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.

Visa and Mastercard aren't unhappy with their revenue, but the source of that revenue seems to be shifting.  Debit card use is growing faster than credit use, both giant companies report.  Since my work as an Indiana bankruptcy attorney deals with debt of all types, these trends are especially interesting and important to me as I advise my bankruptcy blog readers and bankruptcy clients.

Debit cards and credit cards each have their uses - and their dangers.  Debit cards are tied to bank accounts.  For consumers who swipe them for purchases exceeding those account balances, fees and late charges can be steep and swift.  Credit card companies have lowered many card holders' limits (because of the many defaults), and swift and steep are the late charges, penalties, and hikes in interest rates for credit card users who abuse their privileges.

The "natural order" of things has been for folks to use debit cards for everyday spending, use credit cards for larger purchases, and then to tap home equity for the very biggest expenditures.  Now, with the fall in home values happening at the same time as rising medical costs, food costs, and fuel prices, the pressure has been in a downward direction. Bigger and bigger purchases are being done with credit and then debit cards.  Very unfortunately, the next step down has been payday loans, a surefire route to ruination (see Who's Paying For All The Ads For Payday Loans - And Why?).

There's often no easy answer for families and individuals caught in a vise of medical costs, job layoffs, and sometimes divorce.  That's why the message I try so hard to convey in this bankruptcy blog is unchanged:  Get help at the first signs of financial trouble.  Things can get better, but, believe me, waiting will lead to nothing but worse.

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.
 

An Arizona company owns Tuchman Cleaners now, but most people around Indianapolis still think of the dry cleaning chain as a native son.  I know I do.  Tuchman has been laundering and dry cleaning clothes here for more than sixty years.  It was sad learning that Tuchman's owner, National Dry Cleaners, has filed bankruptcy in Phoenix.  Tuchman, with its 30 Indianapolis locations, is being put up for sale as part of the bankruptcy plan.

In my bankruptcy blog ATA Business Bankruptcy Plan Blown To Bits, I explained that, in a business bankruptcy, debts are not discharged by the court.  Instead, assets are sold to raise funds with which to pay creditors. Part of the reason for any business to file bankruptcy is to "buy time", enough time to sell some of its assets.  In the case of ATA, the efforts to sell assets while keeping the business running did not work.  In More Companies Coming Out The Other Side of Bankruptcy, I talked about three companies which were able to reorganize through the bankruptcy process and continue to do business with their customers.  I'm hoping the National Dry Cleaners story will end that way as well.  Meanwhile, I'm rooting for Tuchman stores to keep open, perhaps under new ownership. National Dry Cleaners CEO Ken Lyng remarked that daily operations at Tuchman will not be interrupted.

Having served as a bankruptcy attorney in Indiana for more than twenty years, I've helped clients through each of these steps of the bankruptcy process.  As part of that process, a company or individual will file a statement about the reasons they chose to turn to the bankruptcy courts for help.  National Dry Cleaners lists increased energy costs, environment cleanup costs, and the general economic downturn as factors that hurt their business.  Although my work concentrates on personal bankruptcy and small business bankruptcy (rather than on national chains), there are many elements common to all cases of bankruptcy.  You'll notice that the three main causes cited by National Dry Cleaners have nothing to do with mismanagement, theft, or scandal.  In other words, the problems were not due to mistakes made by the leaders or employees of the company.  All the causes originated outside the company and were powerful enough to impact the company negatively.

I see this very often when I work with small business owners who are forced into bankruptcy through circumstances basically beyond their control.  Whatever the size of a business, even with dedicated efforts to run it well, it can be overwhelmed by outside forces. It's so apropos, in a way, for us, particularly those of us in Indiana who think of Tuchman as uniquely Hoosier,  to hope is that the bankruptcy process will help National Dry Cleaners make a "clean" start.

In one of my earlier blogs, Money And Emotion Mixed In Bankruptcy, I discussed the fact that, in the course of almost twenty-five years guiding people through the bankruptcy court process, I've learned that debtors tend to have a lot of negative feeling going on.  Some of this negativity is caused by the financial problems they're facing, but often it's made worse by myths they've heard about bankruptcy, things that simply aren't true.  In that blog, I emphasized that fear, self-blame, and even despair are normal and natural emotions to have during a time of great financial stress.  Yet the only emotions that are going to be useful during a bankruptcy are hope and resolve.  There are things to be done, actions to be taken to handle matters (of course I'm there to help), and only the clients' inner strength, resolve, and focus can drive those actions.

The other day, in a children's story collection, I found the most wonderful tale.  This story brings out the very point I was trying to make in that blog. (In fact, I believe I'm going to have everyone who's considering filing bankruptcy or who is threatened with foreclosure read this story.)  It's called The Magic Ring, and it takes place in the time of King Solomon. In the story, Solomon hears about a ring that has a magic quality: the ring makes a sad person happy and a happy person sad.  The king gives his chief general six months to locate the ring. The general travels far and wide, asking goldsmiths, silversmiths, merchants, sailors, captains of caravans from China and India - no one has heard of such a ring. Finally, an old man calls out to the general, and gives him a plain gold ring on which four words are inscribed. 

The moment Solomon reads the words on the ring, he, who has all the riches in the world and all the wisdom in the world, becomes sad, realizing how circumstances could change his life in an instant.  Yet Solomon realizes that the same four words could serve as tremendous comfort for people going through troubled times. Here's what was written on the ring: "This, too, shall pass."

Over the years, I've talked with literally tens of thousands of people, usually at the most trying times in their respective lives.  Experience has taught me that people are best off dealing with their own feelings rather than suppressing them.  At the same time, I know debtors need to make some very important decisions so that they can get through the bankruptcy process and move on with their lives.  Since I'm a bankruptcy attorney in Indiana, the focus of my work is helping people take informed action to improve their financial circumstances.  I think remembering the words engraved on Solomon's ring might help my clients- and me - keep matters in perspective. However bad the stuff is that's going on right then - this too shall pass!

Part of the bankruptcy court process with which I have been dealing for the past twenty-plus years involves auctions. People usually associate auctions with estates, but often a bankruptcy trustee will convert assets into cash to pay creditors by holding an auction.  Two local companies have assets put up for auction within past weeks.  The first, ATA Airlines, closed back in April (seeATA Bankruptcy Plan Blown To Bits), but it took until a couple of weeks ago to wind up the loose ends in the company's headquarters.  Hundreds of ATA items are being auctioned off to the public here in Indianapolis at the headquarters on the west side of the city, but also in ATA's former Chicago office, all under order of the U.S. Bankruptcy Court.  The items include office furniture and equipment, but also specialty aviation equipment. 

More recently, Premier Properties, the retail development company that owned the Metropolis mall in Plainfield, changed their plan to reorganize into a liquidation bankruptcy.  In this case, the auction will be held at the Hamilton County Fairgrounds.  The Premier auction will include assets of the business owner, such as scooters, electronic theater equipment, and exercise equipment.

As a bankruptcy attorney in Indiana for more than two decades, I've seen many different situations in which business assets are liquidated to satisfy debts.  As I explained in Yes, Your Business Can File Bankruptcy Without You, unlike personal bankruptcy, in which certain debts may be discharged (meaning legally forgiven in part or in full), the law does not provide for a business' debts to be discharged. All available assets must go towards repaying the creditors of the business.  With ATA, a publicly held corporation, the personal assets of business owners (in this case the shareholders) are not involved.  In the case of Premier Properties, where there was one principal owner, (developer Christopher White), the owner's assets may be involved as well.

The overriding principles behind the bankruptcy system are to provide a safety net that encourages entrepreneurs to take business risks and keep the economy moving, while at the same time fairly protecting the creditors who themselves took risks by lending money to those businesses.

As a consumer bankruptcy specialist, I always do my best to stay on top of the news - world news, national news, and particularly news that directly affects citizens of our state. There's certainly been no shortage of important news lately.  Today I want to highlight two stories that may seem like "tidbits" in the big picture of things, but I think they could be big for Hoosiers, and especially favorable for my Indiana bankruptcy clients.

On Thursday, July 24, Step #2 kicked in.  I'm talking about the three-step minimum wage hike.  The federal minimum wage jumped 70 cents to $6.55 an hour.  Big yawn, you think?  Think again.  First of all, last summer's Step #1 increase from $5.15 an hour was the first increase in more than ten years.  True, not very many workers earn only minimum wage (only 36,000 in all of Indiana, according to the Bureau of Labor Statistics).  Critics say employers will simply hire fewer workers or hire illegal ones.  What I see, though, is a general trend towards higher wages that favors the more educated and better-trained workers.  This trend will work in favor of bankruptcy or foreclosure clients who are trying to make a fresh start and keep up with debt repayment plans.

The second tidbit comes in the form of kudos for our Hoosier state.  For the first time in history, Indiana has earned a Standard and Poor's top credit score rating.  Given the flood damage and housing problems and job layoffs we've had, this is just an amazing accomplishment.  As a state, we will save millions of dollars a year in bond interest.  This will help our public school systems, in addition to helping speed up paying for the Lucas Oil Stadium, and it basically means more money can be devoted to all programs run by the state.  Indiana, by the way, was one of only nine states to earn this high a rating. 

I've said this many times before, and it bears repeating:  The most important chapter of any bankruptcy story is the sequel, the part where people rebuild their lives.  I'm no economist (as I've also noted before), but I can see that both these two news tidbits could mean big (and good) things for my bankruptcy clients in Indiana.
 

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.

Every month or so, I like to keep my bankruptcy blog readers up to date on the job market in our state.  As a bankruptcy attorney serving clients in 38 Indiana counties with offices in Bloomington, Columbus, Anderson, and Indianapolis, I’m always on the lookout for news that has to do with the availability of jobs.  That’s because, as I’ve often explained, having a regular source of income and benefits is extremely important to my clients who are rebuilding their financial lives following a bankruptcy filing.  Clients who have filed a Chapter 13 bankruptcy probably already have regular jobs, or at least sources of regular income, but it’s important that layoffs not derail their bankruptcy debt repayment plans.  Clients who have filed Chapter 7 bankruptcy, on the other hand, need to gain control of their regular finances and keep bills paid.

Overall, Indiana has lost about 12,000 manufacturing jobs this year.  To put our situation in perspective, however, it’s important to mention that the 5.8% unemployment rate in Indiana is lower than that in Illinois, Kentucky, Michigan, or Ohio.

Negative news during the past month included the bankruptcy filing by Steve & Barry’s, a discount retailer in Washington Square and Lafayette Square shopping malls. Logistics companies, one of our strong suits in Indiana, are suffering from high fuel costs.  Two trucking companies have filed bankruptcy, Tradewinds (in Arcadia) and Icon Transportation (in Indianapolis).  Chrysler announced a plan to cut 1000 jobs.  (While they say most of the effect will be on jobs in Michigan, the cut could affect Chrysler's 670 salaried workers in Kokomo.) Indianapolis-based Davis Homes closed down for good, affecting not only their own employees, but possibly construction workers and suppliers from other firms as well.

On the good news front, Nestle is expanding its Anderson plant by 260,000 square feet, while Cooper Tire & Rubber Company is moving into a new building in the Franklin Tech Park.  Meanwhile, in Terre Haute, N.E.W. Customer Service announced it would create 480 new jobs by 1011.  In northern Indiana, Zimmer Corporation announced it will be needing at least 100 new workers. Right near where I live and shop, Nordstrom at Keystone Crossing Fashion Mall announced it will be hiring 250 workers to staff its new store.

Bankruptcy is all about rebuilding and fresh starts.  Observing all the changes in the job market in Indiana, I need to remind myself that sometimes demolition needs to be done before new structures can rise.  The advice I offer my clients - keep learning, seek training, plan the work and work the plan.

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.  

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!)

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!

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.

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.

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."