Bankruptcy Filings Continue Down- Better Economy??

Posted by Kevin on March 10, 2013 under Bankruptcy Blog | Be the First to Comment

In May, 2012, I published a blog entitled “Bankruptcy Filings Down- Better Economy?.  My conclusion was that filings were down but the increased cost of filing bankruptcy  may have had more to do with the decrease in filings than the economy getting better.

Well, ten months have passed.  There has been a presidential election.  Certain segments of the economy are doing much better (like the stock market), others not so well (housing).  Filings are down in New Jersey17% from March 1, 2012 to February 28, 2013.   But does that mean that we have a better economy?

Maybe and maybe not.  A few days ago, the Labor Department announced that unemployment was 7.7%, the lowest since the meltdown/recession.  But is that an accurate number?   You see, the unemployment number goes down when employment goes up.  But, it also goes down when  people stop looking for work or take part time work instead of full time. If you consider the number of people who have dropped out the work force or who are working part time, the unemployment number (known as the U-6 unemployment number) is greater than 14%.  So, if you factor in the broader measure of employment (U-6), the economy is still struggling.

How do you apply that to number of bankruptcy filings.  While it is true that if you cannot afford the filing fee, you usually cannot afford bankruptcy, it is also true that if you don’t have any assets or income, creditors have nothing to go after.  So, if you can put up with a few unpleasant telephone calls, people can generally avoid their creditors.  As they say, you cannot get blood out of a stone.  So, why file?

Unless the US slips back into recession, real unemployment should go down eventually.  People will shift from government benefits to wage paying jobs. Rather than writing off your debts like in the old days (1980’s),  credit card companies, hospitals and even doctors are selling your debt for pennies on the dollar to hedge funds or other debt collection agencies.  Those guys do not go away.  First, you will get letters and calls.  Eventually, when they find out where you work, you will get judgments against you (if they do not have them already), and then wage garnishments.  Something to think about.

So, if you have been out of work for a year or more, and get a job- congratulations.  But if you also have judgments or owe lots of money and you get a  job, you may want to give serious thought to speaking with a reputable debt counselor or bankruptcy attorney.  Why?  Because at that time you have options.  However, if you want until your wages are garnished, your only recourse may be bankruptcy.   The automatic stay, which occurs when you file a bankruptcy petition, will stop a garnishment dead in its tracks.

Word to the wise.

Rescap- Ally

Posted by Kevin on February 26, 2013 under Bankruptcy Blog | Be the First to Comment

Ally is GM.  Rescap is their subprime, residential mortgage subsidiary.  Rescap and a slew of its subsidiaries filed bankruptcy.  Prior to the filing, Ally reached a settlement with Rescap whereby Ally would pay $750 million to Rescap’s estate in return for a release from claims from outsiders (presumably based on the bad loans made or owned by Rescap).

Love it.  Potential claims against Rescap could be tens of billions of dollars or more.  So, what Ally tried to do is get a puppet subsidiary to enter into a sweetheart deal which would effectively screw investors, borrowers and other people in contact with Rescap bad paper.

At this point, the creditors have put their collective feet down.  They have asked Rescap’s board to allow the creditors to sue Ally while at the same time, the creditors committee is seeking court approval to bring suit against Ally.  Ally is pushing back saying it was an arm’s length transaction because Rescap had an independent board, and has threatened to take the $750 million off the table.

Government has not shown the cajones to litigate these matters.  I hope that the creditors committee at Rescap does not lose its will.  It is important for the Too Big to Fail banks to start to understand that  they cannot buy themselves out of their own wrongdoing.

In the meanwhile, if you have a mortgage with Rescap, you may want to check the Rescap  bankrutptcy docket periodically to make sure that your rights have not been sold out from under you.