It appears that the Detroit Public Schools (DPS) may be the first metropolitan school district to file for bankruptcy. Jim McTevia of McTevia & Associates of Bingham Farms said, “They’re going to have to reduce their debts, and the only vehicle is through the court system.” Bankruptcy court may be the only way the district has to avoid paying millions to vendors, employees and bondholders. They are considering filing under Chapter 9, which is a unique form of municipal bankruptcy. Under Chapter 9, DPS might be able to renegotiate vendor and labor agreements. Robert Bobb, a financial manager for DPS, met on Thursday with retired U.S. Bankruptcy Judge Ray Reynolds Graves to explore the option. If DPS does file for bankruptcy they would be the first large city school in the nation to do so.

To learn more refer to the article in the Detroit News.

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There has been a great deal of discussion about whether we are presently in a recession or a depression.  Let’s first examine the difference between the two. A recession refers to a general slowdown in economic activity over a sustained period of time. It is seen as a normal downturn in the business cycle. The GDP (Gross Domestic Product), employment, investment spending, household incomes and business profits all fall during recessions. Whereas, a depression is a sustained, long, downturn in one or more economies. A rare and extreme form of recession, a depression is characterized by abnormal increases in unemployment, restriction of credit, shrinking output and investment, numerous bankruptcies, reduced amounts of trade and commerce, as well as highly volatile relative currency value fluctuations, mostly devaluations. Deflated prices or severely inflated prices are also common elements of a depression.

That said, let’s consider the questions that Chris Isidore addressed in his article on CNNMoney.com. How does the present economy compare to the Great Depression? And is it likely that the economy will fall into another depression?

Our economy witnessed a serious recession in the mid-1970s and in the early 80s.  But this recession is the worst since the Great Depression. This recession has lasted twenty months, so far, compared to the sixteen months which occurred during 1973-75 and 1981-82.  Every single state has reported a rise in unemployment, which is the first time this has happened in the thirty-two years unemployment records have been kept nationwide. On top of that, 86% of industries have cut back production since November, and in the past nine months the wealth in households has dropped more than any time since after WWII.

Why isn’t this considered a depression? The U.S.’s GDP has fallen to about 1.7%, and over the life of the recession should average about 3.4%. Although this would be the worst drop since WWII it is a long way from the 26.5% fall in GDP that occurred between 1929 and 1933.  Yes, the net worth of households has fallen drastically during this recession, but the broader economy can weather the shock. Major changes in policy keep money moving in the economy in ways that weren’t in place during the 30s.  A paper written by Harvard Professors R. Barro and J. Ursua concludes that the chance of a minor depression is approximately 20% and a major depression is approximately 3%.

All in all, the economy is in better shape than is often portrayed by the media.

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An article in the Washington Post, on Monday, discusses the results of an Associated Press analysis that concluded that there is a direct correlation between states that allow debt collectors to seize wages and strikingly high bankruptcy rates. The relationship between garnishment of wages and an increase in the cases of bankruptcy filed emphasizes the concern of many consumer advocates that the practice pushes people into bankruptcy court by increasing their financial stress.

The Associated Press study showed that North Carolina, South Carolina, Pennsylvania, Florida and Texas, states that prohibit or strongly limit wage seizures, have radically lower rates of bankruptcy than most others. The rate in those five states is 42% lower than it is nationwide.

In order to seize someone’s wages, creditors must obtain court approval and the Federal and State law usually limits how much can be taken to approximately 25%. Keep in mind that if a person files for bankruptcy via Chapter 13 or Chapter 7, it overrides a court order to garnish his or her wages. This explains why bankruptcy filings are greater in states that allow garnishment of wages by creditors. Often just the threat of having their wages seized cause people to consider filing for bankruptcy. Bankruptcy rates may also be affected by other state laws that rule on foreclosure proceedings or regulations on debt-to-income ratio.

If you are in need of help with your financial difficulties, or are under threat of having your wages garnished, please feel free to contact me via phone (303-955-7570) or email (help@cobankruptcyhelp.com).

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Many people approach the notion of filing for bankruptcy with shame and reluctance. This is understandable because of the misconceptions associated with bankruptcy. There are significant aspects of this issue you should keep in mind as you approach the decision to file for bankruptcy.

The most prominent myth about bankruptcy is that it will damage credit scores. But what many individuals don’t realize is that bankruptcy is an economic tool, one which many renowned people have used. Some of the more prominent cases that have filed for personal or corporate bankruptcy are: Michael Jackson, Texas Governor John Connally, Larry King, Jerry Lee Lewis, Abraham Lincoln, Soprano’s actress Lorraine Braco, Walt Disney, Richard Buckminster Fuller, Samuel L. Clemens (Mark Twain), John James Audubon,  and Donald Trump. These are only a few-if you file for bankruptcy you will certainly be in good company.

Yes, in the short-term your credit rating may go down after filing for bankruptcy, but an important thing to keep in mind is the long-term effect. Over time the removal of bad debts from your credit records may improve your credit score. If you take advantage of the special loans and credit lines that are available to those who have filed bankruptcy it will accelerate the process of rebuilding your credit score and reestablishing your credit line.

So, as you go through the decision-making process regarding bankruptcy, keep in mind it is just an economic tool. (If you need assistance with the decision please feel free to contact me via phone: 303-955-7570 or e-mail: help@cobankruptcyhelp.com)

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Is our health insurance nothing but “a tale told by an idiot, full of sound and fury, signifying nothing”? I can’t help but wonder, since 75% of the people who are forced into personal bankruptcy due to medical problems had insurance when they became ill or were hurt, as Reed Abelson pointed out in his New York Times article on Wednesday.

As we all know, President Obama and our legislators are attempting to rectify the health care crisis by standardizing minimum insurance coverage and by setting a ceiling on out-of-pocket expenses. But will that be good enough? I have to doubt it after reading about Lawrence Yurdin in Reed Abelson’s article. Yurdin is a computer security specialist who was insured by Aetna. His policy was supposed to cover up to $150,000 in hospital care per year. What he didn’t know was that it was primarily for room and board; any other hospital services were limited to $10,000. Mr. Yurdin’s unpaid medical bills amounted to almost $200,000. Despite having paid for what he thought would be sufficient hospital coverage, Mr. Yurdin and his wife must file for bankruptcy.

According to a national study done by the American Journal of Medicine, 62.1% of all bankruptcies in 2007 were medically related. In case you think that this statistic is a result of the uninsured unemployed masses, think again. The American Journal of Medicine’s research found “Most medical debtors were well educated, owned homes, and had middle-class occupations. Three quarters had health insurance.”

In response to this surge in bankruptcy claims, Congress passed, and President Bush signed, the Bankruptcy Abuse Prevention and Consumer Protection Act in 2005. This Act (sometimes referred to as the “New Bankruptcy Law”) is intended to, among other things, increase the difficulty for certain consumers to file bankruptcy under Chapter 7; some may file under Chapter 13 instead.

Hopefully, what the present Congress accomplishes will signify something.

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Many clients want to know what they will face if they want to buy a home after filing for bankruptcy—be it Chapter 7 or Chapter 13. The first thing to be alert to, if you are interested in buying a home after filing bankruptcy, is the many lenders out there willing to take advantage of a borrower who has recently filed bankruptcy.  There is a growing trend among subprime lenders to behave in an unethical manner toward borrowers who have bankruptcy in their background.

The lenders may require what they call a “processing” fee in advance or they may ask for inordinately large fees or attach an extremely high penalty to prepayment of a loan. Do not let this discourage you from buying a home after filing bankruptcy. Rather, be sure to enter the process armed with information.

Here are some things to keep in mind that will help you when shopping for a mortgage loan after filing for bankruptcy:

• Research at least four subprime loan quotes. This will give you an idea of current interest rates for subprime mortgage loans. Without this information you could end up signing on for an unreasonably high interest rate on a loan for someone with your credit record.
• Do not trust a lender who asks for fees in advance. The only fee required of a borrower applying for a mortgage loan should be the application fee, which covers the cost of pulling your credit application. There have been lenders who scam clients with a bankruptcy history by demanding a processing fee of hundreds, sometimes thousands.
• Insist on getting closing costs in writing from the beginning of your transaction with a lender. In some instances, this is where lenders attempt to take advantage of borrowers who have recently filed bankruptcy. They are aware that these borrowers, enticed by low interest rates, will not consider the exorbitant closing costs in advance. If you get the list of closing costs in writing beforehand, you can then research them online to be sure they are within reason. If they are too high, go back to the lender and let them know you will not pay the inflated closing costs. They will more than likely comply, since they will not want to lose your business.
• Finally, if you can’t find a deal from a mortgage company that satisfies you, consider a home financed by the seller via what is known as a land contract.

As a bankruptcy lawyer in Denver, I tell my clients that if they are prepared to do the necessary research and are armed with knowledge there is no reason they cannot get a fair deal on a mortgage after having filed bankruptcy.  Keep in mind that you can always refinance if you qualify for a lower rate a year or so down the line. If you have any questions related to these issues feel free to contact us at anytime and we can discuss your options.  [Contact us via phone: 303-955-7570; or e-mail address: help@cobankruptcyhelp.com ].

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