As a bankruptcy attorney in Indiana, I can't help but notice that, all too often, serving our country can lead to a fight for one's financial life back at home.  In Pentagon Sees Risk In Soldiers' Debts, I talked about a Pentagon report on the severe debt loads that actually prevent many soldiers from obtaining their security clearance to go overseas. In a later blog, I shared word of the Moneywise education program funded by the Foundation for Financial Planning especially for soldiers (see Moneywise Program Reaches Out To Military).  My work as a Board-certified consumer bankruptcy specialist, dealing with thousands of people each year, including some veterans, has convinced me how crucial it is for soldiers and guardsmen to avoid the traps of payday loans and car title loans that have gotten so many military families into spiraling debt.

I was very happy to find out about programs that our own Lilly Endowment here in Indianapolis put into place just a year ago to help returning Indiana veterans.  Several aspects of those program are especially relevant to my work as a financial counselor to debtors. First, grants of up to $10,000 are available to Indiana National Guard families who "have suffered significant financial hardship as a result of active duty service." Job retraining for veterans is offered through Crane Learning and Employment Center for Veterans in southwest Indiana, and a multi-million dollar grant was made to the Roudebush VA Medical Center to help pay for sophisticated medical and rehabilitation treatment for veterans. In addition to these benefits through the Lilly Endowment, the State of Indiana offers veterans' housing programs, property tax deductions, education and job placement benefits.  

Handling medical costs, finding well-paid employment, finding good housing, and managing debt repayment - these are issues for all individuals. All of these play a role in the rebuilding process after bankruptcy, and, when these needs are not satisfied, all are leading causes of bankruptcy.  Veterans often need - and deserve - extra assistance getting back on their financial feet.  I'm proud of the efforts being made in the state of Indiana to provide this special help to these special people who've served us so loyally.

All the studies confirm what I already knew from more than twenty years as an Indiana bankruptcy attorney: Most people who file bankruptcy have suffered an illness, a job loss, an accident, a divorce, or other catastrophic event, and what they generally aren't  is compulsive gamblers or shoppers running up frivolous debt.  There's been lots of press about job losses and foreclosures and how those relate to Indiana's rising number of bankruptcies. One aspect of the situation, though, that's not gotten nearly enough coverage is the tie-in between bankruptcy and identity theft.

Identity theft is the use of another person's information in some way involving fraud and deception.  Not only is this type of crime an increasing problem in and of itself, a significant number of identity theft cases relate to bankruptcy cases.  To understand this, it's important you know that laws about debt and bankruptcy apply to any debt, including debt incurred through theft of someone's identity.  At first blush, you might wonder why anyone would even want to steal the identity of a person who's filing bankruptcy - after all, their credit is no good!  So the second thing you need to understand is that in most cases bankruptcy actually improves one's credit, to the point that credit offers flood in, making the debtor an ideal target for identity theft!

Bankruptcy-related identity theft doesn't need to mean stealing a credit card or other ID and using that to open a telephone account, buy clothes, furniture, or gadgets, or, worse yet, drugs.  The Executive Office for U.S. Trustees in Washington, D.C. reports cases where people bought real estate using stolen identities, or transferred part ownership in property to a bankrupt person to stave off foreclosure - the different permutations seem endless.  The Executive Office handled one case where a five year old boy was served papers directing him to attend a creditors' meeting for his bankruptcy, and another where an employee obtained a professional license using someone else's identity and then later filed bankruptcy in the name of the identity theft victim!

Clearly, we all need to be vigilant about our information, being very cautious about giving out our Social Security numbers and carrying around credit cards, not to mention periodically checking credit reports.  When a bankruptcy proceeding is involved, there's all the greater need for a watchful eye.  In a worst-case scenario, discharges of debts that have been granted by the bankruptcy court can be revoked, and the burden of setting the record straight falls on the debtor.  This is just one more important reason to seek the advice of an experienced bankruptcy attorney.  The U.S. Trustee staff is not allowed to offer assistance to victims of identity theft.  When I work with bankruptcy clients, one aspect of my work is to gather and submit all the necessary legal documents in such a way that their information is protected.  This is crucial, since, as part of the process in a typical bankruptcy, the financial information filed with the court becomes a matter of public record (with the exception of the Social Security number).

The bankruptcy court system, as I emphasized in Getting On Track After - Or Before - Bankruptcy, serves as a safety net for individuals and business owners, enabling them to make a fresh start.  As I help my clients rebuild their finances after bankruptcy, "Look to the future and protect your identity" is definitely the motto we adopt.

As you might imagine, a very big item on the list of debts I help clients put together when I'm helping them prepare for the bankruptcy court process is "plastic", meaning past due and overextended credit cards and debit cards.  In fact, as I brought out in Will You Have Debit Or Credit With Your Meal?, with the fall in home prices combined with rising medical bills, food bills, and fuel prices, more and more people have gotten into financial trouble by using plastic to pay these everyday costs.  But if you thought the plastic problem was limited to the unemployed or lower income families and individuals, think again.  In many cases, the roots of the financial problems leading to my bankruptcy law offices trace all the way back to the college campus.

A survey by student lender companies shows the average college grad carries close to $3,000 in credit card debt, with one in four having more than $5,000 in debt.  This is in addition to student loans (remember, these young folks haven't, in many cases, even begun to work!). College administrators have started paying attention to the problem, and have countered by setting rules about the marketing of credit to students on campus.  So, the newest tactic has been for companies (Walmart and Bancorp, for example) to sell "prepaid debit cards" to students.  While a typical debit card links to a checking account, the prepaid cards don't.  However, these cards tend to have high fees and less protection against theft or loss than credit cards.  In addition, prepaid debit cards don't help students establish a credit history.

Don't get me wrong - I understand parents need to find convenient ways for their students to pay everyday expenses, and the students need to have practice handling money.  It goes without saying that the college-educated will have greater job opportunities than those students who enter the work force directly from high school.  It's just that, as I counsel folks in my bankruptcy law offices around the state, I see people struggling under massive debt burdens that literally go back decades. What makes things so much more difficult, as I explained in More Government Help With Student Loans, it's almost never the case for student loans to be dismissed by a bankruptcy court.

A college education can be a key to a successful career, providing opportunities to qualify for the newer, technology and life sciences kinds of jobs. But, seen from my vantage point as a bankruptcy attorney in Indiana for more than twenty years, parents and college officials need to make sure Managing Money 101 plays an important part in the education of our young people!

A Wall Street powerhouse since 1850, Lehman Brothers has filed Chapter 11 bankruptcy.  A Chapter 11 bankruptcy allows a company to temporarily stop paying bills and yet stay in business under the supervision of the bankruptcy court.  This buys time for the creditors to organize a compromise plan so that the bankrupt company can make payments on the debt.

As a bankruptcy attorney in Indiana, I've dealt with tens of thousands of individuals, families, and small businesses.  While I'm not involved with giants like Lehman Bros., I take an interest in the workings of our federal bankruptcy law system and how it functions as a financial safety net.

Actually, there are many ties that Lehman Brothers has to business right here in Indiana.  Lehman helped finance Radio Company of America and Chrysler here, and, in more recent years, provided financial services to WellPoint.  In an even more direct tie-in, Lehman packaged and sold mortgages on homes in Indianapolis (many of them now in foreclosure).  In fact, it's precisely because borrowers in Indiana and other states stopped making loan payments that Lehman Bros. came up short on cash.

Back in March of this year, Bear Stearns was in financial trouble, and the federal government organized a bailout of that company.  Now, though, federal officials made a decision that it's no longer prudent for them to keep bailing out firms.  Unable to find either a buyer or a bailout, Lehman was forced to go the route of declaring bankruptcy.

As I pointed out in my earlier blog, Super Rich Or Bankrupt - You Could Be Anybody, it's rarely one factor that drives individuals to file bankruptcy, but rather a combination of pressures over long periods of time.  Pundits in the press are doing a lot of talking about the troubles some financial giants such as Lehman Bros. are having.  Individuals and small business clients are the people I'm seeing every day in my four bankruptcy law offices around the state.  Most of these  Indiana small clients can't use Chapter 11, but they can instead seek relief through either a Chapter 7 or a Chapter 13 bankruptcy process. If individuals can draw any lesson from the Lehman Brothers' story, it's to seek help and begin implementing a strategy at the first sign of distress.  

In these bankruptcy blogs, I've often written about credit card debts (see Will You Have Debit Or Credit With Your Meal?).  As credit card defaults rise, credit card companies have tried to maintain profits, often by increasing fees and penalties.  Regulators, in turn, have been penalizing credit card companies for unfair practices. The sharp rise in food prices, gasoline prices, and heating costs has had the effect of driving people to use credit cards as a last resort for paying everyday bills. In fact, as I go over credit card debts and budgets with clients preparing to file bankruptcy in Indiana, I see more and more of this.

Meanwhile, the credit card companies are taking two "tacks".  First, they're stepping up collection efforts.  People who are just a couple of days late in making their payment are starting to get phone calls.  But these collection calls are taking a more lenient approach is many cases, with the card companies offering compromise payment plans, working on the premise that getting partial payment is better than getting none. At the same time, banks are already under pressure because of defaults on mortgages, and so they are trying hard to shore up their balance sheets by doing a better job collecting on credit card loans. 

Big banks and credit card companies such as American Express, Washington Mutual, and Discover are creating websites to offer payment assistance to customers. But not all collection efforts are friendly and helpful.  Even as the number of defaults on credit card debt rises, the number of consumer complaints about collection tactics is rising as well, creating a vicious cycle of credit card companies putting the squeeze on debtors, and debtors complaining about strong-arm tactics used by credit card companies.

A piece on debts in the Indianapolis Star stresses something I've been saying for years: "Consumers will have an easier time if they contact creditor at the first sign of trouble." Having served as a consumer bankruptcy specialist for two and a half decades, I know how crucially important it is to seek help early on.  The earlier in the process I can meet with bankruptcy clients and we can start building a strategy to combat financial difficulties, the greater the number of options that clients will have to choose from.  In fact, seeking help early is the only way to escape the vicious cycle of the credit card crunch.

As "The Bankruptcy Handbook" reminds taxpayers, getting on the wrong side of Uncle Sam by ignoring his notices is dangerous. Not only will that make government debt collectors angry, the amount of the outstanding tax debt will increase due to interest and penalties. On the other hand, as I explained in my earlier bankruptcy blog, Oh, Yes You Can Get Rid Of Back Taxes, the myth that you can never have tax bills discharged in bankruptcy is just that - a myth.  In fact, most income taxes more than three years old qualify for forgiveness under Indiana bankruptcy laws.  Too bad the two distraught taxpayers I read about didn't know that…

Just a couple of weeks ago in Birmingham, Alabama, a 48-year old taxpayer telephoned the IRS and made threats.  The IRS called the sheriff, who proceeded to the man's home, only to find him gone.  When the sheriff reached the man on his cell phone, he said he was on his way to drive his car off a cliff.  Instead, he drove to the IRS office and rammed his car into the building.  The taxpayer ended up in the hospital, with little to show for his efforts except for two broken windows in the building on which he'd taken out his frustrations.  Needless to say, the irate citizen still owes taxes, but now legal fees are added to his problems. 

The second taxpayer, this one an Iowa resident, claimed the IRS owed him a refund of all the income taxes he'd ever paid.  The Internal Revenue Service of the United States of America, he said, has no jurisdiction over him - he's a "citizen of heaven"! (In almost twenty five years of practicing bankruptcy law in Indiana, I sometimes think I've heard it all, but I confess I hadn't heard this one!). Now taxpayer #2 owes an additional; $250,000 fine.  (Needless to say, he's not getting the refund, from Heaven or from the IRS!)

These true stories are funny yet sad. Most important, they bring out how important it is for people behind on their taxes to work with an experienced consumer debt and bankruptcy professional, in order to make use of all the legal advantages available. There are three or four qualifications a taxpayer needs to meet in order to be excused from taxes under bankruptcy laws, and if those can be met, taxes are forgiven. Staying calm and visiting with an advisor doesn't make headlines, but it can sure save on hospital bills!

In my earlier bankruptcy blog, I shared insights gained from reading professional journals in the field of employee benefits.  Another area I enjoy reading about is financial planning.  As a bankruptcy attorney in Indiana, I find learning from colleagues in related professions helps me provide the best advice to my own bankruptcy clients.

Dennis Holland, vice president of First Command Financial Services, had the most interesting research to share about how people's mental health relates to their financial health.  First Command found that "individuals who engage in the disciplined process of saving money on a monthly basis experience an emotional 'high' in their feelings of financial security over those who do not."  What is so fascinating is that, according to the research, it doesn't matter whether an individual's actual savings balance is high or low.  It's the process of putting money away consistently that drives feelings of confidence and optimism.

The other side of this research is the effect of debt on the middle income consumer.  The study found that short-term debt most affects individuals' feelings of financial stability.  The more credit card and personal debt a family carries, the Journal reported, "the less financially secure they feel, the less optimistic they are, and the more stretched they feel on a month-to-month basis."

As I described in my blog In Bankruptcy, Forgiveness Means More Than Discharging Debt, often people facing bankruptcy are under extreme stress and have low self esteem.  A big part of my work as their bankruptcy counselor is helping them see past that stress so that they can make the needed decisions and navigate the bankruptcy court process.  Once the legal part of the bankruptcy is completed, the rebuilding process can begin.  Dennis Holland says, "As the rate of savings to debt increases, families feel increasingly optimistic and less stretched."  That is exactly the effect I witness every day in clients as they gain some relief through the bankruptcy process and are in the process of rebuilding their financial lives.  They feel increasingly optimistic and confident about their future, and less and less stretched.  Helping my clients get to that stage of rebuilding their emotional health along with their financial health is really what the work I do as a bankruptcy attorney is all about.

I continue to be a student of bankruptcy law in action.  Even after more than twenty years serving as a consumer bankruptcy specialist in Indiana, in order for me to offer my clients the most accurate information and advice I follow bankruptcy court cases in other states as well as here.

Last month there was an important ruling by a bankruptcy judge in Massachusetts.  By way of quick review so you'll understand the background, in a Chapter 13 bankruptcy the debtor must have enough income to make payments to creditors under a three to five year plan supervised by the bankruptcy court trustee.  Once the basic monthly bills and living expenses are paid, the debtor is expected to use the rest of his or her income towards repaying creditors.

Well, in this case a woman had filed bankruptcy under Chapter 13 and her repayment plan had been approved by that Massachusetts court.  At the same time, this woman was making contributions to her 401K plan at work.  You might think the court would tell her to stop making 401K contributions for retirement until she'd finished paying off her debts.  But the court ruled instead that she should be allowed to "pay herself first" by saving for retirement.  Not only were the contributions exempt from current income tax (see Money Double Exempt in 401K), but the bankruptcy court followed a policy of protecting a person's right to save for retirement, even when that slowed down the process of repaying debt.

This all goes back to the fact that the bankruptcy system is designed to serve as a safety net and to give people a chance to rebuild their lives and to have a secure future despite their present troubles.  Helping people navigate through the system has been my work for all my professional life, and I was very, very gratified to read how that system continued to work effectively in the case of the woman in the Massachusetts bankruptcy court.

As part of the 2005 revisions in bankruptcy law, bankruptcy courts are required to collect statistics.  The 2007 numbers are now in, and, as a bankruptcy attorney in Indiana, I found them very interesting and important, yet very much in line with my own twenty-plus year bankruptcy experience.

First, the numbers:  There were 822,590 cases of bankruptcy in the U.S. in 2007, of which 61% were Chapter 7, with almost all the rest being Chapter 13 repayment plans.  The median average monthly income for all the people who filed bankruptcy was $2490 (It was actually $2150 for those filing Chapter 7 and $3146 for those filing Chapter 13 bankruptcy.)

As I explained in my earlier blog, Some Hopeful News For This Bloomington Bankruptcy Attorney, Chapter 13 bankruptcy filers must have an income that is enough for them to make regular payments to their creditors.  According to the bankruptcy statistics compiled by the courts for 2007, median monthly expenses came to $2482, so the Chapter 7 filers would not have had enough left over to make catch-up payments on debt, while the Chapter 13 filers had approximately $600 a month on average to devote to paying down the debt.

Meanwhile, another group, the Institute For Financial Literacy, was compiling their own 2007 statistics.  This nonprofit organization gathered information on more than 36,000 consumers who had sought credit counseling prior to filing bankruptcy.  The study reported that the average American seeking credit counseling is Caucasian, married, employed, age 33-44, with at least a high school education, with women more likely to file than men.  Almost all of them were earning (or had been earning before a job loss) less than $30,000 a year.

The primary problems leading to bankruptcy, according to the Institute, were overextended credit, job loss, and illness or injury.  These are precisely the causes I've been writing about in my bankruptcy blogs. 

Bankruptcy statistics are hardly the happiest of numbers, but my reason for sharing them goes back to the message I share with Oprah WInfrey (See Bankruptcy Blog Shares Message With The Oprah Show):  You're Not Alone!

As I've pointed out so many times before in these bankruptcy blogs, dealing with financial problems by casting blame never helps matters and almost always hurts.  Since married couples' financial issues are, by definition, intertwined (see Together For Debtor Or Worse), I've found it's especially important for couples to work together -  with their adviser as well as with each other - to tackle issues in coordinated fashion. During the more than twenty years I've worked with debtors to help; them through the bankruptcy process, not to mention having been married myself for all that time, I've learned how important it is for couples to discover ways of comfortably discussing money matters.

David Berky, in an article called "Why Do We Always Fight About Money?" writes that fights about finance boil down to lack of communication and selfishness.  Problems occur when an important financial decision is made by one spouse without input from the other.  Then, the need to be right vs. wrong in making financial decision is often very strong, Berky points out, especially in men.  Women often feel their partner is "talking down" to them.

When it comes to the kind of serious and very stressful financial difficulties with which I typically help clients in my bankruptcy law offices around the state of Indiana, it's all the more crucial, I find, to do what Berky calls "leaving your ego outside the door." Important decisions with far-reaching consequences will need to be made.  As I emphasized in my earlier blog Who's To Blame, You, Me, Or We?, the most important thing is not casting blame but getting - and using - help in time.  By the time couples (and sometimes business partners) are sitting in my office to discuss strategy, money has become a very sore spot in the relationship. Despite this (and maybe because of this stress and "soreness", it's a time to remember to talk in a patient and respectful way.  It's time for forgiveness, and most important, it's time to talk FUTURE!

In my bankruptcy blogs, I've been emphasizing the fact that bankruptcy is a process rather than an event.  One very important step in that process is the creditors' meeting.  This is a meeting that takes place within 45 days from the time a bankruptcy is filed, and it's a meeting that's presided over by a bankruptcy trustee appointed by the court. The meeting might be in an office or in a private room at the federal courthouse, and you attend this meeting along with your attorney.  The main idea behind the creditors' meeting, as the name implies, is to give the creditors a chance to ask you questions about the information on the bankruptcy forms you've turned in.  In most cases, creditors don't show up at the meeting, but they're invited.  For you, on the other hand, it's a command performance - you've got to show up or your bankruptcy case can be dismissed.

As a bankruptcy lawyer in Indiana for almost twenty-five years, I've attended countless creditors' meetings along with my clients.  In fact, a big part of the work I do is helping folks gather all the required documents and information, fill out the forms correctly, and then go over the questions that might come up at the creditors' meeting.  Generally speaking, the bankruptcy trustee will first ask about the reasons you filed bankruptcy - was it a business failure, an illness with high medical costs, loss of a job, a divorce, or a combination of several of these factors?  The trustee will ask you to verify that all your assets are listed on the forms, and will want to know how the value of those assets was determined.  You'll be asked if, within the two years before you filed, you transferred any assets to family members or friends.   You'll also probably be asked if you're expecting any money to come in from inheritances, from a tax refund due you, or from a settlement from an accident.  In short, the trustee and the creditors want to be sure that you've fairly represented what resources can be used towards repaying your debts.  Also, the trustee will ask why you chose to file under either Chapter 7 or Chapter 13, and will be assessing your situation to see if you qualify for the form of bankruptcy you've selected.  (As I explained in It's Knowing Which Bankruptcy Buttons To Push, an important part of my work with clients is choosing a strategy that is most appropriate in that specific situation.)

The creditors' meeting is only one part, but a very important part, of the process of a bankruptcy. These meetings are usually very low-key, information-gathering meetings, not anything like the confrontational trials that you see on TV shows.  At the same time, remember, these meetings are part of the court system.  That means you'll be under oath when you answer the questions. (If the trustee decides you are lying, the case will be dismissed, and no debts can be discharged.)

In Why Hire An Attorney To File Bankruptcy? I explained that perhaps the most important role an attorney plays is to make sure the financial disclosure process is done correctly.  In my close to 25 years of bankruptcy law practice in Indiana, I've worked with tens of thousands of people, and helped fill out thousands upon thousands of details on hundreds of thousands of forms.  All of this is part of the process.  Believe me, that process is so much smoother when things are done right from the get-go!    

Always alert for news about the job market that can affect my Indiana bankruptcy clients, I learned recently that the Charles Schwab discount brokerage investment company is closing its customer service center in Fishers, a move that will eliminate some 800 jobs over the next couple of years.  There's a big silver lining in this cloud, though; Schwab is moving the center to Woodfield Crossing on the north side of Indianapolis, and expanding its workforce at the new center to 1,100 jobs!

The availability of jobs is a key factor for my clients as they rebuild their lives after bankruptcy.  In my earlier blog A New Job Might Mean A New Kind of Job In Indiana, I explained that Chapter 7 bankruptcy clients who've had some or most of their debts discharged by the court need to keep their bills paid and regain control of their finances, while Chapter 13 bankruptcy clients must keep up with their three-to-five year debt repayment plans.

While reading about the firm Charles Schwab (whose namesake retired a number of years ago), I couldn't help recalling the story of another man named Charles Schwab, founder of Bethlehem Steel, one of the wealthiest men of his generation.  That Charles Schwab ended up filing bankruptcy and having the mortgage on his mansion foreclosed on by Chase Bank.  When that earlier Charles Schwab died in 1939, the once multi-millionaire's debts amounted to $300,000 more than his assets.

Why do I collect historical trivia like the story of the first Charles Schwab?  First of all, my work in drafting the bankruptcy exemption laws in our state had me delving into case histories of various bankruptcy court rulings.  More important, though, I find it often helps clients who are facing their own bankruptcy situations to know that plenty of folks - good folks, hard-working folks, successful folks - have been down that road as well.

Over my many, many years of helping people through the bankruptcy filing process, I've seen how difficult it is, and at the same time how very important it is, for clients to maintain a positive outlook.  In my earlier bankruptcy blog, Money And Emotion Mixed In Bankruptcy, I talked about some neurologists' findings about how emotion can inhibit or help in wise decision making, and about how important it is for people facing bankruptcy to deal directly with their negative emotions rather than suppressing them.  But, although I've dealt with tens of thousands of situations, I've never come across a bankruptcy case like country star Willie Nelson's.  Willie not only composed an entire album of songs expressing his emotions about his giant tax debt, but that album actually became part of his bankruptcy repayment plan!

Back in the early 1900's, Willie Nelson was forced into bankruptcy because the IRS was suing him for $16.7 million in back taxes. Tax agents, without warning, had seized Nelson's bank accounts and padlocked all the properties he owned in six states.  Meanwhile, a Florida leasing company was repossessing all his tour buses.  The most embarrassing part was when agents broke into Nelson's music studio and evicted the members of his band right in the middle of their rehearsing a song.

Willie's many friends and fans tried to help, even starting a "Where There's A Willie, There's A Way" fund.  When the IRS was auctioning off Willie's possessions (I talked about auctions in Bankruptcy Auctions Scheduled For ATA And Premier Properties), friends would buy property at the auction and then give that property back to Willie as a gift.  Getting out of debt was a long process, but the repayment plan was eventually completed.  And a big part of the repayment came from the proceeds of a special CD song album Willie created, called "The IRS Tapes: Who'll Buy My Memories?". When it was all over, WIllie Nelson was able to go back to traveling and making music, emerging from the bankruptcy to rebuild his life and continue.his career.  As longtime associate Kinky Friedman described Willie Nelson's long and complex bankruptcy case, "He did it the cowboy way."

As a bankruptcy attorney in Indiana (where we have so many country music fans), I hope Willie Nelson's story of personal courage will prove inspiring to people who may be at the beginning stages of filing bankruptcy. Even if they are not feeling very much like singing, Willie's songs about his own bankruptcy struggles may give my clients a sense of better times to come.

 

Over my many years of working with Indiana bankruptcy clients, I've seen many different  sets of circumstances that gradually build into unmanageable debt loads.  Job layoffs, medical costs, and divorce are still the big three factors leading to bankruptcy, but there are other factors as well, including small business failure, lawsuits, and resetting subprime adjustable rate mortgages.  Rarely is there one sudden event; it's usually a combination of factors building up over a period of months or even years.  Folks begin abusing credit and debit cards, selling stuff, and cashing in stuff.  Sometimes that "stuff" includes life insurance policies.

In my ongoing effort to keep up with the news and with all facets of financial planning that can help me advise my bankruptcy clients, I subscribe to different journals and newsletters on employee benefits, tax issues, real estate, and financial planning.  In the August issue of Financial Planning magazine I found an article on life insurance that has some valuable information.  "Clients' unwanted life insurance policies can be abandoned, surrendered, donated, or even sold in a rapidly expanded secondary market", the article pointed out.

Now, for most people, the money they would receive from cashing in a whole life or universal life insurance policy isn't going to be enough to avert bankruptcy or foreclosure.  And allowing a term insurance policy to lapse by not paying the premiums may mean losing needed family protection.  Bankruptcy law, in fact, tries to protect people's life insurance.

As I've mentioned in earlier blogs, I helped write the exemption section of the latest Indiana bankruptcy laws, and life insurance on a debtor's life is one of those exemptions (meaning that in most cases, the policy can't be taken by creditors to satisfy the debt).

In some cases, though, life insurance protection is no longer needed.  Perhaps the original purpose of the insurance was to fund college education for a now-grown child.  Perhaps the purpose was to back up a buy-sell agreement for a business that no longer exists. For this type of situation, the article discusses life settlements.  A life settlement is a sale of a life insurance policy to investors.  This is no brand new idea - last year alone, $15 billion worth of life insurance settlements were transacted.  In many cases, the sellers received more money than they would have received just cashing in the policy.  

Just as I always remind readers when I talk about the economy that I am no economist, I need to mention that I'm certainly no life insurance expert.  What I do want to emphasize is that individuals and families in debt should, as early as possibly in the process of dealing with a deteriorating financial situation, seek out professional help.  Then all options can be explored, including how to best deal with life insurance policies.

An interesting tax ruling having to do with bankruptcy was talked about in a recent tax information newsletter (see www.sapursteincpas.com).  Of course, as an Indiana consumer bankruptcy specialist who deals in foreclosures and debt, I found this story especially informative.

A couple had filed for bankruptcy recently enough to prevent them from qualifying for a mortgage.  Their son decided he would buy a home for his parents, and so he took out a mortgage based on his own credit record.  The parents were the only ones living in the home.  In fact, it was the parents who made all the mortgage payments and who took care of all the taxes and all the maintenance expenses.

The tax question that arose and was finally referred to tax court was:  Who gets to deduct the mortgage interest on their taxes - the son or the parents?  The court ruled that, even though the son was the actual owner of the home, the parents were the "equitable owners", the ones getting the benefit of living there.  The court considered the fact that the parents are taking responsibility of ownership, paying for taxes and upkeep.  Even though the parents are not liable for the mortgage, the court ruled that they could take the tax deduction for the interest portion of the payments.

One aspect of this story that I want to emphasize to readers is that each bankruptcy situation is different.  In this case, it appears, family members cooperated, working together to devise a plan that would work for them (rather than casting blame on each other, as unfortunately often happens in bankruptcy situations).  Apparently, too, the son and parents sought professional help to get a ruling in their special circumstances.  Both these steps (cooperation and support among family members and seeking professional advice) can prove extraordinarily beneficial in any bankruptcy situation.  As I say in many of my bankruptcy blog posts: Get help.  Devise a plan.  Work the plan.

As I see it, staying on top of the local, national, and world news is part of my job as an Indiana bankruptcy lawyer.  For clients emerging from a Chapter 7 bankruptcy, finding or holding onto steady work is a key factor in their making a new financial start.  For those emerging from a Chapter 13 bankruptcy, which involves making regular debt repayments, holding steady work is crucial to their plan's success.

The rising cost of fuel has been in the news a lot lately, and it's had several direct effects on the job market here in Indiana.  2008 has been a very difficult year in the automotive industry, with many layoffs.  Now another 300 jobs will be eliminated in Kokomo, I learned.

On the flip side of the coin, the logistics business has been growing rapidly in our state.  Logistics means packaging and transporting goods, and that means fuel.  Since Indiana is within one day's drive to just about anywhere in the U.S., our very location means savings on shipping costs (both truck fuel costs and air shipping costs). Because of that, Amazon.com has plans to hire more than 1600 people in Munster, Plainfield, and Whitestown.  All of this is extremely relevant to my work, as my bankruptcy law offices serve 38 Indiana counties.

Also in the positive column of news relating to fuel, Polaris Laboratories plans to double its work force.  Polaris is a fluid analysis lab company that tests oils, fuels, and coolants.  Their work results in companies savings millions of dollars in equipment downtime and equipment replacement.

As a bankruptcy attorney in Indiana for more than two decades, I've witnessed many changes in our local economy.  Since so many of our Indiana jobs were manufacturing-related, improvements in technology hit our job market especially hard.  In fact, for many years now, Indiana has led the nation in per-capita bankruptcy filings. Many of the layoffs that played a part in clients filing bankruptcy came as a result of these shifts in manufacturing employment. It's very encouraging to me to see there are several silver linings in the clouds caused by fuel costs.

Knowing my work with homeowners in debt, a friend's parents shared an article from their AARP magazine called "Focusing On Foreclosures".  According to a statistic from the Mortgage Bankers Association quoted in that article, more than 31,000 Indiana homes were in foreclosure during the first quarter of 2008 alone!  As a bankruptcy attorney in Indiana for twenty-plus years, I'm often asked whether bankruptcy always involves foreclosure, and whether foreclosure can help avoid bankruptcy. In an earlier bankruptcy blog, Dis Or Dat? Foreclosure Or Bankruptcy?, I explained that each client's situation is different.  When I meet with folks in one of my Indiana bankruptcy law offices, we discuss all options that can help them get a handle on their financial problems.  The best plan might mean allowing a foreclosure (or using a Deed in Lieu of Foreclosure or Short Sale strategy), or it might involve keeping the home and using a Chapter 13 bankruptcy repayment plan.

The AARP article focused on the Indiana Foreclosure Prevention Network, which is a partnership among government, the private sector, and community groups (including AARP).  The IFPN developed a hotline that is available for calls from consumers twelve hours every day of the week, and also has a website that provides debtor information and education.  The organization holds events to bring debtors and lenders face to face to try to work out settlements and avoid foreclosure.

My own experience in dealing with literally tens of thousands of individuals in debt has taught me one important lesson that I try to convey to readers in all my bankruptcy blogs.  That same lesson is emphasized in the AARP article in a quote from Sherry Seiwert, executive director of the Indiana Housing and Community Development Authority: "The earlier they call, the better we will be equipped to assist them," she states.  And I, veteran bankruptcy attorney Mark Zuckerberg, say, "Amen to that!"

In response to an earlier bankruptcy blog of mine on the subject of payday loans (Who's Really Getting Paid On Payday Loans? ) several readers were quite indignant.  The convenience of being able to get cash later at night after banks had closed seemed to be one big factor in their misguided fondness for payday loans.  A second, more dangerous, argument that was written in by readers of the bankruptcy blog about payday loans needs to be debunked once and for all.  Apparently some readers still think payday loans are less expensive than late charges on cards.

By the way, as a bankruptcy attorney in Indiana for more than twenty years, I haven't changed my opinion one whit when it comes to this topic. I've worked with literally thousands of people over the years who found out the hard way what the dangers are in depending on payday lending.

I was especially gratified to see a section on this very topic in this month's issue of The Readers' Digest.  Here, word-for-word, is what that article offers as the best advice for consumers:  "If you're really in a pinch, opt for a cash advance on your credit card (about 28% interest plus transaction fees)".  How can 28% interest ever be called a good idea?  According to the Center for Responsible Lending (cites Readers' Digest), payday loan interest averages 391% to 500% a year!  In fact, fifteen states ban payday loans altogether or cap the interest. Indiana has put some protections in place.  Finance charges are limited to 15% on the first $100, and the total charge on the initial loan may not exceed $35.  The lender cannot renew more than three times, and the original principal must be lowered each time by 25%. The Center's study found most payday borrowers do roll over their loans, ending up paying $793 to borrow $325!

So, don't get me started on payday loans. I still rate that kind of financing a Minus Four Star rating.  Three-figure percentage charges are an awfully high price to pay just for getting money after the banks are closed.  Even more important, if you consistently find (as the Ziggy cartoon character was fond of saying) there's "month left at the end of your money", go out looking for professional help in managing your finances; payday loans aren't "it"!.

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.