nation's largest utility announced Wednesday it emerged from Chapter 11 bankruptcy and paid $5.4 billion in initial funds and 22.19% of its stock into a trust for victims of wildfires caused by its outdated equipment.

This is an important milestone, but our work is far from over, Bill Smith, PG&E interim chief executive officer, said in a statement. Our emergence from Chapter 11 marks just the beginning of PG&Es next era as a fundamentally improved company and the safe, reliable utility that our customers, communities and California deserve.

A federal judge last month approved a $58 billion plan for the company to emerged from bankruptcy by June 30, the deadline that the company had to meet to qualify for coverage from a $21 billion wildfire insurance fund created by California last year.

U.S. Bankruptcy Judge Dennis Montali's decision cleared the way for PG&E to pay $25.5 billion for losses from devastating fires in 2017 and 2018.

Dozens of lawsuits were settled during the ordeal, with $13.5 billion earmarked for more than 80,000 people who lost family, homes, businesses and other property in the fires.

The company plans to find a new CEO to replace Bill Johnson, who stepped down June 30 after just 14 months on the job. It has overhauled its board of directors, including 11 members who were just recently appointed. PG&E also has committed to slicing up its sprawling territory into regional units to be more responsive to the different needs of the 16 million people who rely on it for power.

Financing the plan requires PG&E to nearly double its debt, saddling the company with a burden its critics fear will make it more difficult to raise the estimated $40 billion for improvements that the utility still needs to make to its electrical grid.

This marks the second time in 16 years that PG&E has navigated a complex bankruptcy case that has raised questions about how it should operate in the future. The last time the company emerged from bankruptcy, in 2004, electricity rates soared and management focused even more on boosting profits instead of upgrading its power supply.

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PG&E Exits Bankruptcy, Pays $5 Billion Into Wildfire Fund - NBC Bay Area

Some companies dont even try to argue that executive pay was cut. At $6.4 million, the cash bonus paid to Whiting Petroleums chief executive, Bradley J. Holly, is larger than the $5.5 million at which the company valued his total compensation for 2019.

Updated June 30, 2020

Common symptoms include fever, a dry cough, fatigue and difficulty breathing or shortness of breath. Some of these symptoms overlap with those of the flu, making detection difficult, but runny noses and stuffy sinuses are less common. The C.D.C. has also added chills, muscle pain, sore throat, headache and a new loss of the sense of taste or smell as symptoms to look out for. Most people fall ill five to seven days after exposure, but symptoms may appear in as few as two days or as many as 14 days.

A commentary published this month on the website of the British Journal of Sports Medicine points out that covering your face during exercise comes with issues of potential breathing restriction and discomfort and requires balancing benefits versus possible adverse events. Masks do alter exercise, says Cedric X. Bryant, the president and chief science officer of the American Council on Exercise, a nonprofit organization that funds exercise research and certifies fitness professionals. In my personal experience, he says, heart rates are higher at the same relative intensity when you wear a mask. Some people also could experience lightheadedness during familiar workouts while masked, says Len Kravitz, a professor of exercise science at the University of New Mexico.

The steroid, dexamethasone, is the first treatment shown to reduce mortality in severely ill patients, according to scientists in Britain. The drug appears to reduce inflammation caused by the immune system, protecting the tissues. In the study, dexamethasone reduced deaths of patients on ventilators by one-third, and deaths of patients on oxygen by one-fifth.

The coronavirus emergency relief package gives many American workers paid leave if they need to take time off because of the virus. It gives qualified workers two weeks of paid sick leave if they are ill, quarantined or seeking diagnosis or preventive care for coronavirus, or if they are caring for sick family members. It gives 12 weeks of paid leave to people caring for children whose schools are closed or whose child care provider is unavailable because of the coronavirus. It is the first time the United States has had widespread federally mandated paid leave, and includes people who dont typically get such benefits, like part-time and gig economy workers. But the measure excludes at least half of private-sector workers, including those at the countrys largest employers, and gives small employers significant leeway to deny leave.

So far, the evidence seems to show it does. A widely cited paper published in April suggests that people are most infectious about two days before the onset of coronavirus symptoms and estimated that 44 percent of new infections were a result of transmission from people who were not yet showing symptoms. Recently, a top expert at the World Health Organization stated that transmission of the coronavirus by people who did not have symptoms was very rare, but she later walked back that statement.

Touching contaminated objects and then infecting ourselves with the germs is not typically how the virus spreads. But it can happen. A number of studies of flu, rhinovirus, coronavirus and other microbes have shown that respiratory illnesses, including the new coronavirus, can spread by touching contaminated surfaces, particularly in places like day care centers, offices and hospitals. But a long chain of events has to happen for the disease to spread that way. The best way to protect yourself from coronavirus whether its surface transmission or close human contact is still social distancing, washing your hands, not touching your face and wearing masks.

A study by European scientists is the first to document a strong statistical link between genetic variations and Covid-19, the illness caused by the coronavirus. Having Type A blood was linked to a 50 percent increase in the likelihood that a patient would need to get oxygen or to go on a ventilator, according to the new study.

The unemployment rate fell to 13.3 percent in May, the Labor Department said on June 5, an unexpected improvement in the nations job market as hiring rebounded faster than economists expected. Economists had forecast the unemployment rate to increase to as much as 20 percent, after it hit 14.7 percent in April, which was the highest since the government began keeping official statistics after World War II. But the unemployment rate dipped instead, with employers adding 2.5 million jobs, after more than 20 million jobs were lost in April.

If air travel is unavoidable, there are some steps you can take to protect yourself. Most important: Wash your hands often, and stop touching your face. If possible, choose a window seat. A study from Emory University found that during flu season, the safest place to sit on a plane is by a window, as people sitting in window seats had less contact with potentially sick people. Disinfect hard surfaces. When you get to your seat and your hands are clean, use disinfecting wipes to clean the hard surfaces at your seat like the head and arm rest, the seatbelt buckle, the remote, screen, seat back pocket and the tray table. If the seat is hard and nonporous or leather or pleather, you can wipe that down, too. (Using wipes on upholstered seats could lead to a wet seat and spreading of germs rather than killing them.)

If youve been exposed to the coronavirus or think you have, and have a fever or symptoms like a cough or difficulty breathing, call a doctor. They should give you advice on whether you should be tested, how to get tested, and how to seek medical treatment without potentially infecting or exposing others.

And of course the bonuses are far higher than what regular employees earn. Ms. Soltaus was many times the $11,482 the retailers median employee, a part-time worker, earned during J.C. Penneys 2019 fiscal year, according to a securities filing.

The cash bonuses have also led to the concealing, loosening and removal of the tools companies normally use to tie pay to performance, which many critics contend were already too weak. Companies still operate when seeking protection under Chapter 11 of the bankruptcy code. And in theory, boards could require chief executives to hit sales targets or achieve other goals.

And in some cases, a few strings remain. Ms. Soltau has to repay a fifth of her cash bonus if she fails to achieve certain performance goals, and Mr. Lawler has to repay half of his. But J.C. Penney and Chesapeake did not disclose the goals in their securities filings and declined to answer questions about them.

Hertz and Whiting, the oil and gas company, did not tie cash bonuses to performance goals at all. Whiting and Mr. Holly didnt respond to requests from comment, but the company said in a securities filing that the new bonuses eliminate any potential misalignment of interests that would likely arise if existing performance metrics were retained and/or new performance metrics were established at a volatile and uncertain time.

This is not the first time that executive pay at troubled companies has prompted an outcry. Congress passed a law in 2005 aimed at curbing retention bonuses paid during bankruptcy. Under the law, companies are allowed to pay incentive-based bonuses, but the legal cost of constructing such payments and getting them approved in bankruptcy court soared after 2005, according to research by Jared Ellias, a professor at the University of Californias Hastings College of the Law.

Of course, Congress could change bankruptcy law so that compensation payments made before the filing could be clawed back, Mr. Ellias said. In addition, lawmakers could make it easier for creditors to pursue claims against executives after the bankruptcy.

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These Companies Gave Their C.E.O.s Millions, Just Before Bankruptcy - The New York Times

Deluxe Express Inc. of Plainfield, Illinois, filed for Chapter 11 bankruptcy protection on Wednesday, citing soaring insurance rates after one of its drivers was involved in a fatal crash on Interstate 80 near Laramie, Wyoming, in March 2019.

The trucking company has 13 power units and lists 13 drivers, according to FMCSA records.

Deluxe Express and another motor carrier have been named in a wrongful death lawsuit filed by the family of a man killed in the deadly pileup involving three trucking companies.

In its filing with the U.S. Bankruptcy Court for the Northern District of Illinois, Deluxe Express lists its assets and liabilities as being between $1 million and $10 million. It lists up to 49 creditors in its bankruptcy filing.

Igoris Geguzinskas, president of Deluxe Express, said skyrocketing insurance costs made it impossible for his small trucking company to continue in the wake of the March 9, 2019, pileup.

Insurance got so high we couldnt make it, Geguzinskas told FreightWaves. Yes, our driver was one of the trucks involved in the pileup, but the crash had already happened and our driver couldnt stop.

Geguzinskas said the Wyoming Highway Patrols investigation into the crash lasted for nearly eight months, but he said no charges were filed against his driver, Tadeusz Potkaj.

The Wyoming Highway Patrol (WHP) did not respond to FreightWaves request for comment.

The Federal Motor Carrier Safety Administration (FMCSA) revoked Deluxe Express operating authority in August 2019.

Prior to its shutdown, Deluxe Express trucks had been inspected 42 times and 12 trucks were placed out of service in a 24-month period, resulting in a nearly 39% out-of-service rate. This is higher than the industrys national average of around 21%, according to FMCSA data.

Its drivers were inspected 114 times and 13 were placed out of service for an 11.4% out-of-service rate in the same two-year period. The national average out-of-service rate is around 5.5%. Deluxes trucks were involved in one fatal and one injury crash over the same 24-month period.

The widow of a man killed in the 2019 four-vehicle collision on I-80 east of Laramie filed a wrongful death lawsuit in February 2020 against Deluxe Express and its driver, Potkaj, 64, of Romeoville, Illinois.

Also named in the lawsuit was truck driver, Noslen O. Castillo, 38, of Florida, who drove for All America Carriers LLC of Miami Lakes, Florida. That carriers operating authority was revoked by the FMCSA in July 2019.

According to the WHP, three tractor-trailers and a 2018 Hyundai Kona were involved in the fatal pileup at around 9:23 a.m. on March 9.

The first Freightliner tractor-trailer driven by Talwinder Singh, 34, of Sacramento, California, who drove for Opportunity Truck Lines, was westbound on I-80 and was stopped in the roadway due to other traffic stopping ahead, according to the WHP report.

The Hyundai, driven by Brook N. Williams, 48, and his wife, Melanie Williams, 47, of Salt Lake City, was also stopped when a second Freightliner tractor-trailer, driven by Castillo, rear-ended the vehicle, pushing the Williams vehicle into the rear of Singhs rig.

Shortly after the initial collision, a third Freightliner tractor-trailer, driven by Potkaj, struck the back of the rig driven by Castillo.

All of the drivers and passengers were wearing their seat belts at the time of the crash.

Brook Williams died at the crash scene, while Melanie Williams was transported to a nearby hospital for treatment.

None of the truck drivers were injured in the crash.

According to the WHP report, road conditions were slick with black ice and blowing snow and there was little to no visibility at the time of the crash.

Following the crash, state officials closed I-80 from Rawlins to Cheyenne for several hours because of weather conditions.

The suit alleges that both carriers and their drivers were negligent because Castillo and Potkaj were not properly trained on how to operate their tractor-trailers on public roadways under inclement winter driving conditions.

The lawsuit also claims that since both Castillo and Potkaj were company drivers, their carriers, All America and Deluxe Express, are vicariously liable for the drivers actions.

Court documents allege that All America driver Castillo violated federal hours-of-service regulations by falsifying his record of duty status based on false logs made on March 5 and March 7.

A status hearing is scheduled for Monday in the U.S. District Court for the District of Wyoming. Williams widow is seeking a jury trial.

Read more articles by FreightWaves Clarissa Hawes

See related articles:Legal woes force Illinois carrier to file for bankruptcy protectionTrailer sales and leasing company files for bankruptcy protectionLegal woes force Florida carrier to file for bankruptcy protection

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Carrier ties bankruptcy to soaring insurance rates, fatal crash - FreightWaves

When Apple launched a new slate of services last year, including News+, TV+, and Arcade, the one that generated the most excitement was Apple Card, the companys first self-branded credit card offering. Developed in partnership with investment bank Goldman Sachs, Apple Card promised users a reinvented credit card experience, eliminating fees, simplifying payments, and delivering Daily Cash perks. But for some people, applying for the Apple Card has been an endless exercise in frustration.

While Apple made the application process as simple as possible open the iPhones Wallet app, tap two buttons, and provide a very modest amount of personal information Goldman implemented an algorithm that either accepts or rejects applicants within seconds. If your application is successful, youre offered personalized credit terms such as those shown above. If not, you receive an instant rejection letter without an equally fast route to appeal. Due largely to that algorithm, which forsakes human decision-making in the name of efficiency, Apple and Goldman were accused of gender discrimination in the Apple Card approval process last year and have racked upnumerous complaintsand questions regarding the systems transparency.

This week, the companies quietly launched Path to Apple Card, a program that will let some previously rejected customers demonstrate their commitment to earning the famously fragile titanium charge plate. The pair has also provided more clarity on their approval process through an updated How your Apple Card application is evaluated support document and Financial Health page. But since they continue to issue rejection letters that may confuse customers and are still using that mysterious algorithm to determine Apple Card worthiness I contacted the companies to clarify what was going on with their system. Heres what I learned.

As Goldman managing director Andrew Williams made clear, the companies acceptance/rejection algorithm is a pretty simple decision tree, not AI. This means its built to use basic financial metrics to reach a yes or no decision. The key input is a TransUnion credit report, notably evaluated using the FICO Score 9 (aka FICO9) rating system, though the specifics of that evaluation arent completely transparent. It also considers your reported annual income to determine how much cash you will likely have left after paying your monthly debt obligations.

Williams emphasized that the Apple Card has been available for less than a year and that the companies are still working to evolve their credit policy and add additional customers. In other words, an applicant rejected last August might be accepted in the future without personally making any changes. But my impression is that the simple decision tree wont change much unless the companies decide to open their gates wider. The Path to Apple Card is there to help more people meet Goldmans prior creditworthiness standard, rather than to ease that standard.

Goldmans algorithm appears to rely considerably on your FICO score, which was developed by the Fair Isaac Corporation in 1989 to objectively rate customer creditworthiness. Despite lingering questions about the accuracy of FICO scores and the extent to which they should be relied upon, theyre widely used by credit issuers for approval and rejection decisions. In 2006, the three major credit reporting agencies (Equifax, Experian, and TransUnion) created a FICO alternative called VantageScore, which now uses the same 300 to 850 point scale as FICO but tends to be more generous in calculating ratings. According to the companies, a FICO score of at least 670 or VantageScore of 700 typically signifies good credit.

Consumers seeking Apple Cards have to surmount multiple hurdles, but a big one is understanding the difference between these scores, and that there are actually more than two of them. FICO8 is currently the most widely used version of Fair Isaacs popular system, but Goldman uses the newer not newest FICO9. If you use a credit monitoring app such as Credit Karma to track your credit ratings, you may find the numbers come from VantageScore 3.0, and theres a newer version of that, too, called VantageScore 4.0. Four companies pulling the same TransUnion report could see four different scores based solely on differences between the scoring systems and versions.

This leads to perplexing scenarios in which the same TransUnion report viewed by Goldmans FICO9-dependent algorithm looks numerically worse than what the consumer sees with VantageScore 3.0. Apples current Financial Health page says FICO9 scores over 660 are considered favorable for credit approval, yet its possible that a customer with a TransUnion score of 716 will be rejected and receive an email from Apple saying Goldmans decision was made based on a score of 682. None of that seems right. And its possible to be rejected even if your FICO9 score is higher than that.

Either for regulatory or business reasons, Goldman couldnt provide clear-cut answers as to how the pretty simple decision tree was structured. Armed with numerous MyFICO forum reports, including Apple Card acceptance with a 620 FICO9 score and rejection with scores higher than Apples stated 660 threshold, I found that bankruptcy regardless of whether its explicitly named as Goldmans cause of rejection appears to place a heavy finger on the scale.

The President of the United States has had at leastsix business bankruptcies, and as the COVID-19 pandemic amply demonstrated, circumstances outside of individual control an unexpected medical condition or a macroeconomic crisis can force even an otherwise thriving business or individual into bankruptcy. To the extent that bankruptcy was once stigmatized, national meltdowns and all-too-frequent personal tragedies have largely eroded that stigma. Moreover, it wasnt that long ago that Goldman Sachs itself took a $10 billion bailout from U.S. taxpayers to resolve its own financial crisis, an ask considerably larger than even the most serious personal bankruptcy filing.

But Goldmans Apple Card algorithm appears to instantly reject an applicant with a past bankruptcy filing, regardless of their other indicators of creditworthiness. Apples Financial Health page says Goldman considers multiple conditions before an Apple Card decision is made, with negative public records only one of those factors, which sounds reasonable on the surface. But the companies werent as transparent about the role a past bankruptcy will play in nixing an Apple Card application until I pointed out that rejection letters were dancing around the issue.

Williams and Goldman digital consumer banking VP Gretchen Silver confirmed to me that a recent bankruptcy was enough to prevent a successful Apple Card application on its own. By Goldmans standard, recent is apparently three years, regardless of any extenuating circumstances. This is notably a full year longer than the federal Fannie Mae standard for offering post-bankruptcy home loansand stricter than some popular consumer credit card companies.

When I asked whether the Apple Cards three-year bankruptcy rule was firm, Goldmans representatives initially said that applicants rejected due to bankruptcy could keep trying to apply and that each time the totality of the application would be considered. Pressed on whether consumers would keep being rejected until the three years had passed, however, they conceded that this could happen unless the current credit policy evolves in the interim.

Online discussion forums now have plenty of data points on the terms of Apple Card acceptance offers, as well as countless examples of rejection letters that confound recipients. Given that Apple exalts simplicity, theres something wrong when even credit card mavens cant understand Apple Card rejections, so the algorithms method for explaining its reasoning might also need some fine-tuning.

I asked Goldmans representatives about apparent inconsistencies and inaccuracies in Apple Card rejection letters. In some cases, a rejection letter may not explicitly identify bankruptcy as the critical issue, preventing rejected applicants from moving on with the knowledge that they wont be accepted anytime soon. Alternately, a rejection letter might list three reasons for rejection based on the same underlying situation contradicting an otherwise stellar payment history report from Credit Karma, including a multi-year history of 100% on-time debt payments.

Silver suggested that there may be disconnects between what people see summarized by third-party credit monitoring services and the more granular data Goldmans system uses to make decisions. As such, a single bankruptcy filing might inaccurately show up twice on the list of rejection reasons and trigger the listing of a third reason that might not be correct. Contacting TransUnion could help applicants resolve some problems, but others are clearly attributable to disclosure issues with Goldmans automated rejection system.

As I mentioned to Goldman, the underlying problem is over-reliance on a completely automated system for credit decision-making and applicant rejection communications in the name of efficiency. Customers would benefit from having humans involved in the final rejection decision, as well as appeals and error corrections. A human might parse multiple related or identical items on a credit report differently from a computer, take important factors such as past Goldman or Apple customer relationships into account, or fix a rejection letter to avoid confusing or contradictory information. My sense is that this wont happen anytime soon.

The new Path to Apple Card program is designed to increase the cards customer base, but Apple and Goldman arent publicly advertising the program its open by invitation only. Assuming you get the initial invitation and then successfully complete the program, youre promised an invitation to reapply for the Apple Card.

Path to Apple Card apparently requires up to four months of personalized steps and monthly credit reviews. Depending on how the Path is customized for your circumstances, you may be required to make payments on time, lower your debt, and/or resolve past due balances, with the threat of immediate program termination in the event of a new bankruptcy, foreclosure, repossession of secured property such as a vehicle, or an account going to collections or getting charged off. While none of this is hugely onerous, its a lot of hoops to jump through for an Apple Card.

Another caveat: It appears you wont be offered the Path to Apple Card if your personal situation, such as a 2.5-year-old bankruptcy, wouldnt yield a successful application within the Paths four-month timeframe. Until and unless something changes with Goldmans and Apples credit policy, the Path will remain somewhat obscure and narrow.

On the one hand, thats unfortunate, as its clear Apple and Goldman have come up with a credit card offering that appeals to a lot of people and has some tangible benefits, particularly for frequent Apple Store customers. Thankfully for those who havent been accepted, there are hundreds of other credit cards out there, many of which would accept an applicant with a small or moderate credit limit rather than turning them away or putting them through a gauntlet of advance obligations. Apple Card membership may have its privileges, but if youve been turned down by Apple, youll still find similar if not better alternatives from other companies.

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Goldman explains Apple Card algorithmic rejections, including bankruptcies - VentureBeat

New London Attorney Gregg W. Wagman has been spending a good portion of his workdays on the phone, helping clients navigate remote bankruptcy proceedings in U.S. District Court in Hartford.

The conference calls necessitated by the coronavirus pandemic have made his work easier, sinceWagman usually travels to Hartford two or three days a week and spends hours in court while hearings are conducted.

As one of the few local attorneys who handle bankruptcy cases, Wagman said he expects to hear from more financially troubled clients due to the rising unemployment rate and continued shutdowns.

"There's all the people who were living without their six months to a year of expenses in the bank," he said by phone this past week. "It's not unprecedented, but it's been 100 years since we had something like this to affect the nation all at once."

In Connecticut, 2,041 people or entities filed for bankruptcy in May, a 23% decrease from May 2019, according to the American Bankruptcy Institute. But the unemployment rate was 9.3% during the same month, compared to 3.6% in May 2019.

Bankruptcy claims tend toinvolve people who have recently gone through divorce, lost their jobs or fallen behind on medical bills, Wagman said. Clients tend to come in a couple of years after getting into financial trouble andtrying to pay off bills through a debt management plan or loan.

"I would just say to people, make sure you know it's an option, and don't be afraid," Wagman said. "It's a powerful tool to help straighten a lot of this out. The biggest thing I can tell you is, don't take money out of your 401(k) or IRA until you talk to a bankruptcy lawyer. It may not be an option for you, but it's available."

Most people go through bankruptcy without losing their house or car and are considered better credit risks to lenders after emerging from bankruptcy.

"The basic idea is that you owe more than you're paying," Wagman said. "The creditors come in and take your money and split it up. Otherwise, they come in, put liens on your house and garnish your paycheck."

Homeowners are allowed to keep $25,000 to $75,000 of equity in their home, an amount than can double if they are married. The two important dates in a bankruptcy are the date of filing and the date of discharge, or the date the court says that debts have been discharged.

There are several different types of bankruptcy, including Chapter 7, a personal bankruptcy option that takes just four months; Chapter 13, which is a three- to five-year restructuring process for individuals or small businesses; and Chapter 11, which is a renegotiation or liquidation of debt.

People think of it as a moral failure, but Wagman said debt forgiveness is rooted in the Holy Bible, where the Book of Deuteronomy calls for release of debts every seven years, and in theU.S. Constitution, which authorizes Congress to enact uniform bankruptcy laws throughout the nation.

"Most of my clients are good, honest debtors who just got into a pickle," he said.

The Day spoke with two of Wagman's clients, both of whom asked that their names not be used because they didn't want their family members or employment to be affected by it.

A Norwich man in his 40s said that after going through a divorce, he made some financial mistakes and incurred approximately $80,000 in debt. He tried debt consolidation loans, but when he realized he couldn't swing the payments, he looked for an attorney.

"I was just doing what everyone does, that kind of rob-Peter-to-pay-Paul kind of thing," he said. "I was taking one credit card out to pay the other."

Wagman helped him file for Chapter 7 bankruptcy, and while he felt ashamed, he was amazed at how "by the book" and routine the process was for those involved. He was required to take a financial management course online, which he said was helpful. As soon as he received the discharge letter from the court, hewas able to find a bank that was willing to give him a car loan. He had been making high payments on a car that was worth less than the amount he owed.

He resolved the $80,000 worth of debt for about $3,000, which included lawyer's fees and filing charges. His credit score had fallen, but climbed back up to 670, which is considered average.

"I don't know if it's cliche or not, but they say it's a fresh start," the man said.

The other client also found himself in financial trouble following a divorce and retained Wagman to help him reorganize his finances and pay off debt through a five-year Chapter 13 bankruptcy filing.

The 56-year-old said he made a good salary working in information technology but found himself owing back payments on his mortgage and a lot of credit card debt associated with the marriage. He had children and dogs at home, or would have considered walking away from his property. He didn't like admitting that his life had gotten out of control, but he was able to make court-ordered payments of $1,500 a month to clear his debt.

"I felt good about that, and it also forced me to truly budget my money and look at what was coming in and going out," he said.

Now, he said he has ahealthy savings account andoperates on the "cash and carry plan."

"If I can't buy it right now (with cash), I can't have it right now," he said.

k.florin@theday.com

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