Please Explain: Bankruptcy

Friday, May 08, 2009

Bankruptcy rates went up 32% in 2008 compared to the previous year. Marie Beaudette, blogger for the Wall Street Journal’s Bankruptcy Beat and Dow Jones Newswire reporter, and Robert Lawless, Galowich-Huizenga Faculty Scholar at the University of Illinois College of Law, explain what filing for bankruptcy means for corporations and consumers and why the rate of bankruptcy filings is expected to go up in the next year.


Marie Beaudette and Robert Lawless

Comments [18]

David from Paris, France

Clearly credit cards play a big role in leading individuals to bankruptcy in the US.

Wouldn't a partial answer be to scale back this crazy credit card culture that afflicts this country?

i have just moved to the UD from France where people hardly use credit.

Personally I don't want a credit card. I see it as asking for trouble and I don't see the benefit of delayed payment. But I am being forced to get one because so many basic items of daily life in the US require it: getting a cell phone plan, renting an apt, etc.

I would rather keep up my perfect credit behavior by continuing to pay my bills on time (i.e. on the spot) but I can't.



May. 08 2009 01:54 PM
Tyler from Manhattan

There is a project of the New York court system through which people can get pro bono help for bankruptcy. It is called Access to Justice and information can be found under the "litigants" section of the NY Courts website:

May. 08 2009 01:53 PM
Mike from Coram

I am getting to the point of needing to file. I am a father of 4. My wife has been ill and has just gotten back to work. I have 3 houses in VA that I am unable to sell and only had luck in renting one. I'm living from check to check and off credit cards which are being cut left and right. At this point I could not even afford a lawyer. If I did not have the houses in VA I would be in a lot better shape. At this point would I be better letting the banks take those houses instead of filing?

May. 08 2009 01:53 PM
John Marchant

Could your guests please explain how, in the Chrysler case, the UAW gets 55% of the company? I understand they are junior creditors in all this so why should they become shareholders/ It seems like a buy-of but I'm not sure. Thanks

May. 08 2009 01:48 PM
Eric from Greenpoint

What when you are an entrepreneur but financed your now failed business with your personal credit cards; any chance to avoid personal bankruptcy?

May. 08 2009 01:44 PM
Dale from Brooklyn

I filed Chapter 7... not Chapter 11. Oops.

May. 08 2009 01:44 PM
Shelly from new york

Is it true that filing for personal bankruptcy does NOT absolve student loan debt? Even if the debt has been refinanced? I see Joe asked the same.....

May. 08 2009 01:43 PM
Dale from Brooklyn

I declared Chp 11 back in 2002. So I'm trying to rebuild my credit. I actually have a relative low interest credit card now, but unfortunately I am accumulating some debt now. I'm wondering now that 7 years have past, is there anything I should do with regard to my bankruptcy?

May. 08 2009 01:42 PM
JP from The Garden State

If you rightfully owe money to creditors, why should you be allowed to keep your house in Italy? How is this fair? What about people who loose their home in the States from bankruptcy? Would this be fair to them that you get to keep your house in Italy? Kind of sounds like hiding funds in a off shore account to me…

May. 08 2009 01:39 PM
Michele from Chelsea

If I file for bankruptcy in NYC, how will my house in Italy factor in court proceedings.

May. 08 2009 01:33 PM
Joe from Harlem

Is it likely the Democratic Congress will reverse the provision forbidding STUDENT LOAN borrowers from discharging their loans through bankruptcy?

May. 08 2009 01:30 PM
Dave Johnson from Fort Knox, Kentucky

Marie, can you explain to me what happens if a municipality goes into bankruptcy.

May. 08 2009 01:30 PM
Rob from Manhattan from Manhattan (washington heights)

I filed for bankruptcy in 1998, after a "credit counselling service" told me to stop paying my bills. My perfect payment record quickly crashed my score and I was left with no choice. Consumers should beware of these companies, as they're more prevalent than ever.

Still, It was the best thing I ever did--THEN. I was still able to buy an apartment once I got on my feet, and I am now financially stable. BUT I couldn't do that today.

Know that this decision can haunt a person for the rest of their lives. Sure, the law SAYS it's removed after 7 years from your credit records. However, any creditor now knows that if you are, for example, 45 years old and your credit history is only 7 years old, that's as good as having a bankruptcy on your record. NO MATTER HOW SPOTLESS YOUR RECORD NOW IS, or now matter how much money you make. This is a loophole in the law that dogs me to this day, and I make a good deal of money by most standards. It needs to be addressed, along with all the other injustices of the U.S. credit card industry.

May. 08 2009 01:29 PM
Howard from NJ

Although a lot of paperwork and not exactly free, it was almost embarrassingly easy. And do you really think trying to make impossible payments over 10 years would allow one's credit score to recover any more quickly than just declaring bankruptcy and getting on with life?

May. 08 2009 01:27 PM
Lovern from work

Is there any difference in obligations when a for profit or a not for profit declares bankruptcy?

May. 08 2009 01:26 PM

Please explain the term "cram down." What does that mean for those in a commercial/corporate bankruptcy. What was congress trying to do with "cram down" for personal bankruptcy.

In a commercial bankruptcy, I understand it to be that if you say owe a mortgage on a property originally valued at 1 million, and its now worth 500 grand, you can get the court to revalue the mortgage at 500 grand, but the debtor must provide other collateral to make up for what the bank lost if the debtor plans to continue as a going concern.

I understand that this would be very hard for a debtor in a personal bankruptcy to do and that banks do not want to be constantly renegotiating mortgages. They would rather take the haircut now, and get rid of the property.

May. 08 2009 11:44 AM
Steven Horowitz from New York

To update the old cliche, the difference between corporations and individuals is, if you owe people a lot of money, they're in trouble. If you owe them a little money, you're in trouble--especially under the 2005 bankruptcy law.

On a more serious note, one of the contrasting trends I've noticed between individuals and corporations in regard to bankruptcy filings is that the 2005 bankruptcy laws have pushed individual filers toward Chapter 13 repayment plans and away from Chapter 7 liquidations. However, the 2005 law also has had the effect (aided by the credit crunch) of leading companies to file for Chapter 11 (sort of the business equivalent of Chapter 13) but in a way that leads them to ultimately sell of their assets and liquidate rather than continue as a going entity.

In other words, companies are nudged into liquidating (causing more unemployment) while individuals are nudged into 3-5 year repayment plans (even while many people are dealing with unemployment). Something about that seems backwards.

Steven -

May. 08 2009 10:55 AM
George from Bay Ridge

Make sure to distinguish between chapter 11 and chapter 7 bankruptcy and talk about the automakers.

May. 08 2009 09:21 AM

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