We hear so much about the big auto company bankruptcies, we forget other types of businesses are struggling through the economic downturn as well.  And, even though bankruptcy law has been my profession for the past two and a half decades, I was shocked, along with my neighbors and friends, to learn that Eddie Bauer filed bankruptcy just a little more than a week ago.

The actual facts of the ninety-year-old outdoor clothing retailer are hardly unusual these days.  The company reported a first quarter loss of $44 million, and it was $188 million in debt.  According to an article in the New York Times, the falloff in sales happened "just as the chain was trying to pull off a multi-year turnaround that included cost cuts…and changes to the management team."

Eddie Bauer chose to file Chapter 11 Reorganization of Debt, which is a type of bankruptcy used by businesses (and sometimes by consumers with debts over a certain dollar figure).  What that means is, far from going out of business, Eddie Bauer will be sold under the supervision of the bankruptcy court. The proposed buyer is CCMP, a private equity firm that has expertise in company turnarounds.

Speaking to the Chicago Tribune, Eddie Bauer CEO Neil Fiske had this statement to make about the bankruptcy: "We expect the process to be completed very quickly, protecting our employees and vendor partners every step of the way." Fiske referred to his firm as "a good company with a great brand and a bad balance sheet."

While my own bankruptcy law practice centers around individual consumers and small business owners rather than 370-store retail chains, I must say Fiske's words aptly describe most of my clients, who are "good people with bad balance sheets". 

My work is devoted to helping them turn that situation around!

"Saved by the bell" might be the best way to describe the latest news about Realogy.
Back in February of this year, there was speculation Realogy, owner of Coldwell Banker, ERA, and Sotheby's franchises would enter bankruptcy. At the time Realogy, the largest real estate firm in the country, was trying desperately to refinance its debt, and one refinancing deal had already been turned down by a judge.

Mark Panus, the Senior Vice President of Corporate Communication for Realogy told the Staten Island Real-Time News that his company had reduced its overhead by more than $350 million while still trying to grow through new franchise sales. Then, in March, Apollo Management committed $150 million to help Realogy weather the storm and avoid bankruptcy.

A second company that has managed to avoid bankruptcy is Rite Aid, the nation's third largest drugstore chain. In this case, according to Bloomberg News Service (May 11, 2009) bank negotiations progressed successfully and Citigroup stock analysts began reporting that "suddenly a business on a crash course once again looks worthy of investment."

A third well-know corporation did not fare as well.  Just a week and a half ago, Six Flags theme park company declared bankruptcy. The plan is to reorganize and to shed $1.8 billion of debt.  Despite having hosted 25 million visitors in 2008 and posting record revenues, the company "needed to do something about its crushing debt load."

These three corporate stories of bankruptcy and near-bankruptcy highlight the fact that companies decide to declare bankruptcy for different reasons.  The website MillionaireACTS lists some of these:

               Liquidity - When sales and revenues drop, cash flow dries up.

               Timing of Expansion - Companies bought other companies or opened new
                                outlets, but business didn't support the growth.

                Default on Loans - When a corporation fails to make payments, the lender can
                                 demand a total repayment of the loan.

                Loss of Investor Confidence - Company gets a bad rating by analysts and
                                shareholders dump the stock.   
       
It's almost uncanny how similar these reasons are to the forces that drive individuals to seek my help in filing bankruptcy.

"Liquidity" dries up, typically due to a job layoff and/or family medical expenses. 

"Expansion plans" might include the family having moved into a new home or taken on some other debt before the job loss, ultimately causing default on loans. 

The fall in real estate values makes it impossible to get capital through refinancing of home loans,
 
and lender "loss of confidence" tightens credit card limits and terms. 

The insurmountable combination of all these pressures drives consumers to seek the safety net provided by the bankruptcy court system.

"It's the economy, stupid!" was a phrase we heard a lot of during the Bill Clinton presidential campaign against George H.W. Bush, and the implication was that the incumbent president had not adequately addressed the recession. 

Were I to coin a campaign slogan for today, I'd substitute the word "jobs" for "economy". I see tracking statistics and news about jobs in the state of Indiana as a very important aspect of my work as a bankruptcy lawyer.  I continue to emphasize to my blog readers, my colleagues, and my Indiana bankruptcy clients that jobs and bankruptcy are very closely related. That's because, while the bankruptcy process may result in certain debts being discharged, individuals who emerge from bankruptcy must be able to rebuild their financial lives, and income from well-paying jobs is the key to their being able to succeed.

Just last week a headline in the Indianapolis Star read "Jobless Rate in State Expected to Climb Higher".  According to that article, experts predict Indiana double-digit jobless rates could persist into next spring. There are some signs of improvement in the overall economic picture, the article stresses.  Indianapolis' commercial real estate market has not collapsed, and in certain fields, employers have begun to hire. The stimulus money is beginning to fund projects around our state. 

Rebuilding financial lives after bankruptcy, whether for companies or individuals, is a tall order under any circumstances, and it's especially challenging when layoffs and downsizing are the order of the day.  Rebuilding is what my work as a bankruptcy attorney is all about, but I keep coming back to the reality of "It's the job markets, Stupid!"

Medical practitioners tell us to be alert for early warning signs of illness.  Moody's Investors Services deals in early warning signs of bankruptcy. Using the default rate on corporate bonds to foretell bankruptcies, Moody's told U.S News and World Report it expects that default rate to be fifteen times higher in 2009 than it was in 2007.

As a bankruptcy attorney, I was especially interested in the list of "common threads" Moody's finds in firms that are in danger of needing to file bankruptcy. Moody's was talking about large corporations, but mentions the same warning signs I see in small businesses, and the same symptoms I see in individuals who turn to me for help filing bankruptcy.

Most of the 15 firms Moody predicts might not survive 2009 have:

• limited cash for a rainy day
• a lot of debt
• large payments due over the next year

"In ordinary times", Moody's Investors Services explains, "it might not be so hard for businesses to refinance loans or get new ones, to help keep the cash flowing. But in an acute credit crunch it's a different story, and at companies where sales are down and going lower, skittish lenders may refuse to grant any more credit.  It's a terrible time to be cash-poor."  That's precisely why, in a former blog post (see "Credit Is The Dike Between Small Business And Bankruptcy") I stressed the importance of small businesses having access to enough money to keep their operations going smoothly and to expand.

Many small business owners seek my advice even if filing bankruptcy is something they never expect to do.  They want to protect themselves by managing debt and learn ways to obtain financing credit. The reality of today is that even if personal assets are not required as collateral for a business loan, the creditor will run a thorough personal credit check on the applicant for a loan and rely heavily on personal credit scores in making decisions to grant business loans.

Those no-savings-for-a-rainy-day-and-unmanageable-debt warning signs Moody's uses are good alerts for consumers and business owners alike any day of the year!

Some big business headlines in the Indianapolis Star are focused on big creditors who are suing debtors.  Wells Fargo Bank has sued eight executives of Carmel, Indiana real estate developer Lauth Group and four of their wives.

My work as an Indiana bankruptcy attorney involves individual consumers and businesses much smaller than Lauth, but the case brings to mind some blog posts I've written about the importance of full and honest disclosure of assets in the bankruptcy process.

The Lauth case is still in progress, and of course I have no knowledge of whether the allegations of concealment of assets will prove valid.  However, I do want to review the principles at stake here.  About a year ago, in comment on boy band producer Lou Pearlman's bankruptcy, I reported to my bankruptcy blog readers that Pearlman had been accused of omitting details about assets he owned in his report to the bankruptcy court.  I explained that the bankruptcy system is designed to protect the rights of both debtors and creditors, and that, when debtors don't fully disclose their assets, they are cheating creditors out of their rights.

One crucial aspect of my work as a bankruptcy lawyer involves helping clients prepare Official Bankruptcy Forms. What I find is that even clients who have every intention of reporting their assets honestly need expert legal help in properly completing those forms.  The consequences of omitting important facts are dire - debts might be deemed forever non-dischargeable through bankruptcy, and there could be fines for failing to correctly provide the information.

The forms, which include Schedules of Assets, Schedules of Debt, and a Statement of Financial Affairs, are usually filed together with the Petition of Bankruptcy, but they could be filed at any time within the 15 days following the filing.  If the deadline is missed, the bankruptcy itself will be dismissed.

Back to the Wells Fargo vs. Lauth case, the bank is saying that Lauth executives transferred personal assets (which had been used to guarantee the bank loans) to their wives or to family trusts specifically to avoid having to use those assets to repay the loans. 

Whatever the final outcome of the case, the lawsuit serves as a reminder than lying in bankruptcy court is a very, very bad idea!

Many of the questions I hear from both blog readers and from the dozens of Indiana bankruptcy clients I meet with each week center around timelines.  In other words, people want to know what the different steps are in the bankruptcy process and how long it takes for each step to happen.  I decided I'd devote today's blog post to a review of an Indiana Chapter 7 bankruptcy and a typical timeline for that kind of bankruptcy process.  

First, by way of quick review, the major purpose of bankruptcy legislation is "to afford the opportunity to a person hopelessly burdened with debt to erase his or her debt and thereby get a fresh financial start."  Bankruptcy Action goes on to explain that "debtors are usually discharged 3-5 months after bankruptcy is filed.  At that time debts (with some exceptions) are written off."

In "An Overview of the Chapter 7 Bankruptcy Process", John Ventura, author of The Bankruptcy Handbook, explains that there are four different stages in a bankruptcy:

   1.  You file Chapter 7.

   2.  The trustee takes control of non-exempt assets, sells them, and distributes the 
        proceeds to creditors.

   3. The court discharges all remaining debts (except nondischargeable debt and re-affirmed debt).

   4. You're out of bankruptcy.


An actual timetable in terms of number of days is found on the website bankruptcyaction.com:

Day #1 -The bankruptcy documents are filed with the court.
Much of my work as an Indiana bankruptcy lawyer involves the research and client counseling leading up to preparing these very documents.

Day #14 - Creditors are notified a petition has been filed.

Day #20 - #40 - Creditors' meeting is held at t6he Court.
This is also called the 341 meeting.  (See "The Creditors' Meeting - Be There or Be Square!")

Day #20 - #30 and after -  Trustee sells non-exempt assets. 
I need to point out that, in almost all Chapter 7 cases, debtors do not end up losing any of their assets.

Day #90 - Unsecured creditors' deadline to file claims.

Day #60 - 90  Debtor discharged.

Whenever a reader of my Indiana bankruptcy blogs poses a question on a subject I think others need to know about, I'll include it in a new blog post.  This time a reader asked whether filing bankruptcy would mean he'd need to stop contributing to 40lk.  In his question, the reader was clear about the fact that retirement plan assets are protected from creditors.  He already knew that the money he and his employer had already put into the plan was safe.  He just wanted to know if the law would allow him to keep having payroll deductions into the 401k, or whether he'd be forced to use that money to pay creditors.

First off, I want to explain that everything I say about 401k also applies to other types of retirement plans, including SEP, SIMPLE, 403b, etc. (see "More About Double Exempt Retirement Plans").  Even IRA assets are protected in bankruptcy.

As you might imagine, most bankruptcy clients don't have very large retirement accounts to begin with,  Worse, people who didn't get legal advice early on often make the mistake of pulling out money from their retirement plans to pay bills, bills that might have been discharged in bankruptcy! The fact is, our government places a great deal of importance on saving for retirement, often to the point of giving retirement savings priority over paying creditors!

The general answer to my blog reader's question, then, is YES.  While a local court might set a maximum on how much a debtor can contribute to 401k or other retirement plan (usually 5% of pay is considered reasonable), contributions are allowed.  BankruptcyForum.com cites an actual case in which a debtor was allowed no only to contribute to his retirement plan, but to keep having payroll deductions made to repay 40lk loans, giving the 401K a place in line ahead of other creditors!

In one of my earlier blogs I described a case in Massachusetts in which the court ruled that the debtor was allowed to "pay herself first" by saving for retirement. Of course, the court might take a look at a debtor's history of making retirement plan contributions in the past, just to be sure the intent was not to use 401k contributions as an excuse not to pay creditors.  Still, case law appears to bear out the government's intent to encourage retirement savings even by debtors who are turning to the courts for protection.

A survey of small businesses released last year by the Robert Wood Johnson Foundation
revealed that health care costs are a top concern of business owners.  While the entrepreneurs believe health benefits are a powerful incentive in retaining good employees, they are struggling to keep up with increasing insurance costs. 

 I know.  With a significant number of my Indiana bankruptcy clients either small business owners themselves or working for a small business with 50 or fewer employees, or perhaps even recently laid off from a small business, medical debt seems to be playing a larger and larger role in Hoosiers turning to the bankruptcy court to seek protection from creditors.

In February of this year, the SCHIP plan went into effect, providing healthcare to millions of children, but the sad fact is, almost 47,000,000 people in America are uninsured.

The June 8 issue of the Indianapolis Business Journal reported that "health insurance premiums for the average family are $1000 a year higher because of costs of healthcare for the uninsured." The advocacy group Families USA calls this a "hidden tax". 

In yesterday's blog post, "The Bankruptcy House That Hayden Built", I related the story of a young woman forced into bankruptcy.  In answer to one of the comments on her own blog, Hayden Tomkins says something that rings very true to me:

"I think what strikes me the most is how often it doesn't matter how intelligent or well-educated you are.  People of all levels find themselves in a financial disaster zone."

It's precisely for this reason the bankruptcy safety net was created!

A blogger from Florida shares a sad personal tale about what she calls
"The Merry-Go-Round Of Financial Mistakes".

• To get a job, she needed a car.
• To get a car, she needed a job - or financing!
• Her godfather cosigned on her car loan to buy a used vehicle.
• Money got tight, so Hayden cut back car insurance (She didn't realize she was legally obligated to carry full coverage on a financed car.)
• She had a near-fatal accident.
• With no health insurance, she now owed $2000 in medical bills.
• She had no funds to make repairs to her car, so it finally blew a gasket. (By now she has a job and is going to school.)
• Her godfather gives her an old second car he had, but it cost her thousands to get it into driveable shape.
• Meanwhile, Hayden cosigns her brother's student loan (her biggest mistake, she says).

It's Hayden's reflections on everything that happened to her leading up to filing  bankruptcy that I particularly wanted to share with my blog readers and bankruptcy clients:

"Most people have the idea that people swimming in debt are folks who just spent a bunch of money on their 'wants'.  The reality is far more complex…If the margin between gross income and expenses is so slim you cannot save, you'll have no money for emergencies.  If you use credit for these emergencies, you have then incurred additional expenses which your immediate income does not cover."

"By the time most people file for bankruptcy, it's too late.  They've taken out second mortgages to consolidate credit card debts.  They've dipped into their 401k's….They've sold everything of value just to pay the minimum tribute that their debt monster requires."

"Bankruptcy is not an easy financial solution but it can be successfully used as a tool to give a person, or a corporation, a fighting second chance", Hayden ends.  (As a bankruptcy attorney for almost twenty five years, I don't think I could have said it better myself!)I

No question about it - Indiana bankruptcy statistics (both the number of filers and the number successfully emerging from Chapter 13 bankruptcy debt repayment plans) are tied to local employment statistics.  That's why I see offering business and job updates in my Indiana bankruptcy blog as an important part of my work. I want to make sure my blog readers and bankruptcy clients know what the opportunities are for finding well-paid jobs and to have them be forewarned about layoffs that are in the works.  I also want to make readers aware of job trends here in the state.

On the bad news side this week, Inside Indiana Business reported that, nationwide, the number of people who've been jobless 27 weeks are more has tripled since the start of the recession.  Employment decreased most in manufacturing and construction, moderated its decline in professional and business services, and was flat in leisure and hospitality.

On the more positive side, the headline of a U.S. News and World Report article read "Companies Hiring Right Now", mentioning Wells Fargo, IBM, Kentucky Fried Chicken, Cingular, Books-A-Million, Petsmart, and Enterprise. The report mentioned government jobs with the U.S. Commerce Departments Census Bureau and the IRS, which is hiring internal revenue agents.

When I searched the website ihirejobnetwork.com, I found quite a number of job listings, everything from accounts payable specialists to backflow tester and chef, plus some higher level positions in the life sciences area.

No getting away from the fact that the most important phase of bankruptcy comes at the end of the process, when my client emerges from the bankruptcy and makes that "fresh start" I'm always talking about.  The secret of success, though, is the availability of jobs. Chapter 7 bankruptcy clients need to get back into a pattern of keeping all the bills paid on time and setting aside an emergency fund.  Chapter 13 bankruptcy clients need to fulfill their three to five year debt repayment plans.

In the final analysis, bankruptcy and employment are joined at the hip!

"Pensions Safe For Now, But Will Restructuring Be A Lasting Legacy?" asks Ted Evanoff of the Indianapolis Star. "Facing a $20 billion hole in its pension funds, General Motors could return to bankruptcy court in a few years wrangling over the future of something nearly 100,000 Indiana residents depend on: a GM pension," he adds.

If the GM story is spooking you about your own employer's pension fund, Sarah Mox of Money Magazine is more encouraging about pension benefits in general.  "Pension benefits already earned are guaranteed…so employers must cover their plans' deficits." Mox quotes an executive of the Employee Research Institute who remarks, "A company can dip into cash reserves to fund its pension.  If there are no reserves, the firm must cut costs." Even if you lose your job because your employer goes under, Mox goes on to say, you'll still get checks in retirement through the Pension Benefit Guarantee Corporation, a federal insurance program.

ConsumerBoomer.com correctly explains that "when a company goes bankrupt they can reorganize and try to stay in business by reducing costs and attracting new investors, or they can liquidate.  In either case, the pension plan is usually terminated, and that's when the PBGC takes over.

Remember, too, just as in an individual bankruptcy, in a corporate bankruptcy, pension assets can't be touched by creditors to pay off debt.

While my own Indiana bankruptcy law practice deals with individuals and small businesses, not with mega-corporations such as GM, corporate bankruptcies undoubtedly end up affecting my clients.

As companies reorganize, there is usually downsizing taking place.  Job loss continues to be one of the three major causes of personal bankruptcy.  With job loss often comes the loss of medical benefits.  The rising number of medical bankruptcies is one of the "fall-outs" of corporate bankruptcy.

At least there's one quite encouraging statistic, according to ConsumerBoomer.com. 84% of retirees get their full pension even after their company filed a corporate bankruptcy.

Interesting… back in 2007, the Kansas City Star ran a headline saying "College Freshmen Flunk Money Management", pointing out that people under the age of 25 are now the fastest-growing group of bankruptcy filers."

Then, just this month, I read an article in the Journal of Financial Planning that made exactly the opposite observation. (As a bankruptcy attorney in Indiana, I like to read journals in the fields of employee benefits, insurance, and financial planning, so that I can offer the most comprehensive advice to my bankryuptcy clients.) The Journal talked about a survey recently conducted by TheMint.org and Northwestern Mutual Life.

When asked, "If you spotted a great item at the mall that you couldn't afford right now, what would you do?" 54% of people 29 years old and younger responded they'd save money each month until they had enough money to afford that item. (Only 42% of people aged 30 and up said they'd set aside money rather than buy the item on credit.) Only 7% of the under-30's said they'd charge items on a credit card and worry about the debt later, compared with 13% for the over-30 crowd.

The Journal of Financial Planning concludes today's kids might become "the most financially clued-in generation since the 1940's.

I'd like to think that fewer and fewer young people will be needing my services, but unfortunately, that's not my prognosis for Gen X and Gen Y any time soon.  The problems that have younger people visiting one of my four Indiana bankruptcy law offices, in the majority of cases, have nothing to do with over-spending on luxuries. Instead, what I'm seeing is a lethal combination of student loan debt, job losses, and medical bills, along with the rising cost of housing.

Don't get me wrong - financial education for all ages is highly beneficial and sorely needed, and, following a recession, as the Journal points out, people of all ages tend to be more cautious in their spending.  The bottom line in all this is - there's no age discrimination in bankruptcy!

Every so often a blog reader poses a question that I think will be of interest to other readers.  This individual has three different loans outstanding with the same company and he/she's asking if it's possible to file bankruptcy on just one of those loans, but not on the other two.

Bankruptcy is a process that relates not to any one loan, but to an individual and to that person's overall ability or inability to repay debt.  The basic purpose of the bankruptcy legal system is, as stated by Consumer Action, "to give debt-burdened consumers an organized, systematic way of paying back creditors."

The point about paying back creditors through the bankruptcy process is that all debts need to be considered, and all creditors need to receive fair treatment, with secured creditors being first in line and then unsecured creditors. 

As part of the legal process, the court will hold a creditors' meeting.  At that meeting, you will be asked to verify each debt you owe and also to demonstrate that you have no means of immediate repayment once your basic living expenses (and those of any dependents you have) have been satisfied.

As I've said so often before in these Indiana bankruptcy blogs, bankruptcy is not a do-it-yourself project.  And, as by now you realize, it's not a pick 'n choose process, either.

Yesterday I responded to a radio broadcast on National Public Radio about filing bankruptcy.  Another broadcast, on Morning Edition, highlighted the fact that medical debt is now the largest cause of personal bankruptcy.

As a bankruptcy attorney in Indiana, I'm seeing more and more medical debt.  Sadly, this threatens to become an even bigger problem because families who relied on credit cards to pay medical costs are being caught in the vise of tightening credit.

The three leading causes of bankruptcy have been job loss, medical bills, and divorce.  In recent months, many have been caught between the rock of job loss - which has meant the loss of not only income but of health benefits and the "hard place" of rising medical costs. To make matters worse, people with no coverage tend to skip routine care, and so medical conditions worsen.

One unfortunate sidebar that I've seen in my practice is that medical providers rarely report delinquencies to credit bureaus.  Instead, often within just weeks of bills being overdue, they turn the debts over to collection agencies.

One of the things I hope these Indiana bankruptcy blogs will accomplish is helping debtors protect themselves against extraordinary harassment by collections people.  That's what the Fair Debt Collection Practices Act is about. Overzealous collection of medical debt has been an increasing problem, and abuses need to be reported to the Attorney General's office.  Some of the no-no's are calling several times in a single day, calling on Sundays, or calling at work.

Sometimes the bankruptcy safety net is the only medicine strong enough to handle the financial illness caused by medical misfortunes!

In a recent radio broadcast on National Public Radio, Michele Singletary warns that personal bankruptcy should be a VERY last resort.  After more than two decades in the practice of bankruptcy law, I have some counterpoint to offer on the subject. Too often, in their attempts to avoid filing bankruptcy at all costs, clients wait too long to seek legal advice.  At that point, some of their options have been sacrificed.

'Debt help" and "foreclosure fix" scams are rife, and according to the Center For Responsible Lending, even legal payday lending practices could be considered predatory. Most important, though, is that too often, consumers wait passively for weeks rather than contacting their lenders to explore options. One very, very common mistake I find is that folks who cannot pay all their bills choose the wrong ones to pay first. 

There are immediate and very severe consequences if federal tax bills, student loans, or child support bills are put at the bottom of the pile, including having bank account assets seized and wages garnished. Even worse, debtors often deplete assets such as retirement accounts, which are exempt in bankruptcy, to pay bills which could have been discharged in the bankruptcy!

My work as a bankruptcy attorney includes keeping cars from being repossessed before it is too late, helping negotiate with mortgage lenders to stave off foreclosure, working with the IRS to arrange installment payments for taxes, and even dealing with student loan authorities.

Time is of the essence for individuals struggling for their financial lives. When late fees and penalties are piling up by the day and creditors are calling at home and at work, it's crucial to get legal advice quickly and select a course of action. In almost all situations, the bankruptcy Automatic Stay puts a halt to all collection and legal efforts against the debtor until the court decides on a workable course of action.

Ms. Singletary is correct in saying that abankruptcy will show up on a credit report for ten years.  But, let's be honest - anyone who isn't keeping up paying bills doesn't have a fabulous credit record to begin with.  What bankruptcy "buys" is the chance for a debtor to spend the next two to four years re-establishing good credit! 

What really destroys a person's good credit is putting off action while debts continue to pile up.

It's always nice to be recognized by one's professional peers, and I felt very privileged at the end of last month.  I was asked to lead a study session at the annual convention of the National Association of Consumer Bankruptcy Attorneys in Chicago. 

My topic was Advanced Chapter 13 Bankruptcy.  You might remember from former blog posts that Chapter 13 is a debt repayment plan when the debtor has enough income to make regular payments over a three to five year period. Chapter 13 is often filed specifically to save a home from foreclosure.  That's because when some other debts, including a second mortgage are reduced or discharged in the bankruptcy, the homeowner often can manage to make the first mortgage payments and keep the home.

In my session, I discussed legal issues having to do with the Chapter 13 bankruptcy process,  including pre-payment terms, hardship discharges, modifications, and other legal challenges that attorneys deal with when Chapter 13 bankruptcy is involved.

Needless to say, at the convention there was a lot of discussion about the mortgage modification bill that failed to pass in the Senate.  That measure would have allowed bankruptcy judges to modify mortgages in order to keep homeowners in their homes. Since the 5,000 or so attorneys had come from all parts of the country, each was dealing with a different level of problems having to do with rising foreclosure rates. I shared the fact that in Indiana, close to 10% of homeowners have missed at least one mortgage payment since the beginning of 2009 (compared to an 8.2% average rate nationwide.

We also discussed the government "rescue plan" (see makinghomesaffordable.gov) that calls for lenders to reduce mortgage loan payments (for qualified borrowers) to 31% of the borrower's income.

Back home in Indiana after the conference, I continue to see the effect of the housing downturn has had on families' finances, forcing greater numbers of people to turn to the bankruptcy court for help.

Even if the bankruptcy process was not given the power to govern mortgages, I will continue to help my Indiana bankruptcy clients explore all their options.

The debate going on right now about Chrysler Corporation's bankruptcy is very important in a lot of ways.  While my own bankruptcy law practice has always focused on personal bankruptcy and small business bankruptcy and not mega-corporations, there are quite a number of things about the Chrysler situation that can help my blog readers better understand how the bankruptcy process actually works.

Needless to say, there are many jobs at stake, with car dealerships and machine shops and auto parts makers downsizing or closing because of Chrysler's problems.  I've written many times about how crucial it is to have well-paid jobs available as my Indiana clients emerge from bankruptcy and begin to rebuild their financial lives. Similarly, the faster Chrysler can emerge from bankruptcy, whether through a merger or sale, the greater hope there is of fewer jobs being sacrificed.

The type of bankruptcy Chrysler filed is Chapter 11, which is a "reorganization of debt". If individuals or companies have more than a certain amount of debt, this is the type of bankruptcy that has to be filed. Most individuals don't use Chapter 11, because it is much more expensive, time-consuming, and difficult than a Chapter 7 or a Chapter 13 bankruptcy. 

I'm always reminding readers that the bankruptcy court process has different parties with an interest in the proceedings.  When I help an individual file bankruptcy, usually the parties are the secured creditors (the banks or companies who lent money secured by a car or a home, for example), the unsecured creditors (credit card companies or health providers, for example - there's no property securing the loan), and the debtor him/herself.  Obviously, not every party gets everything it wants, but the object of bankruptcy law is to treat all parties as fairly as possible, with the secured creditors having priority over the unsecured creditors.

That's exactly what the argument is all about with Chrysler. Italian car company Fiat has offered to buy most of Chrysler, and that would save the company from liquidation, allowing Chrysler to get back to manufacturing smaller, more fuel-efficient cars. But the way in which this sale is taking place, secured creditors might not receive will not receive payment. 

As RealClearMarkets investment blog reminds us, according to bankruptcy law, lenders who have a claim on collateral, meaning secured debt, are supposed to be paid in full before anyone else gets paid.  As a bankruptcy attorney in Indiana, I'm especially interested in this case because three of the secured creditors of Chrysler Corporation are the Indiana state pension funds who invested in the bonds issued by Chrysler. As of this writing, the Indiana state Treasurer is appealing the Chrysler "cramdown" on behalf of the pension funds, but the court has turned that appeal down.

With GM also on the brink of bankruptcy, its bond holders are preparing for battle as well.
I will keep my readers posted on the news about both these giant bankruptcy cases. 

In the meanwhile, I'll continue to help my Indiana individual and small business bankruptcy clients go through the steps of the bankruptcy filing process, taking things one day at a time. 

At first I thought it was just a fluke, and that as I myself grew older, the people coming to see me simply seemed younger by comparison.  Then I realized that one of the fastest growing forms of debt is student loans. (Many of these clients really are younger!)
 
Ironically, student loan debt is mostly non-dischargeable in bankruptcy.  Still student loans seem to be the main factor driving younger and younger people to seek the help of an Indiana bankruptcy lawyer.

The client stories I'm hearing in my Indiana bankruptcy law offices are, in a way, "chapter two" of a story that began, in many cases, in high school and then intensified in college. The April issue of the Butler Collegian pointed out that "students are putting college on a tab", using credit cards to pay for tuition, books, and other direct college expenses. One survey by lender Sallie Mae says 30% of all students charged an average of $2000 during the past school year. Marie O'Malley, director of research for Sallie Mae suggest that using a credit card "may be the only way for some to continue a college education in the current tempestuous state of the economy."

Given all these facts, I imagine the new credit card legislation that takes effect this February will impact college students in a big way. The law prohibits companies from giving credit cards at all to anyone younger than 18, but even those who prove they are full time college enrollees will be issued only one card with a $500 credit limit (unless parents are willing to cosign for the card).

Back in December, I quoted an Indianapolis Star reporter saying "Never before has the U.S. experienced the combination of economic downturn along with such high levels of student debt.": The new credit card rules, meant to protect consumers, will be sure to have a devastating effect on young adults in the short term.  In the long run, I'm hoping, I'll see fewer and fewer bankruptcy situations originating in college.

Just one year ago (see "Lenders Zipping Up The Purse For A Fourth Of U.S. Zip Codes"), I blogged about mortgage insurers, and how mortgage borrowers who couldn't afford a 20% down payment needed mortgage insurance backing.  At that time, several mortgage insurance companies were literally "blackballing" entire states, refusing to insure home mortgages in markets where home prices were falling sharply. California, Florida, Arizona, and Nevada were on the black list, as were Michigan and Ohio. Even though it was the lenders who had the money, it was the mortgage insurers controlling the purse strings.

As a bankruptcy attorney in Indiana, I follow the housing and employment markets in our state.  Even though I hear radio and TV commentators talking about the housing markets having begun to "bottom out", what I see is many lenders demanding that homebuyers have very high credit scores - plus substantial down payments on new mortgages - before those lenders are willing to free up cash for mortgage loans.

The result of all this, according to MortgageLoan.com, is that "many of those who would like to take advantage of the low interest rates are unable to do so,……and mortgage activity continues to be overwhelmingly dominated by refinancing existing loans."

Just this month, a new Home Valuation Code of Conduct went into effect. The HVCC forbids mortgage brokers from selecting or recommending an appraiser, and puts control of the appraisal process in the hands of the lenders.  The way the new arrangement was explained to me, the bank charges the homebuyer a fee and then assigns the work to an appraiser.  While the process is brand new and many details need to be clarified as the policy begins to be implemented and monitored, the immediate result has been delays and barriers to closing of transactions.

In ordinary times, most lenders' offers on 30-year loans were within a quarter of a percentage point of each other, "but with the economy so shaky, lenders are all over the map in how much risk they're willing to take," according to the SmartMoney-PersonalFinance blog. The hurdles to get a low fixed-rate loan are high, because Fannie Mae and Freddie Mac have tightened standards for the loans they will buy or guarantee.

For the best rates, a buyer needs a FICO score of at least 720 and a down payment of 20%.  Mortgage payments shouldn't exceed 28% of gross income, with all debt payments, including student loans not exceeding 36% of the buyer's gross income.

Last week I took a tip from an Entrepreneur Magazine article suggesting business owners should bone up on bankruptcy vocabulary in case they end up as either a debtor or a creditor in a bankruptcy case.  Part of being prepared is knowing the "lingo", which in turns helps clarify how the bankruptcy process works.

Today I'll complete the process of offering selected terms from the U.S. Courts website's Glossary of Bankruptcy Basics:

Fresh Start
This describes a debtor's status after emerging from bankruptcy free of most or all debts.

Lien
 A lien is the legal right to take the property of a debtor as security or payment for a debt.

Means Test
This is a standard which determines whether a debtor is eligible to file bankruptcy, or whether he or she has the "means" to repay debt.  The "test" compares the debtor's monthly income compares to the median income.

Non-dischargeable Debt
Some debts cannot be discharged in bankruptcy.  These include alimony, child support, most student loan debt, and certain taxes.

Secured Debt
Some debts are secured by property such as a home, a car, or a commercial building.

Trustee
The bankruptcy trustee is an official of the court who supervises the administration of a bankruptcy case.

It's important to insert a reminder here that, when it comes to bankruptcy, whether business or personal, it's the local lingo that's important.  Although U.S. bankruptcy law comes from Congress, the way the law is interpreted and how it is carried out differs from state to state.

Just as one example of this fact, I'm often asked about wage garnishment, which has different rules in Indiana than, say, in Michigan or California  (see "Bankruptcy Blog Reader's Question: Can Independent Contractor Wages Be Garnished?")

So learn the lingo, then seek legal advice - locally!