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Sears, An American Staple
Sears, Roebuck, and Co., one of America’s retail staples since 1893, may be in financial trouble according to recent news articles. Once touted as a place a consumer could save with a motto like “Shop at Sears and Save,” Sears was bought out by the Kmart corporation in 2005 in a merger.
Sears Merger in Financial Trouble
The idea behind the merger was for Kmart to be able to compete with Wal-Mart Stores Inc. and Macy’s. According to an article recently posted in The Columbus Dispatch, the new merger has had “18 consecutive quarters of declining sales…While Sears Holdings Corp. shares soared in the first few months after the merger, they’ve fallen 55 percent in 2011 alone…On Tuesday, Sears reported that same-store sales fell 5.2 percent in the eight weeks that ended Sunday (December 25, 2011)…Sears employed 312,000 people as of January, down from 355,000 in June 2006, according to data compiled by Bloomberg.”
According to the news reports, Sears, under the guidance of Kmart executives, has tried one strategy after another in trying to compete, but so far, the current economy has shot down everything the company has tried. The round of the latest closings is affecting about 5000 employees’ jobs.
Poor Economy Blamed for Sears Downturn
The store that started “The Good Life at a Great Price” campaign in 1999 is reeling under an economy that currently doesn’t care about a good life or a great price. Strangely enough, Sears bad news comes at a time that bankruptcy filings, a sign of poor economic times, are currently declining. Bankruptcies are down overall about 8% from fiscal year 2010 through fiscal year 2011. According to an American Bankruptcy Institute executive, “The drop in consumer filings throughout the year reflects the continued deleveraging of the US consumer after years of expanding consumer debt.”
Meaning to Average Consumer
So, what does all this mean to the average wage earner in the United States? One things is for certain, until American business staples like Sears stabilize, more job losses are going to occur than the economy can replace. With job losses and a negative replacement of jobs with equal value, bankruptcies are going to once again soar.
No one knows for certain how deep the underlying factors, like consumer debt, really are in the United States. The tightening of available money for credit, or deleveraging as some call it, is businesses’ normal response to such economic recessions we have been currently experiencing.
One problem may be that the response by our government and business has been too little and too late. Interest rates have been superficially low, and with the United States debt growing to the point we can no longer pay even the interest on the debt instruments, the United States will soon have a hard time borrowing money at anything but higher interest rates. These higher rates will be passed down to the average consumer and drive the economy.
Unfortunately, business staples like Sears, facing added costs through higher interest rates, may also be facing more store closings and employee layoffs if things do not quickly change. With additional employee layoffs and store closings across America, bankruptcies will, just as unfortunately, begin to rise also. So, where does the spiral stop? Your guess is as good as mine.
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If you are considering filing for bankruptcy, there should be good reasons for doing so. When it comes to debt, filing bankruptcy might not be able to do these 4 things for you.
Eliminate Certain Rights of Secured Creditors
Secured debt may be discharged when filing a Chapter 7 bankruptcy or in some cases a Chapter 13 bankruptcy, but liens on secured property cannot be discharged when filing bankruptcy.
Some examples of secured debt are car loans and home mortgages. In a bankruptcy filing, you can force creditors to take payments over time, but generally, you cannot keep the collateral unless you continue to pay the debt.
Discharge Debt that Arises After the Bankruptcy has been Filed
When you file for bankruptcy protection, you must list all your creditors during the application process. Depending on the type of bankruptcy you file, the listed debts can be subject to discharge at the close of the bankruptcy. If you incur any more new debts after filing bankruptcy, the new debts cannot be subject to discharge without petitioning the bankruptcy court for inclusion.
Since you will not be eligible for filing a bankruptcy for up to 8 years once you have filed, the new debts are subject to collection activities for the time frame up to the full 8 years.
Discharge Certain Types of Debt
As determined by either state and federal laws, certain types of debts cannot be discharged when filing for bankruptcy protection. These debts include child support, spousal support, certain debts related to divorce, student loans that have not proved an undue hardship, certain court restitution orders, certain criminal fines, and certain taxes.
Exceptions to all of these exempt debts to a bankruptcy filing can be qualified by various circumstances under state and/or federal statutes. For example, federal statutes express income taxes can be discharged by bankruptcy if the taxes have been delinquent for a certain time and comply with certain other legal circumstances.
Eliminate the Obligation of a Co-signer on a Loan
In most cases, filing for bankruptcy protection will not eliminate the obligation of a co-signer who has co-signed on one of your loans. Filing for a Chapter 13 bankruptcy will protect co-signers from credit scrutiny and from default as long as you keep making payments current on the loan that has been co-signed.
A co-signer of a loan has the obligation of making good on any loan co-signed where you have the debt discharged when filing for bankruptcy protection. If you file a Chapter 7 bankruptcy and have the co-signed debt discharged, the effects of you filing bankruptcy and/or the discharge can go against a co-signer’s credit score. In addition, your discharge has no effect on the co-signer’s obligation to honor the note.
Whereas filing for bankruptcy may not do certain things for you, there are plenty of good reasons to file. If you do decide you need to file for bankruptcy protection, please remember,
bankruptcy laws are complicated, and most of you are going to need a bankruptcy attorney to help you file.
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The Future of 2012 Financial Prediction
According to recent news reports, some speculators are predicting the future of 2012 is going to be the year of bankruptcy. The speculators are looking to pick up bankrupt businesses for pennies on the dollar.
American and European Debt Crisis
What is driving the saliva to flow in these scavengers is the shakiness of the United States debt crisis. Risky companies that were able to borrow money from investors these past several years at unusually low interest rates will most likely get cut off when the crisis kicks into full gear.
The United States is already 15 trillion dollars in debt, and currently, the income taken in by the United States in taxes will not even pay the interest on the debt crisis. These facts will most assuredly drive interest rates up in the near future.
What will kick the bankruptcies into full gear is having to refinance the stressed bonds and the stocks of buyout debt coming due in 2012. Combine these facts with the previous three years of investments showing risk fatigue, and you have a recipe for defaults to follow.
Three Industries Heavily Leveraged
Some experts are predicting that the gaming industry, entertainment industry, and the oil services industry will be the most affected by the debt crisis and rising interest rates because they have been heavily leveraged industries. Some experts have suggested as much as 25% of the gaming, entertainment, and oil service’s debt will be coming due in 2012. If they cannot restructure or refinance their stocks and bonds, the end result will be bankruptcy for many of them.
If what these economic experts are saying is true, look for an even more sluggish economy in the United States in the future of 2012, because the past few years the gaming, entertainment and oil service industries have been the backbone of any type of good news concerning employment and company profit. A rash of bankruptcies within theses industries in 2012 might have another enormous affect on the overall employment health within the United States.
Individual American Worker Depends on Healthy Industry
More downturns in the already existing sluggish economy and the future of 2012 certainly may be looked back on as the year of bankruptcy. As industry sectors in the United States thrive so does the individual workers who support the industries, but when the industries begin to struggle with such things as default and bankruptcy, unemployment is always a result. Unemployment is one of the largest contributing factors for individuals to file for bankruptcy.
What You May Have to if the Industry You Work for Defaults in 2012
If you are dependent on the gaming, entertainment, or oil services industries for employment, or if you are dependent on any other industry that is heavily leveraged, the future of 2012 might be a time you will have to face making financial decisions concerning bankruptcy.
If you lose your job and get caught up in bankruptcy, bankruptcy laws can be very complicated. You will most likely need a bankruptcy lawyer to help answer any questions you might have on bankruptcy laws and how they apply in your particular situation. Contact a bankruptcy attorney in your area.
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Bankruptcy is all about taking advantage of your Constitutional right to end all your bad financial relationships while protecting what assets you can in order to make a fresh new financial start. There are a wide range of bankruptcies an individual can take advantage of to protect his or her assets. Here is the bankruptcy spectrum for protecting individual assets.
Chapter 7 Bankruptcy
A Chapter 7 bankruptcy is for an individual with an income below the median income for a family the same size living within the same state. If your income is more than the median income, you can still file a Chapter 7 bankruptcy is you can pass the Means Test.
Your assets are protected in a Chapter 7 by state and federal exemption laws when the bankruptcy court appointed trustee liquidates your assets to pay off your unsecured debtors. Normally, these assets are enough to help you and your family with a fresh new financial start over.
Chapter 13 Bankruptcy
A Chapter 13 bankruptcy is designed for an individual who has an income that surpasses the median income for the same sized family in the state in which you currently live. When you cannot pass the Means Test, this type bankruptcy might be an option for you.
Here, all of your non-exempt assets can be protected as well as your exempt assets. A 3 or 5 year plan is devised to pay all or a portion of your unsecured debts with your monthly disposable income. With a 100% plan, you can virtually keep all of your assets if you desire.
Chapter 12 Bankruptcy
A Chapter 12 bankruptcy is a voluntary bankruptcy designed for farmers and fisherman who make a steady income off their prospective endeavors. This type of bankruptcy allows the debtor to establish a plan to pay off all or part of its unsecured debts over an established period of time.
The non-exempt and exempt assets are protected from the creditors as long as the bankruptcy is in force. There are special exemptions for this type of bankruptcy.
Chapter 11 Bankruptcy
A Chapter 11 bankruptcy is used primarily for an individual in a business, and it is very similar to a Chapter 13. The main difference is that in a Chapter 11, a trustee can run the daily business operations of the business if there has been a cause shown where the debtor should not run the business an longer.
In a Chapter 11 bankruptcy, all the assets remain with the business and under the direction, discretion, and handling by the one currently running the business.
The personal assets of the individual filing a Chapter 11 bankruptcy are protected as long as the bankruptcy is in process and they were not used as secured collateral for starting the business.
The bankruptcy spectrum runs long, and it involves a very complex web of bankruptcy laws. Deciding which bankruptcy is right for you is a complicated decision that may require the help of a bankruptcy lawyer. Let us help you find a bankruptcy attorney in your area.
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Desire but Doubts in Whether to File a Chapter 7
A debtor recently posted on a bankruptcy forum website this question, “Are there any good reasons not to do a Chapter 7?”
The single debtor posting has been living month to month in paying living expenses the past 4 years, the house she bought 2 years ago is now underwater, her car is upside down in value, and she needs a $7,000 roof on the house that she cannot possibly save up to pay for under current economic conditions.
She says that she consulted with a couple of lawyers about filing a Chapter 7, and she is 99% convinced a Chapter 7 bankruptcy is for her, but she still has a few doubts. She feels “it would be easier to deal with a life after Chapter 7 with bad credit than keep living month to month and not being to make any headway, not being able to have any kind of savings or retirement plan, and needing to spend money on repairs that I do not and will not have in the future. I would like to get rid of my house, credit cards, vehicle payments and have a fresh start, and to me, that overrides the disadvantages.”
Filing Bankruptcy is Your Right and Personal Choice
Your right to file for bankruptcy protection is guaranteed under the Constitution of the United States. Any American facing bankruptcy has the right to file the bankruptcy of choice in which they are qualified to file.
Whether or not you exercise your right to file is a personal choice only you can ultimately make. No one can make that decision for you, but an informed decision usually always provides the best reasons for doing something. Because this debtor sought professional help from bankruptcy attorneys in trying to establish good reasons for filing a Chapter 7, she is making a more informed decision.
The debtor also is seeking out more information from her peers on the internet who may have experience in filing a Chapter 7. She does not give enough information in this particular post to receive much help, but at least she is seeking reasons to file or not to file a Chapter 7, more reasons that will help her make a good decision for herself.
Some Reasons You
May Not Want to File
From the information the debtor posted online, here are some reasons she may not want to yet file:
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The debtor is still going to have car and home expenses whether or not she gives up her current home and car.
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Repairs are still going to be a part of her lifestyle no matter where she lives or what she drives.
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The debtor does not have to live on credit whether or not a Chapter 7 is filed.
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There may be other choices in debt management that might allow her to keep her home and repair her roof.
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If the debtor files for a Chapter 7 now, and is not really in need, she will have to wait up to 8 years before she can file a bankruptcy again when she might be truly be in need to file.
Any time you feel there are enough reasons to file a Chapter 7, it is still good advice to get the help of a bankruptcy lawyer.
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Is Bankruptcy Reform Fair?
There is no doubt, since the passing of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005(BAPCPA), bankruptcy reform has made filing for bankruptcy much more costly, but is it a fair bankruptcy reform?
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The idea of regulations and rules is to even the playing field for all the active interactions of players in a game. If we see our daily financial interactions in a similar way, that our lives are made up of American citizens interacting financially with one another, it should not be such a stretch to see us as players in a game of consumption where we compete against one another for survival and supremacy within a given group.
In this scenario, the group is the greater United States, and supremacy involves the American Dream of obtaining wealth and status in life. In our pursuit of happiness through obtaining the American Dream, without rules and regulations to provide law within the competition, we would all be subject to chaotic developments in obtaining our goals brought on by aggressive competitors. The Archbishop of Ireland once said, “Law is order in liberty, and without order liberty is social chaos.”
Bankruptcy Reform is Costly
The BAPCPA was enacted into law because a certain group of American citizens thought the playing field between creditors and debtors had tilted to give the debtors too big an edge in the bankruptcy process. This bankruptcy reform in law focused on the abuse of debtors using the bankruptcy process as a means to escape their duty to pay their debts. Many felt like serial abuse occurred in the frequency of filing bankruptcy. To even the playing field, Congress passed the law mandating a Means Test to qualify for filing a Chapter 7 bankruptcy and for determining how long a Chapter 13 plan was to be made.
The new regulations have come under recent criticism because with all the new laws comes additional costs of administering them. According to a news article published in USA Today and posted on December 22, 2011, “consumers now pay as much as 55% more since the 2005 bankruptcy reform was passed.” Additional costs come in the form of higher attorney fees, court costs, increased paperwork, and added steps like required counseling before and after filing bankruptcy.
Is Not Making the Reforms More Costly in the Long Run?
A certain rank in both bankruptcy professionals and citizenry think the new law is excessive and too costly, but are they fair? Bankruptcy reform or any other kind of reform may be costly, but shouldn’t the real question be, “Is not making the reforms more costly in the long run?”
Bankruptcy laws were never designed to allow deadbeats and criminals to have a loop hole in order to beat their debts. On the other hand, they were designed to allow an honest debtor a chance at a new beginning through forgiveness and a fresh new start.
Bankruptcy reform should be all about providing a balanced approach in dealing with creditors and debtors. If the bankruptcy reform costs more money to provide the even playing field, so be it. This writer thinks this type of effort is not only fair but necessary in providing a stable economy.
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United States Per Capita Bankruptcy Statistics
According to the National Research Center November 2011 bankruptcy filing report, Texas place on a list of six bankruptcy jurisdictions having filings that are the lowest per capita in the nation is “noteworthy.” Texas, with 2,570 bankruptcy filings per million adults is less than half the national average. Other notable entries include Washington D.C., Alaska, South Carolina, Vermont, and North Dakota.
On the other end of the spectrum, Nevada leads the nation per capita bankruptcies with 11,250 bankruptcy filings per one million adults. Georgia, Tennessee, Utah, and California follow close behind Nevada in per capita bankruptcies.
Per capita bankruptcies in general have been falling since 2010 with November 2011 slightly increasing with a holiday adjustment. “Nationwide, 2011 filings to date amount to about 5400 filings per million adults, or one in every 200.”
Texas Current Economy
Recent shed light on the Texas current economy shows that the recession has hit Texas as hard as most other states. Texas currently is reporting a $25 billion deficit in its budget for the next two years. Unemployment in Texas is lower than the national average, but it is not much better than New York which also enjoys per capita bankruptcies lower than the national average.
With the population of Texas increasing at a rapid rate due mostly because of its liberal land-use and zoning policies keeping housing cheap, Texas employment is still not keeping pace with the increase in population.
Texas overall has a lower cost of living than many of the harder hit states by the recession, but add into the mix Texas conservative policies on refusing to raise taxes, and you may want to think twice before moving to the Lone Star State. Texas ranks near the bottom in the nation for education spending per pupil, and it leads the nation with people without health insurance.
All of these facts may explain why Texas has lower per capita bankruptcies filed than most of the other states. The cost of living is much less, housing costs are much less, education is cheaper, and healthcare in some ways cheaper. With oil and gas produced in the state, the cost of energy is also cheaper.
Everything in Texas seems to be cheaper, but at what expense? Who and how will the budget deficit ever be paid? When the realization finally hits that Texas is not immune to the recessions of the national economy, will per capita bankruptcies eventually rise?
Texas liberal Bankruptcy Exemption Laws
If per capita bankruptcies do begin to rise in Texas when the budget deficit hits the fan, Texas enjoys one of the most liberal bankruptcy exemption laws of any state in the the union. Some people have often referred to Texas as a “Debtor’s State” because of those liberal bankruptcy laws.
Some of the Texas exemptions include: no limit on your homestead with property of 10 acres in town and up to 200 acres outside of town; up to $60,000 in personal property for a family; a variety of other exemptions; and garnishments are not allowed except by federal statutes.
Texas may be a leader with per capita bankruptcies being as low as they are in the state and with the cost of living being so low, but if you ever have to file for bankruptcy in Texas, it will still be wise to have a bankruptcy attorney to represent you.
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It really does not matter whether you file a Chapter 7 or a Chapter 13, you can still have short sale problems even after filing a bankruptcy. Up until recently, a short sale rarely worked even before filing a bankruptcy.
When the economy was good and the real estate market stable, there really was not much incentive for a mortgage company to agree to a short sale. Even in pockets around the country where the real estate market had already hit the doldrums, the inventory of good mortgage loans outweighed the necessity for a mortgage company to give any consideration for a short sale when they could wait on the market to recover.
The recent economic crisis and housing meltdown has now changed all of that. With their inventories now full of property to be foreclosed, the mortgage industry has taken a closer look at the advantage of making a short sale in lieu of foreclosing on the property.
Advantages of the Short Sale for Creditors and Debtors
Theoretically, a short sale under today’s real estate market can often prevent a complete loss by the mortgage company, remove any existing and ongoing expenses on the upkeep of the property, and provide a cheaper alternative to foreclosure. Since the mortgage company controls how much money a short sale can be approved, the loss generated by a short sale is a risk that can be calculated with some amount of accuracy.
The short sale can release a debtor from financial obligations to pay off the loan, relieve the debtor of insurance and tax burdens on the property, and remove the debtor’s name from the Title of Deed.
Short Sale Problems for Both Creditor and Debtor
On the other hand, a short sale can provide numerous problems for both the mortgage lender and debtor, especially if that debtor has not filed for bankruptcy.
To a creditor, a short sale under today’s real estate market can still cause any of these problems:
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the risk the real estate market will recover soon after a short sale is made;
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too many short sale properties might change the profit and loss statement of the lending institution to the point of being downgraded; and
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if there is a second mortgage and lien on the property, there most likely will not be enough money to settle on the second lien making the lender less likely to want to approve the sale.
To a debtor, the short sale can also create any of these problems:
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a second lien holder, unless the debtor has removed the lien holder through filing for bankruptcy, can be a problem for a short sale;
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the deficiency, if not alleviated by agreement between debtor and creditor can be a problem for the debtor when tax time arrives; and
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there are closing costs in a short sale like any other sale of a home. The closing costs can create problems for a homeowner facing bankruptcy.
The Bankruptcy Remedy
If you decide you want to make a short sale after filing for bankruptcy, the bankruptcy can discharge deficiencies on the sale of your home, secondary mortgages and liens, and homeowners association fees made before filing.
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DECIDING WHICH TYPE OF BANKRUPTCY
Deciding which type of bankruptcy to file is often a hard decision to make. Basically there are two types of bankruptcies an individual can file- a Chapter 7 or a Chapter 13.
A Chapter 7 is a type of bankruptcy where a bankruptcy court trustee will take your non-exempt assets and liquidate them to pay off your unsecured debt. Any unsecured debt not paid off with the funds from liquidation will be discharged at the end of the bankruptcy.
A Chapter 13 is a type of bankruptcy for people who are employed. They develop a plan to pay back all or part of their unsecured debt for 3 or 5 years with their disposable monthly income. Any unsecured debt not paid back during the time frame will be discharged at the end of the bankruptcy.
MEANS TEST PLAYS IMPORTANT ROLE IN DECIDING
A Means Test is used to determine not only which type bankruptcy you can file, a Chapter 7 or a Chapter 13, it determines how many years your plan will be in a Chapter 13. If your family income is the median income or lower in the state you live, you can qualify for a Chapter 7. If your income is higher than the median income for the same size family, you must pass the Means Test in order to file under a Chapter 7.
Although you did not pass the Means Test, you can choose to file a Chapter 13 if you have a steady income. A reason you might want to file a Chapter 13 in lieu of filing a Chapter 7 when you qualify to file for one is when you have enough equity in a non-exempt homestead, and you want to keep your home.
4 GREAT REASONS FOR FILING A CHAPTER 7
There are reasons you might also want to file a Chapter 7 when you can file a Chapter 13. Here are 4 great reasons you might want to file a Chapter 7 in lieu of a Chapter 13 if you can qualify:
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Success rates of getting a discharge without distribution are by far much greater in a Chapter 7 than a Chapter 13. Some 60% of Chapter 13 cases are dismissed because clients fall behind on their payments.
- A Chapter 7 is cheaper to file. The national average to file for a Chapter 7 is around $1000 as compared to the national average of around $3000 for filing for Chapter 13.
- A Chapter 7 stays on credit records longer, but they often make filers better credit risks quicker because they do not carry ongoing payments.
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A Chapter 7 brings faster and greater relief. Only 5% of Chapter 7 cases involve asset liquidations because most filers have few assets that courts are interested in seizing.
SELECTING A BANKRUPTCY LAWYER
Determining which type bankruptcy you may or may not want to file can be a very complicated legal process. Bankruptcy laws tend to be complex. Choosing the right type of bankruptcy will maximize the number of assets you can save.
Let us help you find a bankruptcy attorney in your area that can not only help you file the right type of bankruptcy, but can answer any questions you might have about bankruptcy law.
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A Chapter 13 Bankruptcy Schedules Student Loan Payments
A student loan is exempt from bankruptcy discharge, regardless of the type, unless you can prove undue hardship, and undue hardship can often be very hard to prove. So, what happens to a student loan payment in a Chapter 13 bankruptcy filing? How is it handled during the payment plan of the bankruptcy?
A Chapter 13 bankruptcy, a wager earner’s plan, is completed when a filer successfully makes payments over 3 or 5 years with disposable monthly income determined by bankruptcy law and approved by a bankruptcy court. The bankruptcy court trustee administers the approved plan by paying unsecured debt with the disposable income.
Normally, a student loan payment is a scheduled part of the plan in a Chapter 13 bankruptcy if the loan payments are due. A student loan is treated like any other unsecured debt in a Chapter 13 bankruptcy, except it is exempted from discharge. Depending on the bankruptcy court, there can be extenuating circumstances that allow a filer to make payments of a student loan outside the payment plan.
Three Different Ways to Make Student Loan Payments Outside a Plan
Here are three ways you can potentially make payments outside of a Chapter 13 bankruptcy if the bankruptcy court permits:
- If you are in a situation where you have little or no disposable income, according to US Bankruptcy Code 1322(b)(1), it is possible to designate your student loan as a different class, then place a line item in your plan to pay the student loan outside the plan. This would only work if the rest of the unsecured creditors received no dividend from the disposable income.
- US Bankruptcy Code 1322(b)(5) leads one to believe there is a possibility you can make student loan payments outside a Chapter 13 bankruptcy plan if you are in default of your student loans. You will be allowed to cure the default of the student loan, and then make payments on the student loan as long as the length of time for repayment of loan is longer than the maximum time of the 5 years in a Chapter 13 bankruptcy.
- A Chapter 13 bankruptcy filer may choose to spend less than the budgeted amounts for living expenses in the plan and pay the student loan outside the plan with the difference in savings. In this case, you are paying the student loan with your own personal funds.
Normal and Mitigating Circumstances Affecting Student Loan Payments
In any case of a payment on a student loan when the filing debtor of a Chapter 13 bankruptcy is in a 100 percent payback plan, the filing debtor may make payments outside the plan with the permission of the bankruptcy court, but in that case, what is the need?
Like in most aspects of the law, there are extenuating circumstances that may occur which will allow a debtor to make payments to their student loan outside of their payment plan in a Chapter 13 bankruptcy. Each bankruptcy court will have to decide whether or not those mitigating circumstances deserve enough weight to allow a student loan special consideration.
One such mitigating circumstance has already been tried in courts of law. When a filing debtor’s wage is threatened by the loss of a professional license, courts are allowing the debtor to make special provisions for the payment of student loans.
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