A person's credit history (also known as credit score or credit file), is a detailed record of how he/she has managed debt over time. It lists credit accounts and their outstanding balances, how often the individual was late in paying an account, whether any account for that person was ever turned over to a debt collector, whether the IRS ever put a lien on that person's assets, and whether any creditor ever obtained a judgment against that person after a lawsuit.  The credit history also shows whether that person ever filed bankruptcy.

Each of the credit reporting agencies collects information from public records and then maintains that information in a computerized database.  The information can then be sold to anyone the law says is entitled to use it.  Basically that includes five groups:

Creditors use your report in deciding whether to increase or decrease credit limits, or even whether to cancel the account, as well as to decide whether to lower or raise the interest rate you're being charged or to leave it as is.

Employers initially use your report to help decide whether to hire you.  Later, the report helps an employer decide whether to give you a promotion (or a demotion), or whether to fire you.

Insurance companies use your credit report to decide whether to sell you insurance and whether to charge you standard rates or increased rates.

Landlords use the credit report to help decide if they want to rent you an apartment - or an office for your business. The landlord wants to know if he can depend on you to keep up your rent payments.

Government agencies use the credit record to help decide if you are to be given a security clearance or perhaps a special license for which you've applied.

Your credit record can be restored after bankruptcy.  While a Chapter 7 bankruptcy will stay on your credit report for ten years and a Chapter 13 for seven years, you will be able to rebuild your credit. 

As a bankruptcy attorney in Indiana for almost twenty-five years, the one thing I want to stress to everyone is this: Your credit report is your passport.  Don't leave home without it. You won't get very far!

Bankruptcy actually goes back to Bible days.  (Remember the part about debts being forgiven in the Sabbatical year and the Jubilee year?)

When the U.S. Constitution was written in 1776, it included a provision for bankruptcy.  In 1800, Congress passed the country's first bankruptcy law, which applied only to businesses.  That law was repealed in 1803.  Then, in 1841, a new federal law was enacted that applied to both businesses and individuals. It, too, was repealed two years later.  A third version was enacted in 1867, and it lasted 11 years before being killed by creditors' protests.  In 1998, Congress passed a fourth bankruptcy law that became the foundation for our laws today. The basic ideas embodied in that law were protecting debtors from collection activities, and allowing a "reorganization" of debt.

Changes to bankruptcy law were hardly over.  There were laws passed in 1938, 1978, and 1994. Each was later repealed.  The very latest version of the law, adopted in 2005, was the Bankruptcy Abuse Prevention and Consumer Protection Act.  This new law established a "Means Test" for debtors, and put into place the limits on collection activities I talked about in my earlier blog, What Can't Debt Collectors Do?. 

Over the decades, the bankruptcy legal system, as you can see, has gone through quite a number of changes and adaptations.  In an effort to keep our capitalistic society running smoothly, it's important to provide a safety net for citizens who have fallen on hard times and who need a fresh start.  Some bankruptcy filers are entrepreneurs who have taken an honest risk in establishing a business and were then overwhelmed by forces beyond their control in the economy.  At the same time, unless the creditors' rights are protected by the law, lenders will not be willing to take the risk of providing loans to those entrepreneurs or extending credit to consumers.

The process of creating bankruptcy laws that are fair to all parties is a balancing act at best, but as I well know (having helped write the exemption portion of the most recent Indiana bankruptcy laws), many good people, over a period of many, many years, have devoted their best efforts to the task.  

When it comes to jobs in Indiana (a subject in which I have an intense interest as I help my Indiana bankruptcy clients rebuild their finances), the president of the Fishers Town Council, Scott Faultless, hit the proverbial nail on the head:  "Businesses are looking to come to a site where they can find employees with the requisite level of education and the ability to get additional education close by" (Indianapolis Business Journal, July 14-20). 

The past couple of months, I've been writing in these bankruptcy blogs about new jobs that are being created all over Indiana.  The crucial thing, though, for people who've suffered job layoffs and are trying to avoid bankruptcy and foreclosure, as well as for people emerging after bankruptcy and trying to get their finances back on track, is that they must be able to qualify for these newer, high skill/ high tech jobs that are coming to our state.  I'm especially thinking of the folks who filed Chapter 13 bankruptcy, taking on a three to five year repayment plan.  Well-paid jobs are essential if these plans are to succeed.

Fishers, Indiana just hired Mark Long, who built I.U.'s Energy Technology Center, to spearhead the development of a new Research and Technology campus in Fishers.  Meanwhile Indiana has been adding bioscience jobs faster than all other types, in fields including medical devices, agriculture, medical research, and pharmaceuticals. Indiana now has almost 50,000 bioscience jobs.

The challenge will be to fill those jobs, not only with new graduates, but with retrained mature employees from manufacturing and other industries.  Training will be the byword for our state.  Training will certainly be the key for many of my Indiana bankruptcy clients as well as for those I'm helping avoid bankruptcy or foreclosure.

I've mentioned often in these Indiana bankruptcy blogs that divorce is one of the three leading factors leading to bankruptcy (along with medical expenses and job layoffs).  Sometimes, it's financial problems that cause divorce; often divorce leads to financial problems for one or both of the couple.  Whichever the chicken or the egg, these two negatives, while they may add up to a positive in arithmetic, (and even, in the long run, for the participants), short-term, they spell t-r-o-u-b-l-e.

Three basic principles are worth knowing right off the bat:
a) Bankruptcy deals only with debts that exist on the day you file.  That means, if a divorce decree creates any obligations after that day, those won't be included in the bankruptcy. 
b) The general rule is that support obligations you already have from a divorce (child support, life and health insurance premiums, and alimony, for example) are not changed by the bankruptcy.
c) If you're the one receiving the support, generally that money is exempt if you were to file bankruptcy.

Obviously, both divorce laws and bankruptcy laws are too complicated to be explained in three bullet points. I offered some further details in former blogs ("Together For Debtor Or Worse" and "Together For Debtor Or Worse - It Depends"), Having both your professional advisers (the divorce attorney and the bankruptcy attorney) talking to each other is a very, very good idea.

If divorce and bankruptcy are visiting your life at the same time, you're suffering more than your share of stress, that's for certain.  Try to remember, this, though: both legal proceedings - divorce and bankruptcy - have the same basic goal, namely helping you make a fresh start.  (People going through divorce and bankruptcy can use a fresh start - big time!)

As I've mentioned often before in these Indiana bankruptcy blogs, divorce is one of the three leading factors leading to bankruptcy (along with medical expenses and job layoffs).  Sometimes, it's financial problems that cause divorce; often divorce leads to financial problems for one or both of the couple.  Whichever the chicken or the egg, these two negatives, while they may add up to a positive in arithmetic, (and even, in the long run, for the participants), short-term, they spell t-r-o-u-b-l-e.

Three basic principles are worth knowing right off the bat:
a) Bankruptcy deals only with debts that exist on the day you file.  That means, if a divorce decree creates any obligations after that day, those won't be included in the bankruptcy. 
b) The general rule is that support obligations you already have from a divorce (child support, life and health insurance premiums, and alimony, for example) are not changed by the bankruptcy.
c) If you're the one receiving the support, generally that money is exempt if you were to file bankruptcy.

Obviously, both divorce laws and bankruptcy laws are too complicated to be explained in three bullet points. I offered some further details in former blogs (Together For Debtor Or Worse and Together For Debtor Or Worse - It Depends), Having both your professional advisers (the divorce attorney and the bankruptcy attorney) talking to each other is a very, very good idea.

If divorce and bankruptcy are visiting your life at the same time, you're suffering more than your share of stress, that's for certain.  Try to remember, this, though: both legal proceedings - divorce and bankruptcy - have the same basic goal, namely helping you make a fresh start.  (People going through divorce and bankruptcy can use a fresh start - big time!)

In my Indiana bankruptcy blogs, I've been sharing both good news and bad about the job market in different parts of the state.  As a bankruptcy lawyer, I have a very intense interest in jobs, which are a key factor for my clients as they rebuild their financial lives following bankruptcy.  While we Hoosiers have enjoyed quite a lot of excellent news on the economic development front, the airline industry has delivered another bad news blow.

In earlier blogs, (see ATA Business Bankruptcy Plan Blown To BIts and More On The ATA Business Bankruptcy Story), I noted that 560 Indianapolis workers lost their jobs when ATA shut down.  Now we learn that Republic Airways will eliminate 500 jobs in the next few months.  Republic focuses on a business sector different from the one ATA served.  ATA transported supplies and troops via FedEx for the Pentagon, while Republic flies on contract for big airlines (Continental Connection, Delta Express, American Connection, U.S. Airways Express, etc.).  These big airlines are reducing operations, hence the reductions at Republic.

Having served as a consumer bankruptcy attorney for close to twenty-five years,
I know all too well that job layoffs are one of the three leading causes of bankruptcy.  I also know that airline jobs tend a)to be on the higher end of the pay scale and b) to require skills not easily transferable to other industries (think about all the pilots, for example - Republic had hired 670 new ones not longer than a year ago!)

It's hard to keep planes soaring when oil prices are doing that.

As I've explained in earlier bankruptcy blogs, the two most often-used types of bankruptcy to provide relief from consumer debt are Chapter 7 and Chapter 13.  By way of quick review, a Chapter 7 bankruptcy is a liquidation bankruptcy.  While that only occasionally happens, the bankruptcy court trustee can take legal possession of the debtor's assets (except for certain assets that are exempt under the law), sell those assets, using the cash to pay each of the creditors at least part of what is owed.  Then, some of the remaining debts are discharged, meaning forgiven.  (Of course, there are debts that cannot be discharged, including child support, alimony, most student loans, and certain taxes.)

Chapter 13 bankruptcies, by contrast, are reorganizations.  This form of bankruptcy usually allows a debtor to keep most or all of his assets and to arrange a full or partial repayment of debts over a three to five year period.  All of the debtor's "disposable" income goes towards repaying the Chapter 13 debts according to the agreement.

One very ironic thing that happens around bankruptcy courts is that creditors' representatives stand outside the courtroom waiting for the proceedings to conclude.  They then approach the person who's just filed bankruptcy and make an offer to "reaffirm" the debt owed to that company.  Say you've just had your debt to ABC Company discharged and wiped off the records in court as part of your Chapter 7 bankruptcy.  Now ABC is offering you new credit if you'll take the old debt back as well. Needless to say, almost never (there could be some exceptions with very small debts) is this offer anything but a trap for the unwary.

Renew your vows with a spouse?  Wonderful idea!  Reaffirm your debts?  Before even considering the possibility, better renew your talks with your consumer bankruptcy attorney!

With many of the financial woes I hear about (particularly in my Indianapolis bankruptcy law office) having to do with housing problems, it's nice to learn about a very successful Indianapolis affordable housing option.

Mapleton Park is a 25-unit apartment building in the Fall Creek area of Indianapolis.  This location provides affordable housing plus support services for homeless and very low-income families, including veterans.

The sponsor of Mapleton Park is Partners in Housing Development Corporation.  This group purchases buildings that are largely unoccupied and turns them into housing.  The funding for this particular project came from a Federal Home Loan Bank grant.

In my Indiana bankruptcy blogs, I always stress that the most important chapter of any bankruptcy story is the sequel, because that's the stage at which I help people rebuild their financial lives after emerging from bankruptcy.  I was happy to hear that Partners in Housing has the same idea.  Working together with the Homeless Initiative Program, Partners in Housing helps the homeless with employment and training opportunities so that those folks can become productive citizens again. As a bankruptcy attorney in Indianapolis and around the state of Indiana, I applaud initiatives like this one at Mapleton Park.

My banker friend R. (who shared the sad story about the Oregon homeowner who'd waited until it was too late to get help avoiding foreclosure) told me his thoughts, as a real estate banking professional, about that story and about the "mortgage mess" in general.

"In this case, the reason the man got behind on his mortgage isn't the important thing. People tend to want to look for blame.  I think it's almost ingrained in us to do that now.  It doesn't matter if the man originally got his mortgage by looking only for the lowest rate and not seeking the advice of an experienced mortgage lender.  It doesn't matter if he lied on his application to inflate his income.  It doesn't matter if his mortgage lender got him approved for a mortgage that was high risk just to make a commission.  I don't know if any of those things happened and frankly don't want to know.  The bottom line and lesson here is that the homeowner waited too long to get help, just hoping that things would 'work themselves out'. I don't know this individual well, but it's pride, in my experience, that has been the reason people don't seek help."

"It's important to remember", added R., "in this mortgage environment, banks really don't want to own your home.  There are options to help people in trouble, and it's extremely important to get out in front of the trouble immediately.  It could be the difference between losing or keeping your home."

My goodness, R.!  You must have been reading my bankruptcy blogs - I couldn't have made the case any better than that!

Although my bankruptcy law offices are all in the state of Indiana, I like to stay on top of bankruptcy, foreclosure, and consumer debt news in other parts of the country. R., my banker friend from Portland, Oregon (the one who told me the story I shared in West Coast Story About Blockbuster Builder Gone Bankrupt) told me another true story, this one about a foreclosure that might have been prevented, but wasn't.

R. received a call from a client saying a neighbor of his needed R.'s help and advice. The neighbor then got on the phone and explained to R. that he'd be losing his home to the bank in one week.  The house had been appraised at $650,000 or so, and the mortgage balance was just under $400,000.  R. began calling around to his own bank people and other lenders, but a loan package couldn't be put together quickly enough.  In fact, had there been just two more working days, a private temporary loan might have been worked out and the foreclosure might have been postponed long enough to obtain permanent refinancing.  The worst of it is that, in Oregon, the owner loses his equity in a foreclosure.  By waiting too long to get help, this debtor lost all his options, and also the equity he'd built up in the home..

As I emphasize in many of my bankruptcy blog posts (see Going, Going, Gone On Home Foreclosures), during the twenty-plus years I've practiced bankruptcy law, I have been urging folks to get professional advice as soon as their circumstances take a downward turn.  The earlier I can help clients explore different options and negotiate with their creditors, the more options will be open to them.

When people visit with me in one of my Indiana bankruptcy law offices, they typically have many concerns to share. It may not even be the case that these individuals or couples are on the brink of bankruptcy.  They have simply followed my often-repeated advice about seeking help at the first signs of financial downslide. It might be a single mom, who got hopelessly behind on her bills after being laid off.  Or it might be a business owner who's worried about how filing a business bankruptcy might affect his family.  In these and in dozens of other situations, it doesn't necessarily mean these individuals are totally out of money.  More often it means their regular income (whether business or personal) has diminished.  Perhaps this is due to a business downturn, a layoff, an illness, an unexpected property tax increase, property storm damage, or even a divorce settlement.  Whatever the causes, their income is no longer enough to cover the bills without invading retirement accounts or savings for children.

In former bankruptcy blogs, I've emphasized that money kept in retirement plans such as 401K's is exempt from creditors under federal bankruptcy law (Money Double-Exempt In 401K). In fact, as I stressed in that earlier blog, Indiana bankruptcy law protects all kinds of employer retirement plans from creditors.  And, under the newest law (I helped write these exceptions, by the way!) even Individual Retirement Accounts are protected.  The concept is to provide financial security for people's later years even though these same people are undergoing financial difficulties now.  People coming to see me to discuss their options typically aren't aware that, even were they to file bankruptcy, their retirement assets would be protected, and they find this information extraordinarily reassuring.

One kind of money that almost all parents absolutely resist touching, even when it's tempting to do so during a financial squeeze, is savings accounts for children.  Here, too, I have reassuring information to share, in particular about two types of accounts for children: college tuition savings plans called 529s, and Coverdell Education Savings Accounts or ESA's.  In bankruptcy, any money that's been in a 529 or ESA account for longer than two years is exempt from creditors.  Money that's been in longer than a year but not quite two is exempt up to $5,000, and only money contributed within the year leading up to a bankruptcy filing can be taken by the court to pay creditors.  Just as with the retirement plan money being protected for a person's later years, here, too, there's an underlying principle at work.   Congress is recognizing the crucial importance of educating our children. 

The bottom-line message in all this:  As a society, we need to encourage savings to educate our young and promote savings towards retirement security for our older citizens.  If things fall apart in between - that's where the bankruptcy court safety net comes in to play.

As of the beginning of this month, all but one of the 38 Indiana counties served by my Indiana bankruptcy law offices have been added to the federal disaster declaration list. This is one of those bad news/good news things I am so used to in my line of work.  What I mean is that, when clients come to see a bankruptcy attorney, they're wrestling with bad news, not good.  Nevertheless, it's good news that they've sought professional help, so we can get to work on them making a fresh start. I think the news about the disaster list falls in the same category. Obviously the flood damage is very, very bad news.  The fact that help is available for eligible individuals and businesses to recover from the effects of severe storms and flooding, though, is the beginning of something good.

The latest two counties to be added to the list are Hendricks (Danville area) and Tippecanoe (Lafayette areas).  Officials from the Indiana Department of Homeland Security and the Federal Emergency Management Agency (FEMA) made the announcement on July 1st.  Counties already included are Adams, Bartholomew (which I mentioned in my blog on Columbus, With HUD Help, Columbus Homeowners Hit By Flooding Might Avoid Foreclosure), Brown, Clay, Daviess, Dearborn, Decatur, Gibson, Grant, Greene, Hamilton, Hancock, Henry, Huntington, Jackson, Jefferson, Jennings, Johnson, Knox, Lawrence, Marion, Monroe (Bloomington area), Morgan, Owen, Parke, Pike, Posey, Putnam, Randolph, Ripley, Rush, Shelby, Sullivan, Vermillion, Vigo, Washington, and Wayne.

As a personal and business bankruptcy attorney in Indiana, it's vital that I help my clients locate and then navigate all the resources available to them to avoid foreclosure, negotiate with creditors, and then, if bankruptcy is inevitable, select which class of bankruptcy filing is best for their situation.  Many Indiana residents were under severe financial pressure even before the flooding, due to some combination of the usual factors that lead to bankruptcy (medical expenses, divorce, job layoffs, housing crisis, and tax liens).  Storm damage to homes and business in these counties only added to the problem. But apparently help is not merely on the way - it's here!  My task is to help people find and use that help. 

Being a bankruptcy lawyer in Indiana is all about help - giving help and finding help.  Lately, Indiana homeowners in many of the 38 counties I serve have been needing all the help they can get.  Columbus, in Bartholomew County, is one of the four cities in which I have bankruptcy law offices, and that area was one of the hardest hit.   In an earlier blog, For Flood Victims, FEMA Aid Can Help Without Hurting In Bankruptcy, I talked about the special aid offered through FEMA (Federal Emergency Management Agency), through the Small Business Administration, and through the Indiana Bureau of Motor Vehicles.

Helping clients avoid foreclosure on their home (whether they are renters or owners) often plays a large part in the assistance I offer through my four Indiana bankruptcy law offices. It's important for me to be familiar with all the resources available to clients facing possible foreclosure.  It was welcome news to me, therefore, when HUD (U.S. Housing and Urban Development) announced support for homeowners and low-income renters forced from their homes during the severe storms.  There are several varieties of help offered, but one of the most significant is that HUD is granting immediate foreclosure relief by granting a 90-day moratorium on foreclosures of FHA insured home mortgages.  HUD also urged loan servicing companies to offer loan modifications, re-financings, and to waive late charges.  What's more, HUD has a loan program for rehabbing homes that are salvageable. These relief efforts are being offered in almost all the counties I serve, but Columbus was certainly one of the hardest-hit , with hundreds of homes and dozens of businesses severely damaged or even totally destroyed.

Emerging from bankruptcy always involves rebuilding of financial lives.  Now, because of the flood damage, many of my clients will be involved in rebuilding of another sort as well.  By helping my clients locate and take advantage of all the different flood assistance resources, I'll be involved in their rebuilding process on both counts!

April 8th of this year was the day ATA shut down.  Company founder George Mikelsons had stepped down three years earlier, but apparently his debts didn't depart along with him. 

In an earlier bankruptcy blog, ATA Business Bankruptcy Plan Blown To Bits, I explained that, unlike a personal bankruptcy, in a business bankruptcy, debts are not discharged by the court.  Compromises may be negotiated with creditors, but, once that's done, remaining debt is paid by liquidating the assets of the company.   The bankruptcy court then administers the process of paying off the creditors. 

In 2004, Mikelsons borrowed almost $700,000 from the company.  Then, when he resigned a year later, he agreed to make quarterly payments on the debt.  Since he'd negotiated a non-compete agreement with ATA and was going to receive quarterly payments from the company under that agreement, Mikelsons also agreed to turn that non-compete compensation back to the company as part of repaying his debt. The final payment from Mikelsons to ATA (actually via the bankruptcy trustee) is due in January of next year.

This story is just one of tens of thousands of stories from bankruptcy court.  It is a good example of what I emphasize is the bankruptcy process.  Bankruptcy, whether personal or business, is not an "event", but a system that continues to work to restore stability to a financial situation, to oversee the sale of assets to repay debt, to oversee periodic payment plans, and, to the extent possible, keep the entire business system working as smoothly as possible.  My job as a bankruptcy legal professional is to steer clients through the various stages of that process so that they can emerge ready to rebuild their financial lives.

A banker friend from Portland, Oregon who specializes in working with builders shared with me a sad (and all too familiar-sounding) bankruptcy story…
 
A young entrepreneur began his career building one or two homes each year.  His unique homebulding style attracted the attention of other customers, and soon this builder could hardly keep up with the demand for his custom-built homes.  Over the next few years, he ramped up production, and was recognized in the local business press as being one of the Top Ten Fastest Growing Companies in the area. Buoyed by his success, this now thirty-year old businessman took on the task of building three subdivisions, each with 11-17 lots.  Unlike the initial homes, these were "spec" homes, meaning there was no customer paying for the work.  As each home was built, it became the property of the builder, with the loans were guaranteed by his personal assets until such time as he could find a buyer for that home.

Well, knowing what's happened with the housing market across the U.S., you can surmise the unhappy ending to this story.  The builder faced $3,000-$4,000 a month loan payments on each home, and it didn't take very long for him to run out of cash.  The new owners of these homes are, or soon will be, the lenders.  This business "star", known for large contributions to charitable causes, had to turn to the bankruptcy courts for help.

As a bankruptcy attorney in Indiana who deals in business as well as personal bankruptcy, I've seen many different versions of this same story played out, at least on a smaller scale, with clients in our own state.  In my earlier bankruptcy blog, "Yes, Your Business Can File Bankruptcy Without You", I noted that a business can file for bankruptcy (if it's a corporation or an LLC) without its owner filing bankruptcy.  But the fact is that, for most entrepreneurs, business and personal finances are closely intertwined (just as was the case with the builder in our story).  And, while the leading causes of personal bankruptcy include job loss, divorce, and catastrophic medical expense, with business owners sometimes the main cause is business reversal.  Business owners - all business owners - take on risk. Sometimes that risk doesn't pay off. Hearing this West Coast  story, we can comment on the fact that, had this builder kept on putting up just a few custom homes each year in his local market, he would not have been so dramatically and tragically affected  by the market downturn in real estate.  Hindsight is 20-20, as they so aptly say.

This is a really sad story, you'll agree, and yet, in a perverse way, (at least to me as a professional in bankruptcy law), it demonstrates the "natural order" of things. Having business owners willing to take risks is a large part of what keeps our capitalistic system going 'round; having the safety net of the bankruptcy system is what keeps those business owners willing to keep trying.  I will be happy (and not surprised) to hear from my banker friend, someday in the not-too-distant future, that this young builder's once again made the Top Ten list.

When a person gets behind in paying debts, creditors begin to take action. And, when that happens, as I've warned many times in earlier bankruptcy blogs, it's time for the debtor to take action, too.  Telephone calls at home and at work from creditors could be just the beginning.  Foreclosure proceedings may be started against a debtor's home.  Automobiles may be repossessed, along with other property.  If creditors obtain a court order they may garnish wages, put liens on property, even seize bank account.  Working with a bankruptcy attorney can help avert a good deal of the ensuing pain, provided steps are taken before matters become worse.

Despite some myths, most bankruptcies are very private affairs. The rare exceptions tend to involve well-known local business leaders or political figures.  These unfortunately cases serve as a reminder of how business failures can sink even the most experienced of entrepreneurs.

Sometimes the first episode of a story is a Chapter 7 business bankruptcy.  Then, sometimes, a personal bankruptcy filing will follow, especially if the business was involved in lawsuits and ends up losing in one or more of those.  In the background there might be tax issues compounding the problem.  With wages garnished to pay back taxes, it can be very difficult to catch up and begin to rebuild financially.  Although, as I explained in my earlier blog, It's The Business, Stupid!, corporations and LLC's can file bankruptcy without the owner himself filing, the cumulative effect of many business debts and back taxes owed can resulted in personal bankruptcy even for some very once proud business personalities.
As a bankruptcy attorney in Indiana specializing in both small business bankruptcy and personal bankruptcy, I'm saddened but not surprised when I encounter, in my work with clients,r the sequence of events I just described    Almost all small business owners' personal and business finances are closely intertwined.  In fact, a 2005 study published in the California Law Review reveals that more than 20% of personal bankruptcy filings are business-related.  The bankruptcy system is designed to provide a safety net and a fresh start in situations like this. For a free capitalistic system to work, entrepreneurs need to be willing to take risks.  The fact that there is a "last resort"  in place when the best efforts fail serves as encouragement to do just that.

As a bankruptcy lawyer with one of my four Indiana offices located in the city of Anderson, I'm always alert for news affecting that town.  Anderson has been particularly hard hit by the General Motors pullout, which began in the mid-seventies and accelerated in the 90's, eliminating more than 20,000 jobs.  Many downsized workers, some who faced medical illness along with job loss, ended up filing bankruptcy.  Retail establishments of all types suffered, because there was little money for customers to spend; the entire area was in economic blight.   Some familiar symptoms included increasing numbers of people using expensive debt consolidation services and payday loans.

Today, slowly but surely, Anderson is rebuilding, in large part due to a project called the Flagship Enterprise Center, a collaboration of Anderson University and the City of Anderson.  Flagship is a business incubator and accelerator, using engineers and other experts, many once employed at GM plants and research facilities, to help "host" new companies.  These companies include automotive firms, but also software, medical equipment, and other product lines.  Thirty of these fledgling companies are still housed at the Flagship Center itself, which is off Exit 22 of the I-69 highway.

As a bankruptcy attorney in Indiana, I know how crucially important it is for our state to create new, good-paying jobs.  For debtors emerging from bankruptcy, their getting back on track financially will depend in large part on the availability of jobs that can in turn provide steady, decent wages.  One of Flagship's functions is to help companies recruit and train workers in the newer technologies and businesses that are replacing the old manufacturing plants.  Increased hiring by these new enterprises in turn will mean more money being spent in local stores, beauty salons, restaurants, movie theatres, and furniture shops.  I hope that, over time, employment growth will mean fewer people buying groceries using credit cards or turning to payday loans to tide them over to the end of each month.  I expect it will mean fewer foreclosures and more people buying health insurance, opening bank accounts, and investing in IRAs.   In Madison County, Indiana, as the Broadway song goes, "This could be the start of something big."

In my bankruptcy blogs, I like to keep readers up to date on business news, particularly as it relates to the job situation in our state.  As a bankruptcy attorney in Indiana for close to 25 years, I know "the morning after" is the most important stage in the bankruptcy process.  And, in order for clients to get back on track in their financial lives following bankruptcy, they must be able to keep or find jobs with good pay.

In earlier blogs, I wrote about the Medco plan to build a gigantic distribution center in Whitestown that will dispense up to one million prescriptions a week, creating 1300 new jobs.  1400 more jobs will be coming to Tipton County next year, because Getrag Corporation is constructing a big transmission plant there. (Since I have law offices  servicing 38 different counties in Indiana, all these news items are important to me on behalf of my clients in these different places.)  Now, I've learned, in Cambridge City, Really Cool Foods will be hiring 1000 workers for its new distribution facility.  RCF is a New-York based distributor of natural and organic prepared foods (which you may have seen at Kroger, Whole Foods, and Trader Joe's).

Indiana has certainly had its share of economic woes, but economic development seems to be making wonderful progress in the central part of our state.  As an attorney for both individuals and small businesses, I know what a boon this kind of development can be for my bankruptcy clients who are rebuilding their lives.  When I hear really cool news like this - well, as Martha might say, "It's a good thing!"

Small businesses hit by the record flooding in our state may be at risk for insolvency.  In my earlier bankruptcy blog, Floods Of Trouble Can Cause Bankruptcies In Indiana, I explained that, if a business is structured as a corporation or LLC, the business itself can file bankruptcy independent of the owner.  On the other hand, sole proprietorships and partnerships would have only the option of individual bankruptcy.

Meanwhile, for business flood victims, the U.S. Small Business Administration is offering two types of loans that might help at least some business stave off bankruptcy.  First, Physical Disaster Loans of up to $1.5 are available to repair or replace damaged real estate property, but also equipment and inventory.  Second, Economic Injury Disaster Loans, also in amount up to $1.5 million, can help meet expenses the business would have paid had the disaster not happened.  Both types carry interest rates no higher than 4%.  The phone number of the SBA is 1 800 659 2955, and the website is www.sba.gov  sba.gov.      

While the level of flooding in Indiana this year was greater than for the past half-century, I, as a small business bankruptcy attorney in Indiana for almost half that time, have worked with hundreds of small businesses hit by storms, flooding, and fire during that time.  My advice for all business owners remains the same:  Begin just as soon as possible after the disaster to assemble your "comeback team", including your insurance professional, representatives of the SBA and other agencies that can help, and a bankruptcy attorney.  This is one time where a bankruptcy attorney may actually be the best person to help a business avoid bankruptcy, by coordinating negotiations with creditors and by providing critical legal advice.

Bankruptcy’s in the news – again, but this time it’s not the usual individual or small business involved with bankruptcy court.  And it’s not one of the big manufacturing companies, either.  I’ve been reading about two cities, Vallejo, California, and McCall Idaho.  As a bankruptcy attorney in Indiana, I’ve helped tens of thousands of people through the process of bankruptcy.  I don’t typically work with cities and towns, but with individuals, families, and small businesses.  The fact is, though, that cities and towns file for bankruptcy, too.  For most of our history in this country, cities and towns weren’t eligible for bankruptcy protection. During the Great Depression, when more than 2000 municipalities were forced to default on their debts during Roosevelt’s presidency, laws were enacted that allowed municipalities to file bankruptcy.  A new section of the bankruptcy code, Chapter 9, was approved just for municipalities. (In an earlier bankruptcy blog, Yes, Your Business Can File Bankruptcy Without You, I talked about Chapter 7, Chapter 11, and Chapter 13 for individuals and businesses.) 

The three main causes for bankruptcy among individuals are job layoff, unusual medical expenses, and divorce. In the past year, falling home prices and property destruction due to floods, storms, and hail damage have all added to the pain.  In the case of municipalities, the big three causes appear to be losing big lawsuits, mismanagement, and distress in the economy.  Just as with individuals, when a municipality’s credit rating declines, it has trouble getting new credit to use for expenses (meaning to provide regular services to the people who live there).

When a Chapter 9 bankruptcy is filed, there’s one major difference as compared with individual or business bankruptcy.  There’s no provision in Chapter 9 for liquidating assets and using the money to pay creditors, as would happen in other forms of bankruptcy.  Usually reorganizing debt (bonds issued by the municipality) means lengthening the maturity date of the bonds to buy more time for repayment, or reducing the interest rate on the bonds.  Since “something’s gotta give”, as the saying goes, essential services may be reduced in that city, county, or town, even cutting back fire and police staffing or reducing social services staff. Projects such as building new bridges or new schools will probably be put on hold.  Most important, a city filing bankruptcy carries a much worse stigma than a corporation or even an individual. Municipalities will try anything to avoid using Chapter 9.

The first large municipal bankruptcy was filed in 1991 by Bridgeport, Connecticut.  The largest Chapter 9 was Orange County, California in 1994. New York City came very close to bankruptcy in 1975, but with Congress’ help, never went over the edge. What’s happened in McCall is that they owe $5 million to a contractor for remedying environment concerns, and that contractor is suing to have the debt all paid now.  Meanwhile, in Vallejo, ongoing negotiations with the fire and police unions have exhausted the city’s reserve funds.

In both cases, the problems have been building for years, with each administration trying to stave off the inevitable.  Although, as I said, my everyday work is not with municipalities but with individuals, the news out of Vallejo and McCall reinforces my plea for people to deal with financial problems early on.  The earlier in the process people begin to strategize and take steps to mitigate the problems, the more options will be open to them.  I’m no doctor, but when it comes to bankruptcy, early treatment offers the best chance for a cure!