Archive for May, 2012


Hostess Brands Inc, the infamous producer of iconic Twinkie and Ho Hos dessert cakes, is currently in talks with potential buyers and the company’s labor union in an effort to avoid liquidation as a result of bankruptcy.

According to Reuters, a source familiar with the ongoing negotiations said the outcome of talks was far from definitive at this point. Any deal to sell the company would revolve around Hostess’ ability to successfully resolve labor issues with the union.

Industry analysts say that private equity firms will likely be the best suitors to buy the famous company.

Other food industry companies such as Mexico’s Grupo Bimbo and Flower Foods, Inc are said to be possible bidders as well, according to Reuters.

Hostess filed for bankruptcy in January with $860 million in debt.

The iconic American dessert brand was founded in 1930 and originally stuffed Twinkies with a banana cream filling. Bananas were rationed during World War II, which forced Hostess to switch their ingredients to the famous vanilla filling.

According to The Huffington Post, close to 20,000 employees were served with WARN (Worker Adjustment and Retraining Notification) notices last month.

The notices were mailed in accordance with a federal law that requires companies to give employees 60 days notice before closing a facility or ordering mass layoffs.

Hostess has stated that layoffs are not definite and hope to emerge from bankruptcy as a growing company, according to Reuters.

Companies Turning To Bankruptcy When Burdens Are Too Heavy To Handle

Many companies have been turning to bankruptcy in order to eliminate debt and restructure their foundation of doing business in order to turn profits.

Companies such as American Airline’s parent company AMR, Kodak Film and the Tribune Co have all filed for bankruptcy recently in an attempt to either save their respective companies or get out of mounting debt.

Although many people think bankruptcy is the end, it is often the start of a new and prosperous life of being debt free.

As evidence, the American automobile industry was on the skids a few years ago. Citing heavy competition from overseas manufacturers and rising debt, American car brands such as General Motors, Chrysler and Ford Motor Group all filed for bankruptcy.

Since the filings, the American auto industry has bounced back in a big way. Ford recorded profits unseen in decades and other car companies have seen their profits rise as well.

Experts warn that bankruptcy isn’t for everyone or every company for that matter and should be considered on a case by case basis. However, if deemed necessary and a good option for you or your business, experts say that bankruptcy can offer second chances to people and companies that so desperately need them.


Experts have said that in order to secure a wealthy lifestyle in retirement you must invest in stocks, bonds, and other increasingly unconventional investments.

However, a new study has shed light on the subject and discovered holes in that logic.

The Center for Research at Boston College concluded that the traditional and newly unconventional trends in retirement investing throughout the investing industry have become obsolete because of one detail they had previously not considered; the amount investor has.

The study goes on to show that there are three, much more important factors that subsequently don’t require a brokerage account.

How long you work, controlling spending, and leveraging the value of your home are all one investor needs to maximize the possibility of wealth in retirement and achieve the illustrious lifestyle that most of us crave, according to the Wall Street Journal.

For more and more seniors, the lifestyle they thought they were going to have, now may not be possible because of credit card debt, outstanding medical bills, and just living beyond their means and many are forced to file bankruptcy .

The Numbers Don’t Lie

According to the research done at Boston College, 74% of households would fall short of their income needs by age 62, and 47% of households would fall short at age 67 when individuals make no changes to their savings and investment strategies and can The study also takes in to account when the individuals become eligible for social security benefits.

Next, the research asked the question; what would happen if investors were able to invest all of their portfolio in no-risk stocks, which earned 6.5% a year after inflation?

The study showed that even after this consistent and risk less investment strategy, 44% would still fall short of their retirement income goals by age 67.

Experts warn that no stocks are completely risk free and that most investors prepare for retirement with a mix portfolio of stocks and bonds.

The study also showed that few investors have the volume of wealth in order to turn a significant return on their retirement savings. The way the system is set up at the moment doesn’t maximize the investor’s portfolio returns.

The Right Way?

Empty nesters, or parents who have grown children that have moved out of the house, have a tendency to spend more after their children leave or after their mortgage is paid off in full.

The study shows that if they were to cut spending by a measly 5% meant that 40% would fall short of their income goal in retirement instead of the 46% that would if they continued their spending habits.

Also, experts say that working longer allows for more time to save, shortens the time savings are needed in life, and enables to retiree to claim more social security when needed.

Lastly, the research showed that tapping your home’s equity is a viable way to prepare for retirement. But foreclosure in recent years took a significant hit on the value of most homes.

Houses are generally a person’s biggest asset but with the help of a reverse mortgage, the people falling short on retirement income at age 67 dropped to 36%.

There are many ways in which you can maximize your lifestyle after retirement. Many experts say that finding the right one and continually staying diligent about monitoring those instruments is vital to prosperity after retirement.

The total amount of consumer credit circulating in the United States rose by more than $21 billion last month, raising concerns that more people will begin filing for bankruptcy, according to a recent report from the Wall Street Journal.

The expansion of consumer credit represented the largest such surge since 2001 and was primarily caused by a rise in credit card use and an increase in student loan debt.

All told, total consumer credit in the country stands at $2.542 trillion, according to data compiled by the Federal Reserve.

Consumer Credit Sees Significant Spike

According to the Wall Street Journal, consumer credit reached lofty heights recently:

  • Outpacing expectations. While economists predicted that consumer credit would increase by roughly $8.5 billion, consumers far surpassed expectations by adding $21.36 billion in new consumer debt to the American economy. This was the largest surge in consumer debt since November 2001.
  • Easier credit. The sudden rise in consumer debt was not just a product of chance. Sources say that commercial banks have shown a heightened willingness to lend to consumers, especially in the first few months of 2012. As the banks continue to loosen their belts, consumers will likely begin accruing more credit.
  • Impact of student loans. Sources attribute a significant portion of the increased debt to the recent shift in student loan borrowing. In recent months, more students have taken loans directly from the federal government, and the amount of federal student credit floating around the country rose to $460.2 billion last month, which was a $7 billion jump over the previous month’s figures.

The proliferation of student loans has made many economists nervous, despite the fact that these loans have given many low-income people access to higher education that they otherwise would not have had.

Tuition growth has far outpaced inflation in the past few decades, and many experts believe that a dangerous student loan bubble has formed.

In the short term, however, supporters of federal student loan programs believe that increased access to education is good for all Americans, regardless of the high levels of debt it entails.

Consumer Debt and Bankruptcy

With so much debt circulating in the United States, it is inevitable that many consumers will dig themselves into overwhelming trenches of debt.

Fortunately, U.S. bankruptcy laws provide an outlet for struggling consumers to relieve some or all of their debts, depending on their unique circumstances.

And as consumer debt passes the $2.5 trillion mark, personal bankruptcy may prove to be a crucial tool for protecting vulnerable American consumers.


Ally Financial Inc’s mortgage unit, named Residential Capital (ResCap for short), filed for bankruptcy on Monday, according to Reuters.

Ally Financial is the former lending organization for General Motors Co and was formerly known as GMAC. The auto-lender’s mortgage unit was once a large profiteer in the subprime lending field before the housing market took a nosedive in 2008.

Since then, the company has been plagued with losses due to the housing market’s slow recovery.

The bankruptcy filing was reportedly favored by some of ResCap’s creditors, according to Reuters.

Although the process will inevitably be a long and drawn out process, Ally Financial’s filing is hope to be a catalyst to paying back $12 billion in bailout money.

During the financial crisis, the US Treasury Department funneled more than $17 billion to the lender and subsequently now owns around 74 percent of the company.

Ally is the fifth-largest mortgage servicer in the United States.

The company also plans to sell some of its international operations to fund the repayment of bailout money. The overseas operations have about $30 billion in assets overall.

During the 2012 election year, the Obama administration is eager to report recoveries from the bailout-era that Obama had led to kick start the economy in a time when many had little faith in the US economy. Ally will be closely observed in this bankruptcy process in order for the company to not become the blemish on the 2012 campaign trail that Obama administration has been trying to avoid.

According to Reuters, ResCap and its advisors believe that this is the first time a financial services company with retail operations not unlike a bank has filed for bankruptcy and has been able to continue operating.

Ally Financial CEO Michael Carpenter stated that he believes ResCap will have paid back two-thirds of the bailout money after the processes have been completed or near-completed. He also stated that he expects ResCap to emerge from bankruptcy within the year, according to Reuters.

Why Bankruptcy? Why Now?

Ally Financial has been reportedly mulling bankruptcy since 2009. The filing in court on Monday signaled that the company is finally ready to start paying back the taxpayers that had lent the company billions of dollars by way of the US Treasury Department.

The bankruptcy option, which has become a popular option for many companies ranging from all different sizes, has been a light at the end of the tunnel for many institutions.

With the filling, ResCap is able to restructure its business and restore its creditor’s investments in the company.

Although bankruptcy is seen by many as an unfortunate situation, it can also be a tool to start anew and prosper in future years as company or as an individual. Whether it’s Chapter 7, Chapter 11 or Chapter 13, you as an individual (or a business in this case) must choose the right path to future financial prowess and in doing so, researching the facts is the most important step you can do.


At a recent campaign trail stop to the University of Colorado, President Barack Obama stated that college is the best investment you can make.

Many Americans believe that statement to be true, even in an economy where recent college grads have a tough time finding sustainable careers and job prospects become something of a tough find.

However, there are factors in which determining what a college degree will mean to you or your family whether you are deciding on where to go and what to do after high school or planning on returning to college to obtain a degree.

According to The Wall Street Journal, students and families lack sufficient data to determine the long-term viability and profitability of a college degree over a life span.

Not knowing what college will cost you or how it will benefit you in the span of your lifetime can have dire consequences in the form of student debt if you do decide to pursue a degree in higher education.

There are distinct advantages to those who obtain a college degree. According to the U.S. Bureau of Labor Statistics, college brought a higher weekly pay of $1,053 versus the $638 weekly amount to those who only obtained a high school diploma in 2011.

Also, last year’s unemployment rate for college graduates was 4.9% as opposed to the 9.4% unemployment rate for high school graduates without a college degree.

The non-for-profit organization The College Board, calculated that a typical student who enters a four-year college at age 18 and borrows for the entirety of his collegiate career, earns enough by age 33 to make up for his college costs.

Although this may look enticing to high school juniors and seniors applying for college, the data assumes that every student goes to a public college and also doesn’t account for dropouts and extra years needed to obtain degrees.

The schools with the best returns on investment often focus on majors concerning engineering, computer science, economics, and natural-science programs.

Colleges with the worst return on investment tend to focus on nursing, criminal justice, education, and sociology.

The Nuts And Bolts of College Finances

Recently, outstanding student loans surpassed credit card debt as the nation’s largest debt problem amongst Americans.

A staggering issue compounded by the fact that, unlike credit card debt, student loan debt is not typically forgiving through filing for Chapter 7 or Chapter 13 bankruptcy.

In an economy where many parents and students alike have faced tough financial situations such as bankruptcy and foreclosure, student loan borrow is on the rise. Applications for federal assistance has rose 59 percent since 2006, according to The Wall Street Journal.

Many schools that offer financial aid have funds set aside for the appeal processes that arise from financial aid cases being awarded. Many students find themselves “under covered” and perform appeals on the amount they get awarded.

Experts point to the appeal process as a viable way to potentially increase your financial aid coverage, just as long as circumstances call for it (i.e. your parent’s business recently filed for bankruptcy or you lost your home to foreclosure). The more information the college has on the finances of the student and their family, the better knowledge they have to make the best possible offer.

As difficult as it sounds to obtain a desirable amount of financial aid to assist you in your collegiate career, many believe it is worth the hassle. Ask yourself, is college right for me? Do your homework on financial aid and you’ll be better prepared to take college by the horns and make a lifelong investment that will payoff big in the end.


Nadya Suleman, more famously known as “Octomom”, has filed for Chapter 7 bankruptcy, according to ABC News.

Suleman became famous after giving birth to octuplets who were the result of an assisted reproductive technology procedure. She is a mother of a total of 14 children.

Suleman claims she owes creditors between $500,000 to $1 million. According to court documents she has less than $50,000 in assets.

Octomom’s most recent public payday was a highly publicized semi-nude feature for U.K magazine Closer in which she was reportedly compensated $10,000.

Creditors of Suleman’s include Verizon Wireless, Kaiser Permante, DirectTV, Sylvan Learning Center and the owner of her home that was recently the subject of news stories due to the poor living conditions the children were reportedly to be living in. According to CBS News, Octomom owes more than $30,000 to the owner of the four-bedroom home that she currently is renting in California.

Earlier this month Suleman reportedly received death threats after announcing that she had gone on state assisted food stamps in California, according to Reuters.

In an attempt to earn income to potentially pay off creditors, Suleman has recently announced that she will be performing in a pornography video. The amount she is to be compensated is over $10,000, according to Reuters. In recent years, pornography company Vivid Entertainment offered Octomom $1 million to star in an adult film.

Celeb Bankruptcy, A Cautionary Tale

Octomom joins the ranks of Allen Iverson, Dennis Rodman, Warren Sapp, Michael Vick, Gary Busey and many other celebrities that have filed for bankruptcy in the past year.

With Allen Iverson blowing $154 million in NBA earnings, it’s hard for the American public to fathom how these abundantly rich individuals go broke. The fact is, the economic situation the United States finds itself in is not just affecting the middle to lower class. Celebrities are not immune to bad business deals or foreclosures, just like the rest of us.

As hard as it is to feel bad for a celebrity who blows $154 million (that’s just his NBA salary throughout his career, lucrative endorsement deals and other business ventures are not included in that figure), we have to be cognizant of the fact that we’re all human beings and we all make mistakes. Bankruptcy is still bankruptcy, no matter what your previous life entailed.

It may seem like celebrities have it easy when it comes to filing for bankruptcy, and sometimes it is easier for celebrities to get themselves out of debt, but we must remember that everything is not what it seems. Celebrities face the same struggles as the American public does when it comes to debt and we can use these celebrity stories as important educational tools in which we can learn from.

Many Americans may not be able to land that role in a new reality television series or get signed to a professional sports contract after filing for bankruptcy, but Americans can take steps to enable a better future after bankruptcy.

Today’s younger generations have a shockingly low level of financial literacy, and the trend has been growing worse over the past few years, according to a recent report in USA Today.

Sources say that the average person in his or her 20s has a total debt of $45,000, which includes common debts like credit card debt, student loans, and home mortgages.

With such remarkably high levels of debt, it’s little wonder that hundreds of thousands of young Americans choose to file for bankruptcy every year.

Low Levels of Financial Literacy Lead to Rising Debts

The financial picture for young Americans is pretty bleak, and sources suggest that this is a direct result of low financial literacy:

  • Financial literacy in high schools. According to the Treasury Department and the Department of Education, which teamed up to survey financial literacy in U.S. high schools, the future does not look bright. The average score on a financial literacy test administered last year was a 69 percent, which would barely qualify as a passing grade in most classes.
  • Education gap. Such low levels of financial literacy are no surprise, given the total lack of attention personal finance is given in American high schools. Fewer than half of all states require high school students to take an economics class, and fewer than 20 percent of states make their students take a personal finance class, according to a study from the Council for Economic Education.
  • Link between education and lower debt. Not surprisingly, the 13 states that do require their students to take a personal finance have much higher rates of financial literacy. And students who took these courses were much more likely to avoid credit card debt, according to sources.

Youth See Bleak Financial Picture

In addition to the low levels of financial literacy, a bleak economic outlook has also crippled younger Americans’ ability to secure jobs.

The unemployment rate among youth is higher than 12 percent, which is significantly higher than the unemployment rate for most Americans, which is currently hovering around 8 percent.

And this comes at a time when younger Americans desperately need income to pay their debt. The average student in the class of 2010 owes roughly $25,000 in student loan payments, according to The Project on Student Debt.

Moreover, the average person between the ages of 20 and 29 owes almost $2,000 in credit card debt. Many experts claim that poor financial literacy is directly linked to these disturbing levels of debt.


According to Reuters and the New York Times, elite international law firm Dewey & LeBoeuf have hired a prominent bankruptcy attorney and are mulling Chapter 11 bankruptcy and other options in order to repay their debt.

The firm’s struggles have been attributed to nearly 70 of their 300 partners, about 23%, leaving the firm.

According to American Lawyer Magazine, Dewey & LeBoeuf ranked 29th out of the nations top 100 profitable law firms in gross revenue as recent as 2010.

Dewey & LeBoeuf, which is based out of New York, has about 950 lawyers in 25 offices around the world.

'Prepack' Bankruptcy Filling Sought

A person with knowledge of the situation has stated that Dewey & LeBoeuf could be considering a prearranged bankruptcy filing, according to The New York Times.

The prearranged filing could result in a reorganization agreement with its creditors as well as a merger with another law firm.

The prepackaged bankruptcy is an alternative to a tradition Chapter 11 filing in the sense that it is a quicker option and could potentially spare the law firm legal hurdles.

Reuters has reported that Albert Togut, a Chapter 11 bankruptcy lawyer who has represented major organizations, is working with at least one of the firm’s new management team. Reuters also stated that it doesn’t necessarily mean that Dewey & LeBoeuf is planning on filing for bankruptcy but may be seeking legal help in renegotiating their debt.

Togut has been counsel to a number of major company’s Chapter 11 filings including General Motors, Chrysler Automotive, and Ambac Financial.

According to The New York Times, Martin Beinenstock, a leading Chapter 11 bankruptcy lawyer was recently appointed to lead Dewey & LeBoeuf’s restructuring efforts.

The restructuring is being implemented to negotiate the preexisting debt with the firm’s banks JPMorgan Chase and Citigroup.

Assessing The Debt

According to Reuters, one debt Dewey & LeBoeuf is carrying is a $125 million bond, a rare debt for a law firm to carry.

Also, contributing to Dewey’s financial burdens is a number of high profile, highly compensated attorneys that were acquired as early as last year by the law firm. After failing to meet their profit targets, Dewey was unable to meet their compensation obligations, according to The New York Times.

Citing the financial crisis of recent years, the law firm has seen a drop in demand of its services.

The firm commented that the recent defections were in-part a way to increase profitability.

Experts have said that Dewey & LeBoeuf are the largest of the struggling law firms to have publicly entered a danger zone, where partners have left due to the financial uncertainty of the firm.

An important tactic that experts state needs to happen is the retention of star lawyers who will make Dewey & LeBoeuf attractive to potential suitors if the firm were to be acquired.


Betsey Johnson LLC, a U.S. fashion designing firm, has filed for Chapter 11 bankruptcy protection according to Reuters.

The company, based out of New York City, cited declining sales and profitability due to high-end fashion being hit hard by the state of the economy.

The company is seeking offers to buy all or parts of its business according to court documents.

Betsey Johnson is listing assets at $21.3 million and total liabilities worth $15.4 million at the end of 2011, also according to court documents.

The company has over 65 Betsey Johnson retail stores worldwide. They also sell merchandise in departments stores such as Nordstrom and Macy’s.

Last year, Betsey Johnson LLC recorded sales of $60 million.

Since 2007, sales have dropped 20% and profitability has more than halved according to court documents.

Betsey Johnson LLC, named after its founder, had gotten its start in 1978. The fashion label is known for their youthful designs with rock-n-roll and hippie themes.

According to Reuters, the company had enlisted Morpheus Capital Investors in early 2012 to secure new equity investors or to sell the business. Over 20 potential buyers and investors were contacted but Morpheus was unable to secure a deal.

The company has requested a Debtor-In-Possession financing of $2.5 million in order to fund the bankruptcy operations, according to the court filings.

U.S. Economic Growth Slows

Given the state of the economic growth, high end retail institutions have been hit with fewer consumers willing shell out for premium-priced garbs.

According to The New York Times, U.S. economic growth slowed from 3% in the last quarter of 2011 to 2.2% in the first quarter of 2012.

One reason why Betsey Johnson LLC could not find a suitor for investment or sale may be due to the fact that U.S. business investments have declined. Alongside slow investment rates, economists warned that consumer spending cannot be sustained without hiring and wage increases.

Experts have stated that business remain very cautious in new investments in the current U.S. economy.

However, The Federal Reserve’s growth projections for 2012 were revised, showing 2.4 percent to 2.9 percent rather than the previously estimated 2.2 percent to 2.7 percent growth. Ben Bernanke, Chairman of the Federal Reserve, stated that the Fed would stay on their course of keeping interest rates low through 2014.

The Retail Fail

Betsey Johnson doesn’t stand alone in the category of companies struggling in the retail industry.

Recently H&R Block announced that it will be closing 200 underperforming stores and are set to lay off over 300 employees as it realigns to serve the ever-growing digital tax filing markets.

According to Reuters, Jackson-Hewitt, H&R Block’s main competitor filed for pre-packaged bankruptcy protection last year citing the disparity in retail profits from electronic competitors like TurboTax.

As the economy slows, and job growth mirrors the slow economic status, consumers take notice. Experts suggest we may see even more retailers preparing to file for bankruptcy in the near future.