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.

In this bankruptcy blog I have very often stressed that, contrary to myths about "deadbeats", filing bankruptcy can be the only viable choice for people with circumstances beyond their control. My mission as a debt counselor and Indiana bankruptcy attorney is to help those people escape the daily hell of creditor pursuit and use the safety net of Indiana bankruptcy law to make a fresh start.

Despite the statistics we keep reading about the sharp rise in bankruptcies and foreclosures, (and of course my work puts me in front of debtors day in and day out), the fact is, most people you meet are not filing bankruptcy.  But I've been thinking about something interesting lately.  Outside of my bankruptcy law offices, a lot more often than you might think, I see people who think they are responsibly handling their day to day finances responsibly.  They are not overspending, they keep their bills paid on time, and they don't rack up huge credit card debts.  Yet these people, who may be business colleagues, personal friends, or even relatives, are inadvertently opening the door to someday needing bankruptcy protection themselves. They are actually putting themselves and their families on a track that could lead to bankruptcy, and they're doing that through their dangerous habits.

Let's face it - medical costs are one of the three "biggies" that drive people into debt, along with layoffs and divorce.  Research is pretty much conclusive at this point that smoking is detrimental to health.  Smokers may need to pay for expensive surgeries, oxygen, etc., and babies born to smoking mothers may need costly surgery and treatment themselves.  While we in the U.S. have made a lot of progress in curbing smoking, nicotine-related illness costs the U.S. almost a billion dollars each year!  Alcohol abuse is also linked to numerous - and expensive - health problems, (including auto accidents caused by drunk driving). 
 
So, looking at this pretty tame group of people I associate with in business and socially, you might think - and they must think - personal bankruptcy would never be in the cards for them or for their children.  I love them all, but sadly, I know smoking and excessive drinking are two habits that are not helping their chances of dodging the bankruptcy bullet.

Activity is beginning to heat up at the Indiana Statehouse, as the January  deadline for committee work approaches.  As a bankruptcy attorney in Indiana, I always have my ear to the ground for issues having to do with consumers and small businesses and managing financial matters.  There are actually two legislative bills under discussion at the statehouse this short spring session that have to do with money matters. 

The first bill is Senate Bill 195, authored by Representative Young.  This bill increases the minimum amount of financial responsibility required to operate a motor vehicle.  Right now the minimum responsibility for injury caused to one person is $25,000, and $50,000 for injury to two or more people.  The proposed bill would raised these amounts to $40,000 for one person and $80,000 for two or more people injured.

The second bill is House Bill 1036, authored by Representative Ulmer.  This bill makes it mandatory for a driver who is stopped by a police officer for a moving traffic offense, or a driver who is involved in an accident resulting in damage of at least $1,000,  personal injury or death, to fail to submit proof of financial responsibility to the state police.

I’ve written before about individual bankruptcies that are precipitated by auto accidents.  Each of these bills, if passed, would relate to the financial situation of consumers.  As a consumer bankruptcy specialist in Indiana , I imagine that, with new and stricter requirements on drivers, automobile accidents  might become even more strongly linked to bankruptcy filings.

Remember me writing about how money in 401K retirement plans grows without the owner needing to pay current taxes? What is so interesting to me as a bankruptcy attorney in Indiana, is that 401K money counts as an exempt asset in a bankruptcy.  In other words, the money cannot be taken. Most people don’t know this about 401K, and find this information very reassuring as they imagine how their lives will look after filing bankruptcy.

I specifically mentioned 401K, because that’s one of the better-known types of retirement plan.  But the fact is, bankruptcy protection extends to many kinds of tax-deferred retirement plans, including SEP and SIMPLE plans, which small employers tend to offer, as well as to IRA and Roth IRA accounts. Interestingly, employer plans such as 401K, SEP, and SIMPLE have unlimited protection.  IRA’s are protected up to $1,000,000.

I don’t need to tell you that the vast majority of my bankruptcy clients don’t have retirement accounts anywhere near that large.  But what this goes to show is the great importance our government places on helping people save for their own retirement.

Any good news for my personal bankruptcy and business bankruptcy clients is good news to me.  After they file bankruptcy, people can turn their attention to living their lives and preparing for retirement.

Bankruptcy is a federal court process.  As a bankruptcy attorney in Indiana, I explain to people that the whole idea behind the process is to help consumers and businesses eliminate their debts or gain time to repay them. As part of a bankruptcy proceeding, one of the major misconceptions is that your property will be sold to pay down your unsecured debts.  (Unsecured debts are debts for which no collateral has been pledged; a car loan or a home loan is a secured debt because it has property backing up the loan.)  However, this is not true in most cases. Under bankruptcy law and specifically Indiana law, there are certain kinds of property that are exempt from being taken or sold. 

There is more than one kind of individual bankruptcy and several kinds of small business bankruptcy.  The differences between the various types of bankruptcy filings relate to who qualifies to file each kind of case and who doesn’t, and then with which property may be sold to pay off debt, and which property is exempt.

People who need debt help come to see me with all kinds of questions – plus all kinds of misinformation and all flavors of fear. One very reassuring thing I can tell everybody is that it's rare for an individual to lose possessions in a bankruptcy proceeding. 

The good thing is that, if you are honest with your attorney, her or she should be able to tell you, before you ever file, exactly what possessions can be taken from you. In any event, an individual will not lose lose those possessions that are important to him.  Those might include his clothes, a car to get around in, and furniture to sit on and sleep on!
 
 

In an earlier blog I wrote about how forgiveness of debt through a settlement can cause a tax problem, and pointed out that when debts are discharged through the court system in a bankruptcy, there is no additional tax.

While we’re talking about tax, one of the big myths about filing bankruptcy in Indiana is that you can get rid of some debts through filing bankruptcy, but you can never get rid of tax bills. The good news is, that’s not true. As a bankruptcy attorney in Indiana for many years, I can tell you that we get rid of old income tax bills for clients all the time. Maybe they have lawsuits and judgments of all kinds, and the one place they never expected to get any relief is from the IRS. I'm here to tell you that one of the big bankruptcy services I've been able to provide is in the area of back taxes for personal bankruptcy and and small business bankruptcy clients.  We have discharged millions in tax debt in bankruptcy over the past 23 years.

How old do the taxes need to be to qualify? Income taxes more than three years old qualify for forgiveness under the Indiana bankruptcy laws. True, it's not just a snap of the fingers; there are three or four qualifications that a personal needs to meet in order to be excused from the taxes, but once those things are met, the taxes are forgiven. (I need to add here that bankruptcy does not get rid of taxes withheld from your paycheck or sales taxes, not even three year old ones.)This tax thing is just one more reason to work with an experienced bankruptcy professional – you need help making use of all the legal advantages you can.

     One of the biggest and most long-standing myths is that if you file personal bankruptcy, your ability to borrow money will be totally kaput for ten whole years. Like most myths, this is a falsehood with a dab of truth mixed in.  A Chapter 13 bankruptcy will show up on your credit report for ten years, true.  But, just because something is included in your credit report doesn't mean you can't get credit.  Your individual bankruptcy is just one of the many factors that will be considered in your credit score. 

     Let's be honest here - you wouldn't consider filing personal bankruptcy in the first place if your credit record were in fabulous shape. What the bankruptcy process - whether it is Chapter 7 or Chapter 13 -  "buys" you is the chance to spend the next two to four years re-establishing your good credit.  In fact, that's the whole concept behind Indiana bankruptcy law!  Speaking of "kaput", what can really start a person's slide down the slope to "kaput" is doing nothing, putting off action while the debt piles up and the bill collectors call. 

     Believe me, what I see out there with clients who have taken the big step of talking with a bankruptcy attorney and getting started on a plan of action is the most incredible sense of relief combined with resolve.  For these folks, as in Webster's Dictionary, the word "hope" comes way before the word "kaput"!