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Individuals And Corporations Are Not The Only Entities That Can Declare Bankruptcy

Posted by: Admin User

Did you know that even cities can declare bankruptcy? It is rare, but they can do it.

Let’s say you’re a city and you are staring at more money going out to run the city than is coming in. If that goes on for long enough, the word bankruptcy begins to appear on many people’s lips. The prospect of a city going bankrupt is mind boggling, but it can happen. Think Orange County, Calif., which declared bankruptcy in 1994. That was one of the largest municipal bankruptcies on record and virtually a precedent no one seemed to be anxious to follow.

Flash forward to 2011 and the current state of the economy. These days, just about everyone may flirt with and/or actually decide to file for bankruptcy. If there are no other options open, that is a move that makes the most sense to many. Does this work for cities and municipalities? Yes, it does. There is Chapter 9 for them, if their state allows that and 26 states do not allow cities and municipalities to go bankrupt.

Despite the fact that many states frown on cities and municipalities going under, this does not stop them from thinking about it and discussing it as an alternative to a desperate financial situation. In fact, just recently, it hit the news that Hamtramck, Mich. wanted to declare bankruptcy. Then the news surfaced that Central Falls, R.I. may be in the same boat. Harrisberg, Penn. is another “me too” candidate for bankruptcy. Things are indeed looking fairly grim.

Chapter 9, for those that can take it, is a desperate last move and one that may open the door for others in the same mess to move to do the same thing; a complete financial fiasco in the making. Those who do take that route have a long way to come back as well. Consider what those cities and towns would do to cope. What about town services? What about municipal bonds? What about driving up the costs of borrowing? What about the human fallout?

There is the very real scenario of city pensioners being cut off; something that has already happened in the city of Pritchard, Ala. when they declared bankruptcy not once, but twice in a 10-year period. The fallout is just beginning all over again for them. So, while Chapter 9 is an option for some cities and municipalities, the ramifications are horrendous. This is a move that should only be taken if there is absolutely no other way out from under debts.

Kevin Ahrenholz is an Iowa bankruptcy lawyer and Iowa bankruptcy attorney. To contact him, visit http://www.iowachapter7.com or call 1.877.888.1766.

Posted on Friday, May 27th, 2011 and filed under Bankruptcy | Comments Off on Individuals And Corporations Are Not The Only Entities That Can Declare Bankruptcy .
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Bankruptcy Laws Changed Dramatically in 2005

Posted by: Admin User

Bankruptcy means different things to different people. The traditional point of view is it protects the creditor and debtor.

“To most people, bankruptcy is about shucking their debts and coming out the other side debt free. It’s actually more complicated than that, as they discover when they file. But by and large bankruptcy protection is not just about the debtor, it is also about the creditor and his or her right to payment. The law in this area balances those rights and offers a path for debtors to get out of debt without messing up their chance to be productive later,” said Kevin Ahrenholz, an Iowa bankruptcy lawyer.

Federal bankruptcy laws were revamped in 2005 under the auspices of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). The whole idea behind this piece of legislation was to make things more difficult for people to file for bankruptcy and get rid of debts that they might actually have the assets to pay.

“What that meant, or means, is that the act got rid of automatic eligibility to file Chapter 7. It also forces repayment of some debts under Chapter 13. This is something you will want to know before you file, so it’s a good thing to ask a qualified bankruptcy lawyer what applies to you and what doesn’t,” Ahrenholz said.

To look at this from a different perspective, most personal bankruptcies filed for Chapter 7 up until 2005 because they knew they could get their debts discharged and there was nothing to repay. To avoid this, and ensure the debtor did assume some responsibility, a means test was added. Those with the means to pay some of their debts must now file for Chapter 13.

“With a Chapter 13 bankruptcy, the debtor has to draft out a repayment schedule to repay their debts. In most cases, the payments are made over a three to five year period, and a discharge is not given to the debtor until the last payment has been received by the trustee,” Ahrenholz said.

Along with the changes in filing, there were changes that meant debtors had to get credit counseling before filing for a Chapter 7 or 13 bankruptcy. Those who have filed must also receive extra credit and budget counseling before their debts are discharged. “Did this drive up the cost of filing for bankruptcy? Yes, but by the same token, the new process was designed to make sure those needing help with budgeting got that help. The idea is to keep them from going bankrupt again,” Ahrenholz said.

“The first step in the bankruptcy process is determining eligibility to file Chapter 7. You will need to state your income for the past six months. If your annual income is under the average for where you live, you automatically qualify for Chapter 7. It it’s over, the means test will determine if there is any disposable income to draft a repayment plan for a Chapter 13,” he said.

Kevin Ahrenholz is an Iowa bankruptcy lawyer and Iowa bankruptcy attorney. To contact him, visit http://www.iowachapter7.com or call 1.877.888.1766.

Posted on Monday, May 23rd, 2011 and filed under News and Press | Comments Off on Bankruptcy Laws Changed Dramatically in 2005 .
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