By Sara Randazzo and Damian Paletta
One of the nation's largest Social Security disability firms is
preparing for a possible Chapter 11 bankruptcy filing as soon as
this coming week, people familiar with the matter said, as it faces
roughly $40 million of debt and shrinking demand for its services
amid tightening government scrutiny of claims.
Binder & Binder, founded by brothers Harry and Charles
Binder, is working with law firm Lowenstein Sandler LLP and
turnaround firm Development Specialists Inc. to prepare the Chapter
11 filing, one of the people said. The firm, which is dependent
upon government-paid fees earned from shepherding Social Security
disability claimants through the system, owes about $23 million to
lenders U.S. Bank and Capital One Bank, one of the people familiar
with the matter said. The firm owes about another $16 million in
unsecured debt to Stellus Capital Management, that person said.
Stellus is a spinoff of investment firm D.E. Shaw & Co.
Binder executives couldn't be reached for comment Friday. U.S.
Bank declined to comment, while representatives for Capital One,
Stellus and Binder's private-equity backer, H.I.G. Capital, didn't
respond to requests for comment.
Chapter 11 protection from creditors would be used to help
Binder restructure debt and close some far-flung offices, the
people familiar with the matter said. The filing isn't expected to
affect the majority of the firm's nearly 1,000 employees, many of
whom aren't lawyers, or its 57,000 active cases, the people
said.
Binder rose in prominence over the past several years as a
combination of an aging workforce, high unemployment and lax
oversight fueled the rapid growth of the Social Security Disability
Insurance program.
The Wall Street Journal reported in 2011 that Binder &
Binder had been reprimanded by the Social Security Administration
for backdating documents. It also reported that ex-employees said
staffers routinely withheld from government submissions medical
records that they believed to be potentially damaging to client
claims.
Of the large-scale disability firms, none grew larger than
Binder & Binder, whose television advertisements feature a
cowboy-hat-wearing Charles Binder promising to ease viewers'
worries by dealing with the government on their behalf.
In 2010, the firm collected $88 million in fees for its work
with disability claimants, according to government data reviewed by
The Wall Street Journal in 2011, making it the nation's largest
Social Security disability advocate that year, by far. More recent
data wasn't immediately available Friday.
Now, Binder and other disability firms face financial strains,
hampered by a shrinking number of people seeking benefits and
tougher scrutiny from Social Security judges who decide cases,
industry and government officials said. A number of the judges who
paid high amounts of benefits in recent years have either been
placed on leave or left the agency, data show. The agency has also
tightened its controls.
With locations in 15 states and the District of Columbia, Binder
is struggling to break even and may be losing money, one of the
people familiar with its pending Chapter 11 filing said. Former
employees said the company relies on a large quantity of new cases
to generate revenue.
The Social Security Administration paid out $1.06 billion in
benefits to firms representing disability clients in the first 11
months of 2014, down from $1.32 billion in the first 11 months of
2010. The approval rates from judges has also fallen sharply, and
the number of people seeking Social Security Disability Insurance
benefits fell to 2.6 million in 2013 from 2.9 million in 2010.
Professionals who represent people seeking disability benefits
are paid fees for clients who receive benefits, with the government
deducting the legal fee from the amount it awards in back pay.
The industry's economic pressures come at a crucial time for the
Social Security disability program. The program's trust fund, which
is financed mostly by payroll taxes, is expected to exhaust its
reserves in 2016, meaning beneficiaries will face a cut in monthly
payments if Congress doesn't act. In 2013, Social Security paid
$140 billion in benefits to more than 10 million disabled workers,
spouses or children.
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