Personal bankruptcies almost always fall into one of two categories - Chapter 7 and Chapter 13.  As I know from having helped write the latest version of Indiana bankruptcy exemption law, these two types are, in a way, like the two sides of the income coin.  Simply put, consumers who have income might have the means to repay most or all of their debts over time.  Those who don't have income, either because they can't work or because they were laid off and haven't been able to find new employment, obviously can't repay their debts, and so they file Chapter 7 bankruptcy under which some of their debt can be discharged, or forgiven. 

In fact, during the more than twenty years I've been a bankruptcy lawyer in Indiana, one of the truly important functions of my work with clients is understanding the ins and outs of the "bankruptcy means test" so that I can advise clients which chapter of bankruptcy is most appropriate given all their circumstances.  While some clients have income from veterans' benefits or other government programs, it's fair to say that income and jobs are very, very closely related. And while most personal bankruptcies are the result of a combination of factors building up over time, job layoffs are certainly one of the big causes leading to bankruptcy along with medical costs and divorce.  The job market itself is changing, and finding new employment can be very challenging, as I wrote in It's Not Your Daddy's Job Market.

Some newspaper and magazine articles I've been reading lately talk about entrepreneurship in Indiana being up because of job layoffs - the idea being that people lose jobs, then start their own businesses.  Needless to say, it's not that easy; most people who lost jobs don't have enough money saved up to launch a business, and getting credit is a lot harder these days as well.  Sharon O'Donahue, executive director of Business Ownership Initiative of Indiana, interviewed for an Indianapolis Business Journal feature, advises getting creative.  "Today, it's about patchworking income - threading together sources of income that meet household needs."  I know one thing for sure: - clients emerging from bankruptcy will need to be especially creative as they work on rebuilding their financial lives, so the phrase "patchworking income" is likely to become an integral part of my discussions with my Indiana bankruptcy clients.

Foreclosures have been featured a lot in the news lately.  In one of my very earliest bankruptcy blogs, Dis Or Dat? Foreclosure Or Bankruptcy?, I pointed out that there is no "one size fits all" solution, and that designing exactly the right plan for each client's situation is what my work as an experienced bankruptcy attorney is about.  In other words, in working with some clients, it's best to create a strategy focused on avoiding foreclosure, and in other situations, that may not be the way to go.

In deciding which form of bankruptcy to file, one of the factors to consider is that a Chapter 13 bankruptcy offers individuals an opportunity to save their home from foreclosure.  A chapter 13 can be referred to as a wage earner's plan of bankruptcy, because it is meant for people who have regular income coming in that they can use to make installment payments to their creditors. To qualify for a Chapter 13 bankruptcy, a person's unsecured debts (such as credit card bills, utility bills, and medical bills) must fall within certain limits (the number is indexed for inflation, and it's now $336,900.)  Their secured debt (such as car payments and mortgage) also must fall within a limit (now $1,010,650).  The process is quite detailed, one reason it's important to seek expert legal counsel.

The point I want to bring out here, though, is that, by choosing Chapter 13 rather than other forms of bankruptcy, individuals can stop foreclosure proceedings on their home.  If they are approved for a Chapter 13, they will "cure" their delinquent mortgage payments, but they'll be able to do that over time (three to five years), all the while keeping up with the regular mortgage payments and saving the home.

A second reason some people choose to file a Chapter 13 bankruptcy is that this kind of bankruptcy has a special provision that can protect co-signers on consumer debt.  In some situations, this can be very important in protecting the assets of parents, spouses, or adult children. (In a Chapter 7 bankruptcy, by contrast, co-signers are not excused from liability.

Over almost twenty-five years of practicing bankruptcy law in Indiana, one important lesson I've learned is that people's financial lives tend not to be cut-and-dried; each situation has different factors that must be weighed in coming up with a plan that is the least damaging to the people involved, as well as to their families, business partners, and creditors.  Yet it's important to choose a plan that offers bankruptcy clients the greatest chance for rebuilding their financial lives.  Sometimes, after a long day in my office or at the bankruptcy court, I find myself sighing, "It ain't easy, being a bankruptcy attorney!"  But then I remind myself how rewarding I find this work, because I know I'm helping people get a fresh financial start.
 

In my earlier bankruptcy blog, Affordable Housing At Mapleton Park, I highlighted an affordable housing project in the Fall Creek area of Indianapolis.  I explained that, as a bankruptcy lawyer in Indiana, I take an interest in all news that affects my clients.  I'm especially interested in news about two topics: housing and jobs.  You might even say those are the twin pillars of the rebuilding process after bankruptcy.  In my work with the bankruptcy system for the past twenty-plus years, I often find myself dealing with job loss and with housing loss through foreclosure actions.  As I help my clients rebuild their financial lives after bankruptcy, we'll be working on gains.  And that’s when those two factors will serve as keys to success: the availability of good jobs and the availability of affordable housing.  That's why I was glad to read in the North Indy Star last week that another affordable housing project is planned, this one in the South Broad Ripple area.

Carreau Design has already gained city land-use approval for an $18 million development project in the 4900 block of North College Avenue, to be called the Uptown.  The building will include street level businesses, with three stories holding 72 apartments.   Meanwhile, a neighborhood association has been organized called College Avenue Neighborhood Development Organization - CAN DO! for short.  Resident Susan Smith, who helped get this organization together, says, "We aren't talkers.  We're doers."  What a great motto that is for redevelopment in general, don't you think?  Those words, and this Uptown project really resonate with me as a bankruptcy lawyer.  After all, isn't that what bankruptcy is designed to do?  Redevelop people's lives, that is.  I'm proud to say, together with my bankruptcy clients, we CAN DO that!

One of my earliest blogs, I Never Thought I’d Be Here, got its name from the six-word statement I and my colleagues hear so often in our law offices around the state of Indiana. If Fannie and Freddie were people, they’d probably be making that very statement just about now.

“Fannie Mae” is a nickname for the Federal National Mortgage Association, and “Freddie Mac” is the nickname for the Federal Home Loan Mortgage Corporation.  Both are giant mortgage companies, falling into a category all their own, because, while they are not government agencies but shareholder-owned corporations, both companies are government-chartered.  Together, they guarantee more than half of all home mortgages in our country, some six trillion dollars’ worth.

FNMA and FHLMC buy mortgages from lenders, package them into investments, and then guarantee the principal and interest on those investments.  Over the years (FNMA was founded in 1938, FHLMC in 1970, both before I began my bankruptcy law practice), there’s been an “implied guarantee” behind the mortgage securities of Fannie or Freddie, meaning it was understood that the U.S. government would stand behind them if the need arose. Well, as of July 13th, that implicit guarantee became an actual guarantee.  The U.S. Treasury announced it is ready to provide whatever dollars are needed to keep Fannie and Freddie in healthy condition. 

I’m certainly no economist, but I do know a thing or two about safety nets.  For more than two decades, I’ve been a part of the U.S. bankruptcy safety net, counseling with tens of thousands of people – individuals, families, and business owners.  That bankruptcy safety net helps keep our economy going.  The new “explicit guarantee” provides the same kind of safety net for mortgages, ensuring that people will be able to finance home buying and investors will feel safe providing the cash for those loans by investing in mortgage obligation investments.

All in all, from my point of view as a consumer bankruptcy specialist and as someone who counsels people on financial matters, this is evidence of a system working the way it’s supposed to and of government making good on its promises.

Always alert for news that can be of use to my Indiana bankruptcy and foreclosure clients, I was very interested to learn about a tax provision spearheaded by Indiana Representative Baron Hill and Indiana senator Evan Bayh as part of the new housing bill.  In my earlier bankruptcy blog, Housing Bill Offers Help Avoiding Foreclosure, I explained the national housing bill just passed by Congress, which focuses on first time home buyers and on refinancing of mortgages.  In working on the tax break as part of the housing bill, Bayh and Hill wanted to help Hoosiers who are coping with declining home values and rising property taxes by adding a tax break for property taxes paid..

In order to understand this tax break, you need to know that up until now, only those folks who itemized their deductions on their federal tax returns were able to take a deduction for property taxes paid.  That meant that those people who claimed just the standard deduction couldn't get any advantage from having paid property tax.   Under this new provision, non-itemizers can deduct up to $500 of their property tax from federal taxes (families can deduct up to $1000).  It may seem like a small thing, but actually almost one million Indiana homeowners will be able to benefit from this break.

I talk with thousands of people in my bankruptcy law offices in Anderson, Bloomington, Columbus, and Indianapolis.  For some of these people, the new tax break will be "too little, too late".  In other words, the tax break will not provide them with enough savings to help them avoid foreclosure on their home or to stave off bankruptcy.  The way I see it, though, any financial benefit that can offer help to homeowners is an effort in the right direction.

At the end of last month, I was happy to learn, the much-talked-of housing bill was passed by Congress. As a bankruptcy lawyer in Indiana for more than twenty years, I deal every day with the issue of foreclosure.  As I brought out in Keeping Home Sweet Home - It Depends, for some clients who simply bought "too much house", it might make sense for them to lose their home and downsize, perhaps arriving at a compromise with their lender to accept a "deed in lieu of foreclosure" or doing a "short sale".  For other clients (those with children for whom it's important to stay within a certain school district, for example), it's better to make every effort to preserve their present home.

This new bill does several things, and I'll mention just three of the big ones here:
a) It provides the Federal Housing Administration with $300 billion to go towards offering fixed rate mortgages to debt-ridden homeowners.  b) It offers tax breaks to first time home buyers, including low-income buyers.  c) It gives states $11 billion in tax-free bond backing to make low interest loans, to build low income rental housing, and to refinance subprime mortgages.

Bankruptcy and foreclosure are closely related, and on both, I always advise asking for professional help at the first signs of trouble.  The new housing bill, particularly in light of the fact that President Bush dropped his earlier opposition to it, means problems are being addressed.  And that's been the core of my work for the past twenty-plus years - addressing problems head-on, helping clients create a strategy, and helping them begin the process of making a fresh financial start.

There’s hardly anyone I know who doesn’t love the crunch of Vlasic pickles, but, as I learned earlier this month, Vlasic itself is in quite a pickle.  Back in January of this year, Vlasic turned to a Delaware bankruptcy court for Chapter 11 bankruptcy protection against creditors while the company looked for a buyer to bail it out of financial troubles. 

Now the Vlasic company has filed a plan with the court based on a buyout of Vlasic’s assets by a firm named Hicks, Muse, Tate and Furst, Inc.  In an earlier bankruptcy blog, Should You Renew Your Vows With Your Creditor?, I explained that one of the functions of a Chapter 13 corporate bankruptcy filing is to “buy time” to seek a purchaser for company assets.  Under the plan in this case, most of Vlasic’s assets have been sold to Hicks, Muse, Tate, and Furst, Inc., raising $370 million. The most familiar brands were included, - the pickle line, Open Pit barbecue sauce products, and North American frozen foods. These proceeds will be combined with proceeds from several smaller asset sales, the combined cash will be used to pay creditors.  Since there is still not enough to pay all the creditors in full, secured creditors will be first in line to receive payment.  Debts to unsecured creditors will be only partially repaid, and, sadly, there is going to be nothing left for the shareholders. 

So that you can make sense out of this story, I’ll remind you that, in a business bankruptcy, unlike the case with a personal bankruptcy, the court does not have the power to discharge debts. Therefore, all available assets must be sold to satisfy creditors, with the secured creditors (who lent money to the company based on tangible assets such as real estate, equipment, or supplies) being first in line, followed by the unsecured creditors.  As I brought out in an earlier blog, Michael Vick Files Chapter 11 Bankruptcy, the underlying principle in a personal bankruptcy case is to offer people a chance at a fresh financial start.  In a business bankruptcy, by contrast, the purpose is to help the filing company execute a plan to fairly repay its creditors.  I can’t help wondering, though: Will pickles under any other name be as crunchy?

Earlier this month, an attorney for former Falcons quarterback Michael Vick filed Chapter 11 bankruptcy on his behalf. What makes this filing in a Virginia federal bankruptcy court so unusual is that Vick himself is serving a twenty-three month sentence in a U.S. penitentiary in Leavenworth, Kansas. The top seven creditors listed in the case are owed almost $13 million. $3.75 million of that is a debt Vick owes the Falcons on his signing bonus. Through his conviction for bankrolling dogfighting, the Falcons claim, he breached his contract with the team.

As a bankruptcy attorney in Indiana for almost twenty-five years, I’ve seen my share of unusual circumstances related to bankruptcy filings.  The reason I mention this specific story about Michael Vick relates to a remark made by one of Vick’s attorneys: “He is in the process of paying his debt back to society for the federal prosecution.  This will give him the opportunity when he gets out, to start his life fresh.”  That concept of a fresh start in life really sums up the principle behind the bankruptcy system in our country.  The Vick case involves a celebrity; most of the individual bankruptcy cases with which I typically deal in my four Indiana bankruptcy law offices involve the private affairs of everyday working people.  This case involves debts in the millions of dollars; most of the cases in which I’m involved deal in much smaller amounts.  The underlying principle, though, remains the same – sometimes people need society’s help in the form of the bankruptcy safety net in order to get a true fresh start.  

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.

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!