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.
 

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.

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.

Often, as part of my work as an attorney focused on consumer and small business bankruptcy, I find myself discussing a client's employee benefits from work.  Since I do my very best to keep up with developments in every area that can impact my clients, I read a journal called Employee Benefit Adviser. The July issue of this professional journal carries a very wise piece by Editor-In-Chief Robert Whiddon, called "Hope Is Not A Strategy". I was immediately attracted by the title, because, as I've stressed in so many earlier bankruptcy blogs, many small business owners keep hoping things will turn around for them.  Meanwhile, they put off putting some strategies into place that can help protect their assets in the event their business simply cannot survive.

I like Whiddon's attitude towards employee benefit planning and the advice he's giving employee benefit advisers: "We all fall into the hope trap.  We shouldn't anticipate or plan for failure, and it's important to tackle life each day with a sense of optimism.  But do we have specific plans to achieve the things we want to make happen?  'Sort of' and 'maybe' are too close to hope for my tastes."

I found these words particularly apropos for both my individual bankruptcy clients and my small business bankruptcy clients in Indiana.  The financial troubles that lead to bankruptcy and/or foreclosure on a home or business property very rarely happen overnight.  In fact, after almost twenty-five years of dealing with clients' personal and business finances through recessions and periods of booming growth, I find that it's usually a combination of factors, piling up over months and even over a period of years, that finally become too much for clients to handle on their own. 

The earlier in the process that I enter the picture as a bankruptcy adviser, the greater the number of options will remain open for us to use.  Too often the result of just waiting and hoping, I find, is that troubles tend (both literally and figuratively) to compound.  Even if bankruptcy or foreclosure becomes inevitable, those clients that began planning with me at the first signs of trouble ended up with more satisfactory results.
 
As Whiddon so aptly points out, hope is not a strategy.  The funny thing I've found, though, is that having a strategy in place ahead of time really does offer hope.

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?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

With no fewer than twenty four airlines having stopped service or actually having filed bankruptcy in just the past six months, the question on many minds has to be “So what about my frequent flier miles?”  Although, as a bankruptcy lawyer in Indiana, I’ve handled filings for tens of thousands of individuals and companies, none of them has been an airline.  Still, having practiced bankruptcy law for so many years, and having helped write the most recent changes to Indiana bankruptcy law, I can offer an answer to the question about frequent flyer points and airline tickets, and I don’t think you’re going to like that answer.

First of all, despite an airline’s PR to the effect it will honor all tickets and continue to operate, it’s really up to the bankruptcy court to decide whether that airline be be shut down and liquidated or continue to operate. If a bankruptcy airline is taken over by another airline, tickets may or may not be honored by the new owner.  And, if an airline is shut down by the bankruptcy court, mileage credits will be worthless.  (See, I warned you - you wouldn’t like the answer!)

Essentially a ticket holder is an “unsecured creditor” of the airline.  The first creditors to get paid in a bankruptcy are the secured creditors.  Those secured creditors might include an aircraft leasing company or a read estate lender.  The reasoning is that those loans are backed by assets that can be sold to satisfy the debt.

You might remember from former bankruptcy blogs of mine that there are different kinds of business and individual bankruptcy.  If an airline filed Chapter 11 reorganization bankruptcy, that means they have a proposal being considered by court to keep operating and to repay their debts over time.  If the company succeeds in getting its plan approved and then keeping up with the repayment schedule, your tickets and even your frequent flyer points might be safe.

In an ideal situation, I can help my business owner clients continue to operate their business and successfully execute their repayment plan.  In all situations, whether the company is liquidated or continues to operate, the bankruptcy safety net is designed to help business owners get a fresh lease on their business livesl
 

In “Rich Famous, and Stars of Prime Time”, a recent U.S. News and World Report discussed Oprah’s success and quotes Oprah herself: “If there’s a thread running through each show we do, it’s that ‘You are not alone’.” Reporter Amy Bernstein comments, “It is OK for Oprah’s viewers …to share their pain with her and to divulge their weaknesses because there is nothing she has not seen…”

As a bankruptcy attorney in Indiana for almost twenty five years, I hope to bring that same message to my bankruptcy clients and blog readers.  It’s absolutely true – it’s OK to share your pain and divulge your weaknesses because there’s nothing (at least it seems that way to me) I have not seen or heard in the area of finances and debts and the legal issues surrounding debts.  I like to say I’m in the “fresh start” business, helping my clients  focus on the future, on “What’s next?”, instead of focusing on regrets about the past.  And, whether it’s about foreclosure issues, or car repossession, individual bankruptcy, small business bankruptcy, or student loan debt, the message is the same – let’s focus on the “now” and on the future.

The magazine story says that “For Oprah, Martha, and the Donald, their first names are enough.”   Well, I know that even both names of Mark Zuckerberg aren’t enough for instant worldwide recognition, but that’s just fine.  My professional life is devoted to working at bankruptcy court and counseling tens of thousands of people in my offices around the state of Indiana, very far from the Silver Screen and the Golden Stage.  But my messages – they’re right up there along with Oprah’s:  “YOU ARE NOT ALONE.” And “THERE IS HELP’. 

A couple of months ago, I wrote about the ATA Airlines bankruptcy that completely shut down the company.  As a small business bankruptcy attorney in Indiana, I have an intense interest in stories about bankruptcy filings by Indiana companies.  As I counsel my small business bankruptcy clients, it's important to draw lessons from other companies that can help my clients avoid mistakes as they rebuild their businesses. Then, too, any time a company closes its doors, my individual bankruptcy clients can be affected.  Some may be laid off because they worked for ATA or perhaps for a company that was a supplier or customer of ATA. The decrease in employment opportunities will have an effect on how quickly my clients can get back on their feet financially following a personal bankruptcy. 

Here's the situation right now with ATA:  At the end of last month, a 341 meeting was held.  This is a special meeting, part of all bankruptcy cases, at which executives of the company are questioned about what caused the company to fail.  In my work as a bankruptcy attorney in Indiana, I am involved in the bankruptcy process.  I use that word "process" by design, because, despite the myths, bankruptcy is not a one-day "event", but an orderly legal process with different stages.  I was personally involved in drafting changes to the Indiana bankruptcy statutes, and I know that the process, while certainly not perfect, is designed to have the courts arrive at as fair a settlement as possible.  That means trying to be fair to both the business owner(s) and the creditors who are owed money.  It also means, in many cases, trying to "save" a business and allow it to continue to operate to retain as many of its workers as possible, and to serve its customers.

The ATA story is an especially sad one, in a way, because the company was founded right here in Indianapolis thirty-five years ago.  Many attempts were made to keep the company going.  These strategies included selling ATA to Georgia-based Global Aero Logistics, and taking on government contracts to transport troops. Then, along with other airlines, ATA was hit with spiking fuel prices.  When it lost its government contracts, the airline simply could not keep going. 

I think one lesson small business owners can learn from ATA is to start working on strategies at the very first signs of trouble.  Sometimes a sale or merger can improve the situation dramatically.  With ATA, it just wasn't enough.  When consumer travel began to fall off, ATA diversified into other areas of business, another good lesson for all small business owners.  Again, with ATA, it just wasn't enough. Adverse market conditions just proved too strong for the company to keep flying.  And that's exactly where the Indiana bankruptcy process comes in as a safety net.

As a bankruptcy attorney in Indiana who always has his ear to the ground and his eye on the post-bankruptcy rebuilding process, I count it a good day if I read news about new businesses moving here, plants opening or expanding, new technology being put to use.  All of us like to hear this kind of good news about Indiana, but, for me, there’s an extra dimension, because I know that business growth means jobs.  Jobs are a key factor for my clients as they re-construct their financial lives after bankruptcy.  A bad day for me brings news of plant closings, business failures, and foreclosures.  All of those things make it tougher for my bankruptcy clients to launch their fresh start.

If you go back to bankruptcy blogs I posted earlier this year, A Good News/Bad News Week In The Nation And In Indiana,  and Some Indiana Good News, With More To Come,  you’ll find a mixed bag of news about business, housing, and employment around the Hoosier state.  Here are some of the highlights of just the past couple of weeks:

Genesis Manufacturing in Fortville, a plastic welding firm, is expanding its facility after landing a new contract to make sterile covers for surgery instruments.  Genesis, by the way, creates the helmet pads for U.S. troops to protect against head injuries from land mines.  In Lebanon, U.S. Cold Storage is adding a 400,000 warehouse in the Lebanon Business Park, and plans for a rail spur from the nearby CSX Railroad line are underfoot. U.S. Cold Storage would be the first tenant in a 250-acre plot Duke wants to develop.  Meanwhile, in Noblesville, life sciences company Helmer, Inc. has moved into a new 72,000 square foot headquarters, adding 20 more employees and seeking more.

On the negative side, I was sad to read of the closing of the Frank E. Irish contracting company, whose president reported that tight credit and skyrocketing supply costs forced him to close, laying off 180 workers. 

It seems as if, every week, there’s been a pull and tug, with bad news about Indiana business on the one hand, good news on the other. Here’s what I’ve concluded about all this:  My individual bankruptcy clients will find themselves emerging from the legal filing process into a work climate that offers them many new opportunities.  But they must be prepared to keep up their education and job skills, and they must be flexible. Small business owners emerging from the bankruptcy process can also find many opportunities for profit, but they, too, will need to keep up with changing markets and a changing workplace.  In my work as an Indiana bankruptcy lawyer, I’ve put the emphasis on the “end of the story”.  I try to do all I can so that each of my clients emerges from the bankruptcy process saying, “Today is the first day of the rest of my life”.

Besides catching up with my spouse and kids, I try to use some part of each weekend to catch up on my reading.  A couple of weekends ago, I found food for thought on the editorial page of Indianapolis Business Journal.  As a bankruptcy attorney in Indiana, I try my hardest to stay on top of economic news around the world and especially developments here in our state (as you know if you’ve been a follower of this bankruptcy blog).  Knowing all I can about what’s going on helps me give very useful, individualized legal and financial advice to all my bankruptcy clients. 

Every so often in my reading, I come across a tidbit of wisdom that isn’t so much news, as it is a new way of viewing the news.  That kind of reading helps me as well, because it opens my mind to new approaches to current problems and different ways to view the future.  The IBJ editorial was one of those thought-provoking, new-way-to-see-it, kind of articles.  It was titled “Pricy fuel isn’t all bad”.

The editorial talked about all the ways in which Hoosiers are “getting with the program”, meaning how they are accepting the unpleasant realities of rising fuel costs, but then striking out to find new opportunities to solve the problem. For example, a $100 million venture capital fund is being started to invest in “clean” technology, meaning alternative energy and “green” (environmentally-friendly) research.  When some technologies turned out to be disappointing, in particular corn and soybean based fuels, Indiana research teams went to work on other solutions.  An aviation fuel is being made from plant byproducts.  Fuels are being made from animal waste.  A plant is opening to turn wind into electricity, and Indianapolis Power and Light recently struck a deal to buy wind power.  A plant in Greenwood is being completed to make auto parts that improve fuel efficiency in cars.  These businesses, plus many others, are creating new jobs in Indiana.

As I processed all this information, the thought that came to my mind was that, when facing challenges, we can choose to channel our thoughts in one of three ways. We can keep avoiding the issue, running from the facts.  Second, we can cry and moan to everyone about how terrible things are, throw blame around or, worse, get bogged down in self-blame.  Last – and here’s why I found the article inspiring – we can roll up our sleeves and start focusing on the “OK, so now what?”  Working every day with folks facing bankruptcy, I know that their choices are almost always these same three.  Running away from looming financial issues, whether business or personal or both, doesn’t help solve anybody’s problems.  Blaming problems on the economy, on employment problems, on politicians, on partners, or on oneself – none of this helps.  Whether it is Chapter 11 or Chapter 13 bankruptcy, whether it’s personal bankruptcy or small business bankruptcy, the purpose is offering a fresh start.  The real focus needs to be on the future, and on the solution rather than the problems.  In other words: “OK, so now what?”  

Just a couple of weeks ago, the House Financial Services Committee began its formal debate on one of the hot topics of the day - home mortgage loans.  The committee is deciding whether to allow the Federal Housing Administration to refinance up to $300 billion in subprime mortgage loans that are at risk for default.  Meanwhile, the White House has threatened to veto the legislation as it is currently proposed.

As you know, every important debate about debt is of great interest to me as a consumer bankruptcy lawyer in Indiana who deals with thousands of thousands of debt situations in the course of my work.  One of the big topics I discuss with my bankruptcy clients, as you may imagine, is often their biggest debt obligation, their mortgage.  As I go over all options with my clients, one important decision is whether to make every effort to keep their home, or whether moving might be a better option.

Here's what's being discussed in Congress:  The lender (mortgage company or bank) would first make the mortgage more affordable to the homeowner, either by lowering the payments, reducing the amount of the loan outstanding, or lengthening the repayment period.  Once the mortgage lender had done that, the FHA would give the lender money to compensate them for the "write-down" of the mortgage.    The FHA would retain a lien on the home for the life of the new loan. As amendments added to the proposed legislation, borrowers would be prohibited from obtaining a second mortgage for the next five years, except for home improvement purposes. 

As I discuss Indiana personal bankruptcy options with clients, often one of the main goals is to help stop foreclosure. The proposed bill will have as its main purpose to help stop foreclosures through settlements between homeowners and lenders. The bill will be part of the housing stimulus package that will be discussed this very week in the House.  I'll keep you posted on how this story plays out…

At the beginning of the month, ATA Airlines closed forever, two years after a Chapter 11 Reorganization.  In several earlier blogs, I explained that bankruptcy is meant to buy time for businesses to work out a plan and, hopefully, get back on their feet or at least complete an orderly liquidation of assets.  That's what ATA was trying to do.  The airline was engaged in talks with five potential buyers of their company, all the while keeping their 29 jets running.

Then, something unexpected went very wrong.  FedEx, who administers charter transport of supplies and of troops for the Pentagon, using ATA jets, decided to take that business away from ATA.  Without that source of revenue from the military charters, ATA was unable to continue working its plan to emerge out of bankruptcy.

As a bankruptcy attorney in Indiana, I'm dealing with both personal and small business bankruptcies every day.  In this bankruptcy blog, I've explained that the primary difference between personal and business bankruptcies is that with a personal bankruptcy, some debts can be discharged by the court.  In a business bankruptcy, debts are not discharged.  While some compromises may be negotiated with creditors, assets must be liquidated to pay the debts.

What is happening now in the ATA situation is that the company is petitioning the federal bankruptcy courts to let it sell off the assets it owns and get out of leases it has on its airplanes.  Meanwhile, all flights have been cancelled and all employees let go. 

This is a sad example showing that sometimes the bankruptcy safety net isn't enough to save all companies, or, in this case, all airlines.

Always an avid reader of news from around the world, I was a little amused by a recent feature story about a man in Perth, Australia who says he’s putting “his entire life” up for auction on the Internet. Ian Usher is in the process of a divorce.  (I’ve written often in this bankruptcy blog about the fact that divorce is one of the three main drivers of bankruptcy, along with job layoffs and extended medical illness).  Apparently, though, while this 44 year old has just gone through a divorce, he’s not anywhere near filing bankruptcy; in fact, he’s hoping to net half a million dollars from selling what he calls his “life package”, which includes his three bedroom home, his car, his dogs, his motorcycle, jet skis, spa, sky-diving kit, and giant TV screen. All these possessions, Ian says, cause him too much pain, reminding him of the wonderful past he shared with his ex-wife.  As if all this isn’t curious enough, it gets “curiouser.”   Usher is selling his job!  Usher works at a rug store, and his employer has agreed to take whoever buys Ian’s life as an employee on a two week trial basis.

As a bankruptcy attorney with four offices around Indiana, I don’t think I’m in a position to pick up and move to Perth, but I learned that if I were interested in buying Usher’s “life”, bidding on eBay starts June 22, starting at just one Australian dollar.

On a less sensational note, this story reminded me that online auctions have indeed become one method for selling assets in Chapter 7 personal bankruptcy and in business bankruptcy situations.  Since the goal of such liquidations is to raise as much money as possible to repay creditors, the auctioning of assets, whether via computer public auction, or private sales, needs to be done under the approval of the bankruptcy court trustee.  Unlike Ian Usher, who has not turned to the bankruptcy system for protection and who is therefore free to sell whatever he has, to anyone he likes, at whatever price he chooses to accept, a bankruptcy filer must work within the relatively complex rules dictated by state and federal law. 

Best completed with the professional guidance of a bankruptcy attorney, the bankruptcy process is serious medicine for serious situations.  And dispensing that “medicine” is how I have spent every day of my professional life for the last twenty five years.

We've been seeing an awful lot of press and hearing many political speeches on the subject of personal bankruptcies and about home foreclosures.  In my bankruptcy blog recently, I've been writing about some of the different strategies I discuss with my clients who are homeowners to help them avoid having the sheriff sell their home. 

One area of financial hardship that hasn't been making the headlines so often, but with which I have been dealing a lot in my bankruptcy law offices in Indiana, is auto repossession.   I find that auto loan borrowers are having a really hard time, especially when there's been a job loss or an illness in the family.  Just as many people bought homes that were really too much for them to afford, the same thing is happening with cars.  The number of "repos" has risen along with the number of bankruptcies and foreclosures.

An auto loan or lease is a secured loan, and until the loan is totally paid off, the creditor (who could be a dealer, a bank, a leasing company, or sometimes a collection agency or company that has bought the debt) has the right to take the car if the payments are not made.  Once the car has been repossessed, the creditor may decide to sell it, either at an auction or privately.  Then the creditor may pursue the individual for the remainder of the loan.

As a consumer bankruptcy specialist, I help clients seek the best possible solutions to all their financial issues, whether filing bankruptcy is their best course of action or not.   When a car is repossessed, the debtor may still have the option of buying back the car by paying the amount owed on it, plus any expenses the repo company incurred.  (By the way, any personal possessions that were in the car must be returned to the debtor.)   Sometimes the creditor lets the borrower "catch up" on the missed payments and reinstate the contract.  

Now, when a bankruptcy is being filed at or near the time of the repo of the car, things may get a little more complicated.  Once the bankruptcy filing is official, the automatic stay prevents the car company from taking the car.  In fact, if a Chapter 13 is filed within ten days of the repossession, the creditor must give the car back.

However, if car payments were missed and the car was seized and "disappeared" into the hands of the lender weeks before the start of the automatic stay, matters could get stickier.  Most people absolutely need their car to get to work.  Without work, their bankruptcy choices will be more limited, and their situation can really begin to deteriorate.

I think you can see why I keep repeating the rule about "Do it now!" when it comes to talking with a consumer debt adviser.  The key is to seek professional help before the choices begin to narrow and a bad situation turns worse.  The bankruptcy and repossession laws in Indiana are designed as a safety net for citizens who are in financial trouble, but the law can't help if you don't know how to use it.

As far back as eight to ten years ago, when rising bankruptcy rates began being the stuff of headlines, researchers debated whether the cause of all those bankruptcies was spendthrift consumerism. Some commentators were saying that small business bankruptcies were becoming fewer in number, especially under the new revised bankruptcy laws, while the number of personal bankruptcies was rising. 

A more in-depth look at the situation with small businesses shows how misleading this perception can be.  As a bankruptcy attorney in Indiana, I work with many small business owners in addition to working with individuals and families.  What I am finding bears out the truth of a study published in the California Law Review called "The Myth of the Disappearing Business Bankruptcy."  The article brings out the fact that the computerized forms used to file bankruptcy often end up "pigeonholing" many debtors as consumers, rather than as self-employed workers and entrepreneurs driven to bankruptcy by business debt.

In my bankruptcy blog I've written many times about the fact that the small business owner's personal and business finances tend to be closely intertwined.  From a legal standpoint, as I've remarked in earlier blogs, if the business is a sole proprietorship rather than a corporation, the business cannot file bankruptcy on its own behalf; the business owner is the one who is filing.  Nonetheless, the core reasons for the bankruptcy have to do with the business challenges, rather than with personal troubles.

That 2005 study revealed that 20% of bankruptcy filings were at least partly business-related.  The study was funded by the non-profit Ewing Marion Kaufman Foundation for Entrepreneurship in the hope that the findings would be considered by lawmakers when revising bankruptcy laws.  For example, current bankruptcy law (as I've written about in earlier blogs) requires credit counseling for debtors to help them with budgeting issues.  The Kaufman Foundation emphasized that many business owners fail because of reversals in their marketplace and in their industry.  Counseling on managing finances is hardly what is needed for such entrepreneurs!

In my years of dealing with business owners all over the state of Indiana, I've found the same thing.  I've seen business owners brought down by forces beyond their control; even when the business itself has been well-managed and well-planned, sometimes it's just bad timing for a particular business. That's where the safety net of bankruptcy comes into play, and that's where my work lies.