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Thursday, January 12th, 2012

NY Mets Taking First Step Toward Bankruptcy?

In a statement released last week, the New York Mets (i.e. the city’s non-Yankees baseball team) announced that it was enlisting the help of a financial firm known as a “turnaround specialist and bankruptcy consultant,” as the New York Times puts it.

In 2010, the company helped oversee the bankruptcy filing of the Texas Rangers. But while the Mets are reportedly facing some pretty serious debt burdens (including $400 million owed to several banks and $25 million owed to Major League Baseball), the team has not given any other public or official indication that it is considering a bankruptcy filing. Still, the consultation with the bankruptcy-focused firm suggests that the team is certainly considering court protection.

So what can individuals learn from the Mets’ maneuvers? Primarily that the bankruptcy process should begin long before an individual actually files his or her bankruptcy petition with the court. For most individuals, the bankruptcy process really begins during the information-gathering period.

Talk with the Right People Before Choosing Bankruptcy

Like the Mets, those considering personal bankruptcy can and should consult with knowledgeable sources before deciding whether or not to file a petition with the bankruptcy court. Individuals have a few choices about whom to speak to:

  • A credit counselor: Many credit counseling organizations provide free or low-cost financial evaluations for consumers in need of guidance about whether or not to file for bankruptcy. Credit counselors run by community groups often charge little or nothing for leading consumers through a non-bankruptcy debt elimination process. And if you do decide to seek bankruptcy protection, the court requires a pre-filing credit counseling session anyway.
  • A bankruptcy lawyer: Most bankruptcy lawyers offer free initial consultations during which they can help clients determine whether filing for bankruptcy makes sense financially. After that consultation, the client can move forward with bankruptcy or a bankruptcy alternative confident that his or her decision will work in his or her own best interest.
  • An accountant: Those who work with an accountant or tax preparer regularly may find consulting with this person useful as part of the bankruptcy-consideration process. Small business owners may be best served by an accountant’s opinion.

The Importance of A Well-Informed Bankruptcy Decision

Filing for bankruptcy is a major financial step in anyone’s life, and should not be undertaken lightly. Further, waiting until the last possible minute to file for bankruptcy can have detrimental effects on an individual’s or family’s finances.

By starting the bankruptcy process well ahead of actually filing a bankruptcy petition, individuals set themselves up for a less stressful (and potentially more successful) bankruptcy process. For many Americans struggling with debt burdens, consulting a financial or bankruptcy professional is the first step in making a decision about bankruptcy.

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Posted in Bankruptcy News and Events, Pre-Bankruptcy Credit Counseling | 1 Comment »

Wednesday, January 4th, 2012

Bankruptcy Courts Turn to Online Chats to Guide Users

A new trend in the Southwest suggests that the country’s bankruptcy courts are finally taking advantage of technology that many other industries have already adopted: online chat forums. Sources note that bankruptcy courts in Arizona, New Mexico and Nevada have all started dabbling in online contact for court users.

As many other companies have discovered, offering online chat forums provides consumers with a convenient way to get information about the nuts and bolts of bankruptcy law.

Help for Real Estate and Bankruptcy Lawyers

One interesting element of the new trend, according to sources, is that some of the first to take advantage of the online chat forums have been real estate lawyers who have expanded their practices to represent clients interested in filing for bankruptcy.

Likely a result of the implosion of the housing bubble (which hit especially hard in the Southwest), many real estate lawyers have apparently seen bankruptcy proceedings become a much larger part of their clients’ daily needs. This can be attributed to the fact that Chapter 13 bankruptcy can be used as a means of halting or delaying mortgage foreclosure.

But because most real estate lawyers lack the training and experience in bankruptcy laws and bankruptcy court proceedings, they have more questions about navigating the bankruptcy court system than traditional bankruptcy lawyers do, it seems.

Enter the online chat forums.

Online Forums Available to Bankruptcy Filers, Too

In addition to providing pointers to lawyers representing bankruptcy filers, the bankruptcy courts with online chat forums also offer valuable services to individual bankruptcy filers interested in learning more about the process or nitty-gritty details of filing a bankruptcy case.

Those interested in filing for personal bankruptcy can use the online chat system to:

  • Ask for direction about where to find necessary forms or schedules for filing a bankruptcy case;
  • Clarify parts of the Bankruptcy Code that they cannot decipher for themselves;
  • Learn about deadlines, procedures, and requirements of the bankruptcy court; and
  • Get general information about how bankruptcy works and what they can do to prepare for bankruptcy or recover from a bankruptcy filing.

The Internet as a Bankruptcy Tool

Since the Internet went mainstream, potential bankruptcy filers have used it to research the bankruptcy process and potential effects of filing for bankruptcy on their financial lives. The introduction of a venue where filers can get their questions answered directly marks a natural progression toward more and more consumer-oriented online offerings.

At present, the online chat forums are only available for filers in a few states; however, if their success continues to grow, other areas of the country may introduce similar tools for filers and potential filers.

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Posted in The Bankruptcy Courts, The Law and Your Money | No Comments »

Thursday, December 15th, 2011

Future Income and Bankruptcy Fraud

Every so often, there’s a local news story about someone who has been convicted of bankruptcy fraud. This week, the case belongs to one George Raynor, of Baileyville, Maine. While the case itself isn’t exceptional in any way, it highlights an important precaution for potential bankruptcy filers to note in order to avoid a fraud conviction.

What Is Bankruptcy Fraud?

Bankruptcy fraud is exactly what it sounds like: a bankruptcy filer’s provision of false information to the court that alters the outcome of his or her bankruptcy case. In some cases, bankruptcy fraud can be unintentional, but its penalties are steep: those convicted of bankruptcy fraud might face up to five years in jail and up to $250,000 in fines.

Common examples of bankruptcy fraud include an attempt to shield property from the court; a filer might attempt to transfer property from his or her name to the name of a friend or family member or might simply fail to report ownership of a piece of property or sum of money.

But bankruptcy fraud can also occur when a filer fails to mention income he or she is expected to receive in the future. Raynor’s case falls into this category.

Reporting Future Income in Bankruptcy

According to the Bangor Daily News, Raynor and his wife filed a bankruptcy petition in 2006 but, in their list of assets, did not mention:

  • A savings account in a bank;
  • A deferred compensation retirement account valued at roughly $150,000;
  • A lump sum payment from his retirement account in the amount of $97,000; and
  • A payment from his former employer of $12,000 as compensation for unused sick and vacation days.

Now convicted of the charges, Raynor could see as much as five years behind bars and fines of up to a quarter of a million dollars. To date, Raynor’s sentencing has apparently not been scheduled. Often, the amount of the fine assessed on a bankruptcy fraud conviction roughly equals the amount of money or value of property that the filer attempted to withhold from the court.

Avoiding Bankruptcy Fraud in Your Filing

One of the easiest ways to avoid bankruptcy fraud is to work with a bankruptcy lawyer. Working with someone who is familiar with state bankruptcy laws and the procedures of the bankruptcy court can go a long way toward avoiding mishaps that could delay or derail a case.

Lawyers can also advise filers about which of their assets they must list, whether gifts or property transfers will be considered legal by the court, and what outcomes they can expect from their bankruptcy case.

In cases where a filer may have future income due to him or her, a lawyer can help determine how to calculate the value of that income and how to report it on bankruptcy filing paperwork.

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Posted in The Law and Your Money | 1 Comment »

Tuesday, November 29th, 2011

USPS Keeps Batting Back Bankruptcy

The U.S. Postal Service announced recently that, in an effort to avoid filing for bankruptcy, it will raise prices on its most popular services (priority and express mail), as well as on standard first class stamps (up to 45 cents each starting January 22, 2012).

The USPS debt problems highlight some important differences between bankruptcy filings for individuals and businesses. Here’s a look at what you can learn from the USPS and why you may be in a better position if you’re interested in avoiding a bankruptcy filing of your own.

Shedding Expensive Baggage

When individuals see their debt spiraling out of control, they can usually take at least some meaningful action to reduce the total amount they owe – or at least to stop the ever-increasing financial burden they carry.

But because of the oversight Congress provides to the USPS, the nation’s postal system isn’t quite as free to slough off its highest costs. For example:

  • Underperforming post offices: To save money, the USPS has proposed shutting down post offices that don’t earn sufficient profit to merit staying open. In other words, the USPS wants to operate like an ordinary business or individual, eliminating its branches that cost money to operate but don’t bring in enough in return. However, Congress must approve any such shut-downs, and it has not yet ruled on USPS closures.
  • Six-day delivery: Like extra cable channels or a too-expensive car lease for individuals, six-day delivery has been cited as one of the major expenses dragging down USPS finances. While officials from the Postal Service hope to cut home delivery to five days per week, they have not yet received the okay from Congress, and so are unable to take this cost-saving step.
  • Expensive healthcare and pensions: When municipalities file for bankruptcy, one of the main debt-cutting measures available to them is the re-negotiation of contracts with workers. In many cases, municipalities are able to save serious money by cutting benefits they pay out in pensions, healthcare, and other benefits. But the USPS has not yet been able to make such negotiations with its workers, again because of inaction in Congress.

Not Enough to Prevent Bankruptcy?

The Postal Service’s rate increases, set to take place in late January, could increase its income substantially, but many analysts predict that price hikes alone will not allow the USPS to avoid bankruptcy.

Without action from Congress allowing it to make meaningful cuts in its current services, the USPS has claimed that it could need bankruptcy protection as early as next September. If the USPS is allowed to reorganize (either in bankruptcy or without its help), the business has a decent chance of succeeding: its competitors FedEx and UPS have reportedly both achieved modest growth even during the economic downturn.

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Posted in Economic News: How Are We Doing? | 1 Comment »

Friday, October 14th, 2011

American Airlines & The Long-Term Financial Benefits of Bankruptcy

The current financial situation of American Airlines serves as a lesson on how filing for bankruptcy can lead to long-term financial strength – and, perhaps more importantly for the airline, how avoiding bankruptcy can sometimes cause long-term financial struggles.

Of course, every individual situation is unique and the American Airlines model can’t be applied across the board. But for people teetering at the edge of their finances wondering whether personal bankruptcy could have any benefits down the road, the story of American Airlines is worth considering.

Avoiding Bankruptcy

In the months and years immediately after the terrorist attacks of September 11, 2001, Americans flew less and many airlines struggled to remain profitable. In the ensuing years, many of them (including Delta, Northwest, US Airways and others) filed for Chapter 11 bankruptcy protection, which allowed them to reorganize their finances and debts.

American Airlines did not choose bankruptcy; instead, the airline opted to negotiate benefits and salaries with its employees and managed to continue operating. At the time – and, according to some reports, even today – the airline’s CEO was proud of his company’s ability to stay out of bankruptcy court. But some analysts are questioning whether the decision made sense financially.

Today, American Airlines operates at a loss. In fact, sources note that the airline:

  • Has more than $12.1 billion in outstanding debts;
  • Is saddled with a pension liability (for which it has no funding) of about $7.9 billion;
  • Earned $11.6 billion last year but had a net loss of $716 million;
  • Is expected to report a $132 million loss for 2011’s third quarter; and
  • Recently took on a high-interest (8.75 percent) loan for about $726 million.

These numbers are particularly gloomy when compared with those of the nation’s other leading airlines, most of which are currently operating at a profit, according to sources. In fact, comparisons between American Airlines and its competitors show stark differences.

In addition to having the least fuel-efficient fleet of planes in the country (which sources estimate cost it as much as $400 million in extra fuel expenses per year), American pays its staff more per flight hour than other airlines. One analyst estimates that if American could cut its per-flight-hour operating costs to those of US Airways, the airline would save $2.2 billion per year.

So how have other airlines managed to do so well in a struggling industry? Most of them filed for bankruptcy – and reemerged as stronger, more profitable companies.

Emerging Stronger from Personal Bankruptcy

For corporations, Chapter 11 bankruptcy provides the rare opportunity to renegotiate contracts with venders, employees and unions. Most companies also sell of unused assets and devise a court-approved way to be able to make a profit while treating all of their creditors fairly.

Like airlines, individuals can use the power of the bankruptcy court to introduce positive financial change into their lives. Bankruptcy may offer several unique protections and opportunities not offered by common debt elimination alternatives, including:

  • Full discharge of certain debts, meaning that the court legally excuses filers from paying them;
  • A temporary halt to collection actions, which can give filers breathing room to take control of their finances; and
  • Financial management and credit counseling resources so filers can learn to establish and maintain financial habits that will improve their overall finances.

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Posted in The Truth about Bankruptcy | No Comments »

Wednesday, August 31st, 2011

Statistics Show Decrease in Small Business Bankruptcies

The latest numbers from Equifax, a credit rating organization based in Atlanta, Georgia, show that small business bankruptcy filings decreased in the first quarter of 2011 compared to the same period in 2010. Down 15 percent from last year, the first-quarter small business filings were still higher than those in the first quarter of 2008, before the recession hit.

For the purposes of its statistics, Equifax considers a small business any corporation with 100 employees or fewer. Here’s a look at what these numbers might mean for the larger economy.

Small-Business Bankruptcy & Economic Recovery

Small business bankruptcy filings might affect the economy in a number of ways:

  • Jobs: When small businesses file for Chapter 7 bankruptcy, they liquidate and cease to exist. That means that any employees of that business become unemployed and enter the job market. A Chapter 11 bankruptcy means reorganization for a small business, but some employees could still be made redundant, especially in smaller operations where salaries are among the largest expenses business owners have. While it might not seem like a small business could have a big impact on the unemployment rate, consider this: about 38 million Americans work for companies with fewer than 100 employees.
  • Local economies: In many parts of the country, small businesses give a town its individual “flavor.” Liquidation bankruptcy by these businesses might hurt a local economy by removing a draw for tourists or out-of-towners; however, a successful reorganization could mean more-booming business in the future.
  • Real estate: In an admittedly less direct way, small-business bankruptcies could affect a place’s real estate market. Empty storefronts drive down real estate prices. This can be good if other businesses fill in right away, but could be bad if multiple businesses close down in the same area. Similarly, if an area’s businesses are failing and its residents are losing work, they may move to greener pastures, leaving their houses empty and potentially driving down residential real estate prices, as well. If few businesses exist to attract potential buyers, the problem could persist.

The Cycle of Small-Business Bankruptcy

One of the most difficult parts of a slow economy is its potential to lead to unhealthy economic cycles: when people are worried about jobs and money, they tend to save more and spend less (and, in fact, numbers have shown that the U.S. savings rate is much higher now than it was pre-recession).

When people aren’t spending money, though, the economy has a hard time getting started (as much as two-thirds of the U.S. GDP is made up of consumer spending). Small businesses, which have shallower reserves of cash, may not be able to attract the customers they need to stay afloat.

When local businesses fail, more people lose jobs and fight to save money, knowing they’ll need it if they cannot find work right away.

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Posted in Economic News: How Are We Doing? | 5 Comments »

Monday, August 1st, 2011

What Happens When a City Files for Bankruptcy?

Bankruptcy has been in the news a lot lately, and not just because individuals are seeking bankruptcy protection. Thanks largely to the economic strain in much of the country, municipalities are now considering bankruptcy in large numbers.

But what happens when a city, town or county files a bankruptcy petition? Here’s a look.

Chapter 9 Bankruptcy: For Municipalities Only

Individuals can file for bankruptcy under Chapter 7, Chapter 11, Chapter 12, Chapter 13 of the U.S. Bankruptcy Code. When cities file, though, they must do so under Chapter 9, a type of bankruptcy designed during the Great Depression to help municipalities in distress.

Here’s a look at how Chapter 9 bankruptcy works.

  • Two main reasons cities file: According to insiders, municipalities that choose Chapter 9 protection tend to do so for one of two reasons. Either they’re faced with a one-time catastrophe that prevents them from repaying their creditors, or their financial structure is fundamentally unsound and unsustainable. Cities with the former problem may move into and out of bankruptcy more quickly than those with the latter problem, which may spend more time negotiating with creditors and considering bankruptcy alternatives.
  • Eligibility for bankruptcy: Not all municipalities are legally permitted to file for bankruptcy. Eligibility is regulated by state laws, and in some states no district can seek Chapter 9 protection. Elsewhere (as in California), any municipality has the bankruptcy option and in still other places, judges decide on a case-by-case basis whether or not a town can file.
  • Chapter 9 capabilities: Once a town enters bankruptcy protection, Chapter 9 gives it the ability to negotiate labor contracts that might otherwise have been off-limits because of union laws. In some cases, negotiating pension terms or other benefits allows the city to seriously cut costs in a way that it couldn’t have done without the protection of the bankruptcy court.
  • Pre-filing negotiations: In some cases, the mere threat of a Chapter 9 bankruptcy is enough to convince creditors and other groups to negotiate with a municipality. Because bankruptcy can mean that creditors lose a significant amount of the money they invested in a town, many are willing to accept a deal to prevent the town from filing a petition.
  • Chapter 9 frequency: Despite the threats of municipal bankruptcies that pepper newspapers, actual Chapter 9 filings are fairly rare. This is partly because once towns recognize bankruptcy as an option, they and their creditors have lots of non-bankruptcy alternatives available, including raising taxes, raising fees, cutting costs, negotiating payment terms and more. Plus, politicians are often reluctant to have a municipal bankruptcy on their record, which can look bad in future elections.

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Posted in Economic News: How Are We Doing?, Filing Requirements | No Comments »

Tuesday, July 5th, 2011

Joint Bank Accounts in Bankruptcy

In a world where a person’s credit score is one of the most important numbers in her life, it’s no wonder that some parents are eager to help children by naming them joint bank account holders.

This used to be common practice with credit cards: parents would make children “authorized users” to help them improve their credit rating. But the credit bureaus caught on and no longer consider “authorized user” status a boost to a credit score.

Having a child listed on a bank account certainly might still benefit him, but it could hurt you financially if he decides to file for bankruptcy.

Your Cash in Bankruptcy

So what happens to joint accounts when one person files for bankruptcy? It varies depending on state law, but here are some possibilities.

  • Presumption of joint ownership: Some states have laws that indicate that any jointly owned accounts are considered to belong to both people listed on the account. In these states, half of the money in a joint account would be considered the property of the filer and could be used to repay creditors.
  • Rebuttal of presumption: The good news, however, is that filers usually have a chance to rebut (that is, disprove) their actual ownership of the money. A filer might do this by demonstrating that the other joint account owner (who is not filing for bankruptcy) deposited most or all of the funds into that account. This requires some careful legal action, so a lawyer’s help is valuable.
  • Repayment plan: If the bankruptcy filer chooses Chapter 13, the value of the money in the joint account might be taken into consideration. That is, the filer might be expected to pay more than he can really afford to creditors because the court views half of the joint account money as his. (A lawyer can clarify whether rebuttal would be possible in your state.)

Avoiding Bankruptcy Fraud with Joint Accounts

One other consideration for joint account holders considering bankruptcy is bankruptcy fraud. This is a crime that can ruin a filer’s chances at a bankruptcy discharge, lead to a steep fine (up to $500,000) and even cause jail time.

One action that might be considered fraudulent in court is the improper transfer of property or assets before filing for bankruptcy. In other words, if a joint account holder takes himself off the account just before filing for bankruptcy, the court might be suspicious of the action and still consider the funds fair game for the bankruptcy case.

Waiting periods for transferring assets before bankruptcy vary by state. Asking a lawyer about what’s legal where you live is likely your best bet.

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Posted in Filing Requirements, The Law and Your Money | No Comments »

Tuesday, May 31st, 2011

Bankruptcy Filings Dropped in April

Recently released numbers on personal bankruptcy filings show that April’s numbers were down from both March 2011 and April 2010, more or less following the trends that experts have predicted for the remainder of this year. Here’s a closer look at the specifics, and what this means for you.

Breakdown of April Bankruptcy Figures

  • The 21 business days in April saw 130,000 total bankruptcy filings, which comes to 6,177 filings per business day.
  • The number of filings shows a decline of 2.9 percent from March, and 7.1 percent from April 2010.
  • So far this year, filings have decreased each month at a rate somewhere between 5.6 percent and 8.2 percent compared to 2010 numbers.
  • In the past 12 months, 4.9 in 1,000 people have filed bankruptcy petitions. The number in 2004 (before the new bankruptcy law was passed) was 5.5 per thousand.

According to these statistics, April 2011 bankruptcy numbers suggest a decline in bankruptcy filings both compared to recent months and to last year. Bankruptcy filing rates, though not as popularly cited as unemployment numbers, can be used to offer at least a partial picture of economic recovery.

Projected Bankruptcy Filings for 2011

Based on the numbers for April and 2011 so far, predictions for total bankruptcy filings this year include the following:

  • 1.475 million bankruptcy filings if Americans continue filing at the daily average rate (5,876) for the first four months of 2011 combined;
  • 1.525 million bankruptcy filings if we continue at April’s daily average rate (6,177); or
  • 1.499 million bankruptcy filings if the last eight months of the year make up the same proportion of filings as they did in the last two years.

How does that compare with the recent past? In 2010, the country had 1.56 million total filings; in 2009, the total was 1.474 million; and in 2008, 1.118 million. If filings stay on track, then, it looks like 2010 might have been the peak year for bankruptcy filings and 2011 will be the beginning of a decline.

There is no guarantee, however, that bankruptcies will steadily decrease. After all, the housing market is still glutted with foreclosure properties and home prices don’t seem to be rising. As a new wave of foreclosures begins to affect homeowners, combined with sluggish growth in the jobs sector, the need for bankruptcy protection could climb or remain constant for a few years to come.

Bankruptcy Filings and the “New” Law

If nothing else, these latest bankruptcy numbers suggest (once again) that the Bankruptcy Abuse Prevention and Consumer Protection Act passed in 2005 had little real effect on bankruptcy filing totals.

Those truly in need of the financial relief and protection bankruptcy offers are still largely able to get that help from the bankruptcy court, despite the tightened restrictions the law introduced.

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Posted in Economic News: How Are We Doing?, Year in Bankruptcy | No Comments »

Monday, May 23rd, 2011

Study: Bankruptcy Considered or Filed by One in Eight Americans

A study recently published by the web site Find Law indicates that a considerable percentage of the U.S. population (one in eight survey respondents, or nearly 13 percent) has either considered filing for bankruptcy or actually done so.

That figure may seem high, but in a nation of consumer debt, depreciating home values and a limited job market, perhaps it’s no wonder that so many of us are in need of serious the serious financial protection and debt relief that bankruptcy can offer.

Who Is Considering Bankruptcy?

The study breaks down potential bankruptcy filers in part by age:

  • Americans between 35 and 54 are reportedly the group most likely to consider bankruptcy as an option.
  • Americans 18 – 34 and 55 and older are, according to sources, half as likely as the middle age group to consider or actually file for bankruptcy.
  • Senior citizens (those 65 and older) are apparently the least likely group to consider bankruptcy as a debt relief option, at only seven percent.

How Have Bankruptcy Filing Numbers Changed in Recent Years?

Sources indicate that in 2010, 1.5 million Americans actually filed for bankruptcy protection. This number marks the highest annual total since 2005, when the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) took effect and tightened the standards for those interested in bankruptcy protection.

Why Do So Many People Need Bankruptcy Protection?

While no two bankruptcy cases are alike, bankruptcy filers often note common triggers that led them to seek the protection of the bankruptcy court. These include:

  • Unexpected medical expenses: Illness and injury can both cause serious medical bills to build up, particularly for those people who are uninsured or underinsured. And even an otherwise happy event, like the birth of a child, can prove very expensive.
  • Change in family makeup: Divorce and death are difficult to deal with on their own, but are often compounded by the financial troubles they cause. Many families are forced to face unpleasant financial realities after divorce or death carries off a primary breadwinner.
  • Job loss or reduction: Even good employees are at risk of losing their jobs in the current economic climate, and even though layoffs have slowed in recent months, the unemployment rate remains high. It’s no secret that this type of financial burden can lead a household to seek bankruptcy protection.
  • Fear of foreclosure: Even those with good health and steady jobs may find themselves unable to keep up with their mortgage, and some families opt to file for bankruptcy in hopes of fending off mortgage foreclosure.

Considering the many factors that can contribute to a household’s decision to file for bankruptcy protection, it may be a wonder that only one in eight Americans has thought about personal bankruptcy!

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Posted in Bankruptcy News and Events, The Truth about Bankruptcy | No Comments »

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