The problem confronting Hostess Brands is similar to the ones that prompt many municipalities to file for bankruptcy protection: namely, that it cannot sustain the pension system it established many years ago.

Another problem Hostess Brands faces is the number of its creditors. Reports indicate that the junk food producer owes money to between 50,000 and 100,000 creditors – most of whom are former employees with pension plans. The sheer volume of creditors can make settling out of court difficult, and may have contributed to the company’s decision to choose bankruptcy.

Similar Problems Leading to Individual Bankruptcy?

While it’s easy to brush the problems faced by Hostess and many other large companies aside as unique to big businesses, the lessons from this giant-sized bankruptcy filing can provide important guidance for individuals. Here are some.

• Review your recurring expenses. If you’re struggling with paying your bills each month, it’s time to review what you’re paying for – and whether you’re getting your money’s worth. Cable and TV packages, cell phone plans (do you really need all those minutes?), and energy costs are all prime targets for cutting monthly costs and freeing up money to help you pay down debt. Downgrading to less luxurious entertainment and/or switching to energy-efficient light-bulbs and shower heads could save you significant money in the long term.
• Determine whether you can afford the services you’re paying for. Hostess doesn’t have enough money to pay its former employees. Do you have enough money to pay the people who work for you? If you’re looking to cut back on expenses, reevaluate your hair styling, manicures, lawn care, house cleaning, and any other services that you could cut back on or do yourself.
• Be wary of long-term service contracts. Cell phone providers are notorious for pushing customers into long-term service agreements. Credit card issuers and cable providers sometimes do the same. But unless you live in an area with no alternatives, don’t get sucked into an agreement that you might face penalties for trying to cancel, unless you’re positive it will benefit you for its duration.

Even if you end up filing for bankruptcy after making adjustments to your expenses, the process should prepare you for the type of living that will help you recover from bankruptcy, stick to your repayment plan (in Chapter 13 bankruptcy), and reestablish your credit so you can move forward and get past your debt struggles!

Recent investigations into the matter have focused primarily on for-profit universities, including the University of Phoenix and other schools that have campuses around the country and offer online classes to those who aren’t near a learning center.

The latest of these investigations, undertaken by Congressman Elijah Cummings (D – MD), highlights some of the shocking numbers associated with for-profit education:

• The University of Phoenix (the largest for-profit university in the country) gets 88 percent of its funding from the federal government. This money comes as various grants, loans, and veterans’ benefits that students of the university apply for and use to cover the cost of classes.
• More than 20 percent of the school’s students default on their loans.
• The chairman of the company that operates the University of Phoenix earned $6.5 million last year (including bonuses and stock options with his salary).

According to sources, these figures are typical of the for-profit education industry. And what’s really alarming for students and potential students who might enter the for-profit education system is that student loans are almost impossible to discharge in bankruptcy.

Further, studies have shown that six-year graduation rates for first-time bachelor’s students at for-profit colleges are abysmally low: about 22 percent for those who attend physical classes, and as low as five percent for those taking classes online.

In other words, the majority of those enrolled in these programs are accumulating student debt without earning the degree that could boost their income in their life after school. This, of course, makes repaying student loans that much more difficult.

Questionable Enrollment Tactics

Congressman Cummings has sent letters to the heads of several for-profit institutions, detailing the financial imbalances mentioned above and mentioning other problems that undercover investigations have revealed at such institutions.

In brief, the pushy and aggressive (and sometimes deceptive) sales tactics used to get new students to enroll at for-profit universities mimic those used by unscrupulous debt settlement firms and subprime mortgage lenders.

Unfortunately, as is often the case with other areas of finance, most of the consumers of for-profit education are not fully aware of the potential financial repercussions their decision to take on student loans might have.

Hopefully, Congressman Cummings will remain vigilant about this matter. He has requested a response from the education executives before the end of this month.

Add this image to your blog – copy and past the code below

<a href=”http://www.totalbankruptcy.com/debtress/bankruptcy-economy-2011/” target=”_blank” title=”Bankruptcy and the Economy in 2011″><img title=”bankruptcy and the economy: why are people filing?” src=”http://assets.totalbankruptcy.com/infographics/bankruptcy-and-the-economy.png” border=”0″ alt=”bankruptcy and the economy: why are people filing?”></a> from <a href=”http://www.totalbankruptcy.com/” target=”_blank” title=”Total Bankruptcy – Bankruptcy Lawyers”>TotalBankruptcy.com</a>

Bankruptcy and the Economy

We’re seeing an improvement in the economy, but it may not have the effect you might expect. In fact, bankruptcies are up despite economic indicators showing improvement.

Why People File for Bankruptcy in an Improving Economy

If things are looking up, why are people still filing for bankruptcy? The American Bankruptcy Institute expects the trend to continue, at least for a while.

• Low income along with rising prices cause families to turn to credit, racking up more debt.
• Banks are offering credit once more, which contributes to excessive debt loads.
• Main Causes of Bankruptcy
  • 42% of personal bankruptcies are caused by medical expenses.
  • For 22%, unemployment results in ever mounting debts that drive people to file.
  • 15% of people file for bankruptcy because of credit card debts, car loans, and mortgages that they just can’t afford.
  • Divorce rates stand at about 50% right now. Alimony, child support, and other divorce related expenses cause 8% of bankruptcies.

Worst Affected States

The states hardest hit by bankruptcy per capita include California, Nevada, Utah, Colorado, Michigan, Indiana, Tennessee, Alabama and Georgia.

Other Economic Oddities

The idea of the number of bankruptcies going up along with the economy may seem odd, but it’s not the only strange side effect of an improving economic state. Here are some other strange things we’ve seen.

• Wages
  • As the economy improves, workers receive the same wages. This is due to a weak job market, though it is improving.

• Foreclosures
  • For the past year, there has been a delay as lenders work on paperwork.
  • In 2011, the number of foreclosures started from outstanding home loans went from 0.96% to 1.08%.

The US economy may be on the rise, but it will be a while before we see this in areas such as bankruptcy and foreclosures. It takes time to bounce back from a recession and experts are predicting a continuing drop for some time yet.

In a business context, the reasons for changing a name after bankruptcy seem obvious: because many consumers don’t understand that bankruptcy can be a tool for reorganization of debts (rather than simply a way of closing a company), a name change helps the company redefine itself in customers’ eyes.

The change, too, puts the bankruptcy firmly in the past. And on the financial and legal level, starting business under a new name may allow a company to more effectively eliminate certain financial obligations.

Rebrand Yourself after Bankruptcy for Financial Success

While we’re not suggesting an actual name change following a bankruptcy filing, rebranding in other ways may help you flourish in your post-bankruptcy life. Here are a few ideas for creating a whole new, debt-free you after bankruptcy:

• Open a new savings account. If you don’t already have one, open a savings account and commit to contributing to it regularly, even if it’s only a few dollars here and there. Check your balance often to keep yourself motivated. If you already have a savings account, open another one to help you meet specific goals like going on vacation or buying a new car.
• Start a new (financially friendly) habit. Commit to one new debt-savvy behavior every month or so. This might include opening and paying bills as soon as they come in (or at a set time each month), consciously saving part of your salary, finding a new route to work to avoid spending triggers, or reading personal finance books from the library.
• Get self-aware. Journal or blog about your financial struggles. Even if you don’t feel like you’re finding solutions to money problems, the simple act of articulating them should help you see patterns and avoid costly habits in the long run.
• Ask others to keep you accountable. Tell your friends or family members about the new you. Ask for their help. Instead of a bonding trip to the mall, for instance, suggest meeting for a less expensive activity, such as taking a walk outside or sharing a cup of coffee.
• Be patient! Remember, you aren’t a business and you can’t reinvent yourself with a snazzy name change alone. Accept that you’ll probably have setbacks on your road out of debt – everyone does – but that they don’t have to mean you give up on your debt-free lifestyle.

Here’s a look at his story – and what we can learn about avoiding debt from it.

From Rags to Riches…to Rags

Sean Quinn reportedly left school when he was 14 with a $200 loan from his father. With that money, he started a quarrying business that ballooned over the years and allowed him to pursue other business interests, one of which became Quinn Direct, an insurance business that became Ireland’s largest.

At his prime, he had an estimated net worth of $6 billion and ranked as the 164th richest person in the world. Here’s what went wrong:

• Anglo-Irish Bank (AIB), which had invested serious money in real estate, began to face financial trouble in 2008 when real estate markets around the world started to tank. As the bank faced unmanageable debts, its stock prices plummeted.
• Quinn, convinced that the bank would eventually recover, reportedly bought AIB shares in droves, thinking he was getting an excellent deal.
• In addition to buying up as many shares as he could, he borrowed more money from the bank to purchase additional shares.
• Rather than recovering, though, the bank continued its downward spiral, and Quinn’s shares became worthless. Further, he now owes the bank money that he does not have, having lost it all when the shares’ value declined.

Debt-Control Lessons

More than anything, Quinn’s story seems to be one of knowing when to stop. He proved his chops as a businessman and investor, but squandered his hard-earned money on the foolish (and disastrous) purchase of AIB stocks.

While most of us will probably never have the chance to blow $6 billion, we can all learn something from Mr. Quinn:

• Don’t borrow to gamble. Because AIB stocks were so distressed when he bought them, Quinn’s purchase of those stocks was akin to playing slots. Had he lost all his money, that would have been bad, but because he borrowed money, he might now face legal trouble related to the billions of dollars in debts he’s attempting to discharge in bankruptcy.
• Know your weaknesses. While it’s true that big risks can lead to big rewards, they can also lead to big disasters. Had Quinn followed the prevailing wisdom, he likely wouldn’t have ever started his multi-billion dollar corporations – but he also probably wouldn’t have bought AIB stocks when he did. We all have weak spots and it’s a good idea to surround ourselves with people who can balance our biases so they don’t lead us to debt.
• Don’t be afraid of bankruptcy. Sometimes, filing for bankruptcy is the only workable solution. And many people who file find that doing so inspires them to improve their finances in the future.

Apparently, the overhaul is the first major revamp of the GSA’s merit badges in a quarter century and organizers got their ideas for new badges by polling current GSA members. I guess those young ladies in brown and green have been paying attention to dire economic news reports – or maybe it’s impossible to avoid the doom and gloom.

Either way, young women in the GSA will now have the opportunity to earn badges that address areas including maintaining good credit, managing money, budgeting and plotting a financial future.

Real-World Guidance

In order to earn the honorable (and decorative) badges, members are required to:

• Complete a five-step process designed to help members develop competency in the area addressed by the badge.
• Participate in real-world practice to apply the skills defined by the badge.
• Learn about and engage with actual problems or challenges they might face in their futures. High school scouts, for example, may be required to speak with a loan officer at a bank. Middle school scouts may have to determine what salary they would need to finance their dream life.

A Tradition of Financial Literacy

While many of the badges of yesteryear were geared toward mastering household tasks, insiders from GSA insist that financial literacy – in one form or another – has always been a central part of GSA’s mission. After all, they didn’t call it “home economics” for nothing.

And I guess it isn’t exactly easy to sell dozens of boxes of cookies and take care of all the organizational tasks that go along with that.

Take the Message to Your Home

Whether or not you (or your kids) are members of the GSA, the organization has some valuable lessons to teach:

• Learn from the times: There’s no denying our nation’s in a bit of financial turmoil right now. Rather than simply worrying about money, it’s smart to use the turmoil as a call to action to learn (or teach) as much as you can about matters of money and credit.
• Practice in real life: Kids can learn valuable money lessons at any age. Look online for tips about activities to do so your offspring start to get an idea of what goes into a household budget and what it takes to earn the money they spend.
• Reward progress: Even if your home isn’t on a badge system, you can set up rewards for when your kids demonstrate that they’ve mastered an important skill. Given the theme, why not offer to deposit money in a savings account or match their deposits?

Background: How Medicaid Works

The case before the Supreme Court involves a challenge to Medicaid, a healthcare system that requires the federal government to provide funding to states to subsidize medical care for elderly, low-income, and disabled citizens.

Federal support, in most states, accounts for the majority of Medicaid funds. States that choose to enact Medicare programs must agree to certain terms laid out by the federal government, one of which is paying enough to healthcare workers that they can afford to provide needed care.

California Cuts Challenged

Despite those laws, California, in efforts to balance its budget in 2008 and 2009, cut Medicaid funding by close to 10 percent in some cases. This was problematic because:

• California did not submit its cuts to the federal government for approval before passing them into law.
• When the cuts were sent in, federal officials denied them for not providing adequate funding to doctors and other healthcare providers.
• Despite federal opposition, California enforced the cuts and now faces a lawsuit brought by hospitals, doctors, and patients.

Everyone who participates in Medicare and Medicaid stands to lose if the California cuts are permitted to go through:

• Doctors would be paid less for their work and may have to turn away patients on Medicaid because treating them would mean operating at a loss.
• Hospitals could lose serious money on performing certain procedures for patients on Medicaid because state reimbursement for those procedures might not be sufficient to cover their costs.
• Patients on Medicaid risk losing access to medical care, because doctors and hospitals may turn them away for fear of non-payment or insufficient payment from the Medicaid system. As it is, sources report that more than half of California’s Medicaid patients (56 percent) cannot find medical care because of reimbursement problems at the state level.

Should the Case Even Be in Court?

In addition to the issue of whether or not the California Medicaid cuts are legal is the issue of whether or not this dispute belongs in the court system. The Obama Administration and California Governor Jerry Brown’s administration have apparently contended that the funding of Medicaid is an issue for the state to figure out on its own, without help from the federal court system.

On the opposite side, the lawyer representing the plaintiffs in the suit has reportedly said that California failed to show how it considered the interests of all parties in its funding cut decision. Rather, he claims, the state simply tightened its purse strings without following correct procedures.

The Supreme Court’s decision could impact the future of Medicaid recipients in California and possibly around the country.

The numbers paint a vivid picture of how the cost of college has changed over the last few years:

• In 2007, when Fidelity first conducted its study, only 58 percent of parents noted that they had begun saving money for their children’s education.
• More than 50 percent of parents who have children younger than five are still repaying their own student loans.
• Almost half of parents with young children are forking over about $576 each month for education or daycare costs for their kids already.
• In 2007, only 27 percent of parents with very young children had started saving for college; today, that group has grown to 40 percent.
• Based on expected and average savings rates, the average family today will be able to afford a mere 16 percent of college costs for its children. In 2007, the average family could afford as much as 24 percent.
• Since 2007, the cost of college has ballooned by 26 percent.

So, to summarize: more parents are saving money than before, but that money won’t go as far as it did in the recent past, thanks to ever-rising college costs.

Affording College

College can present some major financial conundrums for a family of modest means. After all, the statistics about college educations seem to argue both in favor of and against getting an advanced degree:

• Earnings potential: Most studies find that, despite rising education costs, college graduates have the potential to earn more over a lifetime of working than those who skip college.
• Student debt: The average college grad these days hits the job market with close to $20,000 in student loans. Considering that those loans are not dischargeable in bankruptcy and that the unemployment rate is not coming down, that debt could mean big problems for recent grads.

Still, there are intangible benefits a college degree can offer. FiveCentNickel.com suggests some unconventional college payment strategies for parents trying their best to help their kids thrive:

• Seek small scholarships. Though offers for hundreds of dollars may seem paltry compared to the total tuition price tag, admissions counselors may smile on the extra help and offer more aid. Give your kid the job of seeking out and applying for these scholarships during high school.
• Consider Advanced Placement (AP) courses. Offered free at high schools (plus a small fee to take the final test), these are accepted as credit at many universities.
• Consider other credit options. Classes at a local college or community college during high school can help your kid get general education credits out of the way for less than they’d cost at a four-year university.
• Think about transferring. Living at home may not appeal to your child, but offer a compromise: live at home and attend a community college or state university for a year or two to save money, and then go away for the remainder to get the “full” college experience.
• Push jobs. Asking a child to work part-time to help with expenses is a great way to help him or her learn how to handle money.

To understand why this is good news for consumers, a little history may be needed.

What Are Credit Card Arbitration Clauses?

Credit card arbitration clauses are little snippets of legal information (i.e. clauses) in credit card agreements that state:

• Any disputes between consumers and creditors cannot enter the legal system.
• Instead, these disputes go straight to arbitration.
• The arbitration system involves ostensibly “impartial” arbitrators who review the facts of the case and decide in favor of whatever party seems to be in the right.
• According to data analyzed by consumer advocates, arbitrators sided with the creditors in 99.98 percent of all arbitration cases in California (the only state where such data are made public).

Why such overwhelming favoritism of the creditors? Investigations into credit card arbitration cases show that many consumers may not even be aware that their cases are going to arbitration – notices generally come in the mail and consumers may assume they’re junk.

Plus, a consumer does choose to take action has to submit an argument in writing to the proper authorities, provide necessary documentation and outline the desired decision for the arbitrator to make.

Some sources suggest that arbitrators are even trained to favor creditors and penalized for finding in favor of consumers.

What Does the Bank of America Fine Mean?

The fine in this case comes as the result of a lawsuit that was filed in 2008. In the suit, Bank of America was charged with illegal and deceptive practices in its use of the credit card arbitration system. Those practices allegedly included:

• Not requiring debt collectors to show proof that consumers were aware of the arbitration;
• Employing lawyers not legally certified to practice in California;
• Charging consumers inflated fees to cover the bank’s legal costs; and
• Ignoring evidence submitted by consumers to favor their cases.

While Bank of America spokespeople apparently tried to downplay the decision, saying that the bank stopped requiring arbitration in 2009, the fine still translates to good news for consumers. Notably, it clears the path for potential a class-action lawsuit against Bank of America subsidiary FIA Card Services, which was responsible for much of the arbitration.

Bank of America is also now prohibited from working with the National Arbitration Forum, its former partner, for the next five years. These are all tangible benefits for consumers, and the good news continues: the San Francisco City Attorney who brought the initial lawsuit has stated that he may take further legal action against the parties involved in unfair arbitration practices.

That’s a frightening possibility, but it points to the larger economic problems affecting the country right now. So what might all this mean for folks exiting bankruptcy? Here’s a look at some steps to take after bankruptcy in an economic downturn.

Life after Bankruptcy in Tough Economic Times

Most of the guidelines for life after bankruptcy don’t change much in a down economy, but there are some tweaks that are important to take note of.

• Look at the causes. In a rough economy, this is more important than ever. If your income doesn’t cover your expenses, you need to find more work or, if that’s not possible in the current employment environment, set a new budget. Without assessing what caused your bankruptcy, it’s likely you’ll fall into old patterns and need bankruptcy help again in the future.
• Know what you want. Bankruptcy can make getting out of debt easier, but it’s not a stress-free solution. In a tight economy, you’ll have to work especially hard to get yourself into a healthy financial place. Setting specific, concrete goals can make that work easier.
• Check your credit report. At www.AnnualCreditReport.com, all Americans can view a credit report from each of three major bureaus once a year for free. Try doing this every four months (i.e. check your report from each bureau at regular intervals during the year) and correct any mistakes. Incorrect information on your credit report can lower your credit score, making everything from jobs to apartments tougher to nab.
• Rebuild credit slowly. Lenders aren’t offering credit cards as freely as they used to, and it may be especially hard to get credit right after a bankruptcy filing. But the key here is “slowly.” Check credit card offers a few months after bankruptcy and if nothing looks good, wait a while and apply again. Then, pay your bill in full each month. This will go a long way toward establishing your credit.
• Be wary of scammers. Predatory lenders prey on the most likely victims. In the credit-building world, that often means people with bankruptcies in their recent past. Move slowly with new credit offers. Have a trusted friend or advisor review any loan terms you get to make sure they’re not exorbitant and won’t lead you back into debt.
• Lean on others. One upside of exiting bankruptcy during hard times is that you’re definitely not alone in your financial struggles. Online forums and community-based groups can go a long way toward supporting and sustaining you as you recover and rebuild from bankruptcy.