BAPCPA Tax Law leaves more in Debt

BAPCPA Tax Law leaves More in Debt
In 2005, the government implemented a law called the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) in an effort to curb the abuse of filing for bankruptcy simply to cancel out debts without serious efforts to repay them.  The BAPCPA and other reform measures made bankruptcy requirements more stringent and effectively ruled out filing for Chapter 7 liquidation bankruptcy for most people.  One of the measures put in force was the means test in which an income limit for each state was set over which you could not qualify for Chapter 7 bankruptcy and must apply for Chapter 13 reorganization bankruptcy instead (for individual filers).
Hence, the clear objective of the BAPCPA was to curtail bankruptcy abuse and reduce the number of bankruptcies by making it such that only those in genuine need of bankruptcy need apply.
But what has happened since then?
The statistics show that since 2005, the number of bankruptcies nationwide has continued its upward trend.  According to the American Bankruptcy Institute, across the United States personal bankruptcies rose above 10 million cases which represented a 9% increase in 2010.  The number of bankruptcies this year is expected to attain if not exceed pre-2005 levels.  What’s more, since the BAPCPA was enacted, bankruptcy lawyers’ fees have more than doubled and the online credit counseling method has become the norm.
According to Chief Judge James Gregg, the means test was ‘sloppy’ and he has expressed his personal frustration at the reform measures that were largely shaped by lobbyists and was full of ambiguity.  Thus last month, Congress tried to make amendments to the 2005 reforms with the Bankruptcy Technical Corrections Act 2010 that attempts to correct spelling errors, and fix bad cross references and so on.
But in doing so, they continued to leave ambiguities.  For example, the deadline for compulsory credit counseling is not clear – is it the day before filing for bankruptcy or the day of filing?
Whilst credit counseling is important, there are other more pressing issues that precipitated the need for bankruptcy.  Credit counseling is primarily for those who have wantonly overspent on their credit but more folks in financial stress came into it due to layoffs, health issues and foreclosures.
Chief Judge feels that it is imperative that bankruptcy lawyers update themselves on the current laws by going to seminars at least yearly.
If you are struggling with debt and need to file for bankruptcy, call us at (813) 200 4133 for a free consultation.

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    BAPCPA Tax Law leaves More in Debt

    In 2005, the government implemented a law called the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) in an effort to curb the abuse of filing for bankruptcy simply to cancel out debts without serious efforts to repay them.  The BAPCPA and other reform measures made bankruptcy requirements more stringent and effectively ruled out filing for Chapter 7 liquidation bankruptcy for most people.  One of the measures put in force was the means test in which an income limit for each state was set over which you could not qualify for Chapter 7 bankruptcy and must apply for Chapter 13 reorganization bankruptcy instead (for individual filers).

    Hence, the clear objective of the BAPCPA was to curtail bankruptcy abuse and reduce the number of bankruptcies by making it such that only those in genuine need of bankruptcy need apply.
    But what has happened since then?
    The statistics show that since 2005, the number of bankruptcies nationwide has continued its upward trend.  According to the American Bankruptcy Institute, across the United States personal bankruptcies rose above 10 million cases which represented a 9% increase in 2010.  The number of bankruptcies this year is expected to attain if not exceed pre-2005 levels.  What’s more, since the BAPCPA was enacted, bankruptcy lawyers’ fees have more than doubled and the online credit counseling method has become the norm.
    According to Chief Judge James Gregg, the means test was ‘sloppy’ and he has expressed his personal frustration at the reform measures that were largely shaped by lobbyists and was full of ambiguity.  Thus last month, Congress tried to make amendments to the 2005 reforms with the Bankruptcy Technical Corrections Act 2010 that attempts to correct spelling errors, and fix bad cross references and so on.
    But in doing so, they continued to leave ambiguities.  For example, the deadline for compulsory credit counseling is not clear – is it the day before filing for bankruptcy or the day of filing?
    Whilst credit counseling is important, there are other more pressing issues that precipitated the need for bankruptcy.  Credit counseling is primarily for those who have wantonly overspent on their credit but more folks in financial stress came into it due to layoffs, health issues and foreclosures.
    Chief Judge feels that it is imperative that bankruptcy lawyers update themselves on the current laws by going to seminars at least yearly.
    If you are struggling with debt and need to file for bankruptcy, call us at (813) 200 4133 for a free consultation.

    Trustee Rejects RHI Entertainment Bankruptcy Exit Plan

    The US Justice Department appointed bankruptcy trustee for RHI Entertainment has rejected the reorganization plan to exit bankruptcy.  The trustee also urged the bankruptcy judge to similarly reject the plan also at a hearing next month.  The reason for the rejection was the plan improperly releases lenders and other parties from any claims against them.  RHI Entertainment is a developer for made-for-television movies.
    When RHI filed for Chapter 11 bankruptcy in December last year, it stated that it was “unable to license new movies and mini-series at prices that would cover the production and debt costs”.  But before filing for bankruptcy, RHI had discussed a reorganization plan with creditors and submitted the plan to the bankruptcy court.  A hearing to approve the plan is scheduled for February 17.
    According to a lawyer for bankruptcy trustee Tracy Hope Davis, the reorganization plan included releases for creditors and other parties from claims related to RHI that may include “acts of omission that were grossly negligent or the result of willful misconduct” and even “actions resulting from criminal conduct”, although the trustee did not give instances of such misconduct by any of the creditors or other parties.  Hence, the bankruptcy trustee’s opinion is that the bankruptcy judge should not give confirmation to the reorganization plan because it does not have any justification for it.
    According to the reorganization plan, first lien creditors who hold about $515 million in total loans would be given $300 million in new term loans and 99% of the company’s new stock.  Those who hold second lien debt which amounts to about $75 million would receive about 1% of the new stocks and warrants that would come up to as much as 15% of the shares.
    The reorganization plan also entailed the court to approve an agreement made with lenders led by US Bank NA in which the lenders cancel debts of $37.8 million in exchange for rights to several RHI films that include ‘Black Swarm’, ‘Rise of the Gargoyles’ and ‘They’re Among Us’.
    Recently on January 11, RHI was granted approval by the court to receive $15 million in loans to finance their operations while in Chapter 11 bankruptcy after objections from some creditors were resolved.
    Bankruptcy protection is your right under the law.  If you need to file for bankruptcy protection, call us at (813) 200 4133 for a free consultation.

    YMCA and Borders Bankruptcies

    YMCA  Bankruptcy
    The YMCA of McHenry County has filed for bankruptcy protection and intends to sell its assets to YMCA Metropolitan Chicago.  Chapter 11 bankruptcy was filed at US Bankruptcy court for the Northern District of Illinois, Chicago.  The decision to file for bankruptcy was taken after new facilities failed to draw in new members.
    The YMCA of McHenry County, located at 701, Manor Road in Crystal Lake spent millions in expanding a gym and other exercise facilities and incurred additional expenses for other updates.  When these actions did not halt the decline in revenue, the board discussed the possibility of having a sale.  Now that the bankruptcy has been filed, the court has to decide whether to allow the sale to proceed.  A part of the sale would include updating the current premise they occupy.
    The YMCA hopes that upon the approval of their reorganization plans, they would be able to improve their facility and make it more up-to-date and vibrant.  The organization has occupied their present facility for the last 45 years and employs 11 full-time staff who are assisted by about 30 to 40 part timers.  They made a statement to the effect that, “We would welcome the opportunity to serve the needs of McHenry County and bring trusted Y(MCA) of Metro(politan) Chicago programs to the region.”
    For now, the patrons utilizing YMCA services and programs will see no changes in their operations.  There will also be no staff layoffs during the bankruptcy.  According to Cate Williams, the YMCA McHenry County spokeswoman, if the court approves the sale, there might be some restructuring that would take place.
    Borders Bankruptcy
    The well-known bookstore chain, Borders will receive a financial lifeline in the form of a cash injection of $550 million in refinancing from GE Capital.  But the possibility of filing for bankruptcy remains.
    Part of their agreement with GE Capital is for Borders to shutter some of their stores and seek financing from other lenders.  It has to secure another $175 million in credit and $125 million in junior debt financing.
    Since the beginning of this year, Borders has made plans to shutter a distribution center, laid off employees and announced it would sell of its calendar business.  In addition, two of their top executives also left the company.
    However, since news about the refinancing broke, shares of Borders have surged in price.
    Do you need to file for bankruptcy to give yourself a new start financially?  Call us at (813) 200 4133 for a free consultation.

    YMCA and Borders Bankruptcies YMCA  Bankruptcy The YMCA of McHenry County has filed for bankruptcy protection and intends to sell its assets to YMCA Metropolitan Chicago.  Chapter 11 bankruptcy was filed at US Bankruptcy court for the Northern District of Illinois, Chicago.  The decision to file for bankruptcy was taken after new facilities failed to draw in new members. The YMCA of McHenry County, located at 701, Manor Road in Crystal Lake spent millions in expanding a gym and other exercise facilities and incurred additional expenses for other updates.  When these actions did not halt the decline in revenue, the board discussed the possibility of having a sale.  Now that the bankruptcy has been filed, the court has to decide whether to allow the sale to proceed.  A part of the sale would include updating the current premise they occupy. The YMCA hopes that upon the approval of their reorganization plans, they would be able to improve their facility and make it more up-to-date and vibrant.  The organization has occupied their present facility for the last 45 years and employs 11 full-time staff who are assisted by about 30 to 40 part timers.  They made a statement to the effect that, “We would welcome the opportunity to serve the needs of McHenry County and bring trusted Y(MCA) of Metro(politan) Chicago programs to the region.” For now, the patrons utilizing YMCA services and programs will see no changes in their operations.  There will also be no staff layoffs during the bankruptcy.  According to Cate Williams, the YMCA McHenry County spokeswoman, if the court approves the sale, there might be some restructuring that would take place. Borders Bankruptcy The well-known bookstore chain, Borders will receive a financial lifeline in the form of a cash injection of $550 million in refinancing from GE Capital.  But the possibility of filing for bankruptcy remains. Part of their agreement with GE Capital is for Borders to shutter some of their stores and seek financing from other lenders.  It has to secure another $175 million in credit and $125 million in junior debt financing. Since the beginning of this year, Borders has made plans to shutter a distribution center, laid off employees and announced it would sell of its calendar business.  In addition, two of their top executives also left the company. However, since news about the refinancing broke, shares of Borders have surged in price. Do you need to file for bankruptcy to give yourself a new start financially?  Call us at (813) 200 4133 for a free consultation.

    Lehman Brothers Plan to Exit Bankruptcy with Revised Plan

    Defunct investment bank, Lehman Brothers recently submitted a revised plan to exit bankruptcy after several creditors declined to support their initial plan.  Under the revised plan, there will be more money offered to bondholders.
    The bank intends to raise some $60 billion for creditors by selling their assets over the next few years and reducing allowable claims by $322 billion.  With this move, the average creditor will receive 18.6 cents for every dollar claimed.  This is more than the 14.7 cents under the initial plan which was shown in March and April 2010 when values for Lehman assets were not as high as presently.
    Senior bondholders would be paid 21.4 cents on the dollar compared to 17.4 cents under the original plan.  Unsecured creditors would receive a return of 19.8%.  Derivative creditors would get 22.3 cents, down from an earlier estimate of 24.1 cents.  Some of the derivative creditors that filed claims against Lehman Brothers Special Financing include Morgan Stanley, Deutsche Bank, Credit Suisse Group AG, Goldman Sachs Group Inc. and Bank of America.  When it filed for bankruptcy, Lehman Brothers was involved in about 1.2 million derivative transactions with about 6,500 counterparts.  As at the end of last year, Lehman had settled about 45.6% of those contracts.
    Last December, another competing plan was offered up by hedge fund Paulson & Co. and other creditors with large claims against Lehman.  Under this plan, the group including Paulson allocated 24.5 cents to bondholders and cut derivatives creditors’ payout to 25.7 cents, from what the group calculated as 38.8 cents under Lehman’s first plan, which gave them a right to get paid twice in a so-called “double dip.”  The group comprises of 10 members that include the California Public Employees’ Retirement System (America’s largest public pension fund), Pacific Investment Management Co. (the world’s largest bond fund) and Canyon Partners LLC which is a $19 billion hedge fund.  Paulson & Co. themselves manage about $33 billion in hedge funds.
    Lehman urged creditors not to support Paulson’s plan which, according to them, would “would engender significant opposition and litigation, and would result in increased expenses and delay” in the case.
    With its new plan, Lehman hopes to have a court hearing by the end of June and within 60-90 days thereafter, obtain the approval of bankruptcy Judge James Peck.  Creditors must first vote on the revised proposal.
    If you are finding it hard to overcome your debts, consider filing for bankruptcy protection.  Call us at (813) 200 4133 for a free consultation.

    California Against Bankruptcy for States

    In the continuing debate over whether states should be allowed by law to seek federal bankruptcy protection, Dan Walters now chips in his opinion, particularly for the state of California.  Counties, cities (like Vallejo did in 2008) and local units of government are allowed to file for bankruptcy in some states in the US but not the states themselves.  In California’s case, the state is so deeply in debt that the prospect of bankruptcy is never far from consideration.
    However, for any state (not just California) to file for bankruptcy, it would take a legislation passed in Congress.  If some Republicans had their way, this would soon become a reality.  Newt Gingrich, former House Speaker and potential GOP presidential candidate is all for the idea.  Some Republican congressmen are reported to be drafting legislation to that effect.
    The rationale behind this is so that local governments do not burden the federal government with having to bail them out.  But it’s clear that at the same time, this would be a way to undermine public labor unions by allowing states to dodge their obligations under labor union agreements once they are under bankruptcy protection.
    Last Monday, the labor unions in California brought the matter up to the Economic Policy Institute, a left-center think tank closely aligned to the labor unions based in Washington.  As a result, the EPI spoke to California state treasurer, Bill Lockyer in a national telephonic conference about this issue.  Lockyer firmly denounced any intention on the part of the state of California to file for bankruptcy.
    Lockyer contends that bankruptcy is the provision for individuals, corporations and local governments that do not have the capability to repay their debts.  However, in the case of California and other states, they have the authority to levy whatever rate of taxes to pay off their debts.  A good example is California.  Its budget shortfall is about $20 billion a year, which is merely 1% of its economic output.  Likewise, the states pension payment debts and deferred payments to schools can be quite easily repaid if there is the political will to do so.  Hence, the reason California has not been able to pay off its debts is not a matter of economics, but of politics.
    Allowing bankruptcy for the states would result in two things – an instability in the municipal bond market and an abrogation of responsibility by politicians who have handled the state economy poorly.  Both results are jeopardizing to the state.
    If you are considering filing for bankruptcy protection for yourself or your business, call us at (813) 200 4133 for a free consultation.

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    Gary Residents Wary of Municipal Bankruptcy Bill

    When Senator Ed Charbonneau tabled Senate Bill 105 that authorizes city municipalities to file for bankruptcy known as the ‘municipal bankruptcy bill’, many residents in Gary, Indiana became rather uncomfortable.  This was because Gary is the only city in Indiana petitioning for the Indiana Distressed Unit Appeals Board (DUAB) relief.  Gary is in the midst of its third petition.  The DUAB is a state body that is authorized to allow for increases in tax caps for municipalities, among other things.  However, the DUAB cannot do that next year because the tax caps were vetoed into the state constitution.
    Hence, Gary’s options look increasingly limited and its survival is doubtful.
    Under the municipal bankruptcy bill, if local governments are financially strapped, they could petition the DUAB.  The DUAB will review the situation under a certain set of guidelines and if they decide the government is distressed, it would appoint an emergency manager to intervene to sort out the city’s financial problems.  One of the options open to the emergency manager is to file for Chapter 9 bankruptcy protection but Charbonneau insists that this is not the aim of the bill.  On the contrary, the bill is aimed at averting bankruptcy.  However, some Gary residents feel that Charbonneau’s bill allows the state to take over the financial affairs of the city.
    Some experts believe that it would be wrong to allow a state appointed manager who could unilaterally decide what services residents of a distressed political subdivision are entitled to.  Again, Charbonneau defended his bill by claiming it was not aimed specifically at Gary or its residents.
    The fact is that any other city could also find themselves before the DUAB.  Lawmakers and lobbyists say that means everyone in the state needs to pay attention to this bill.
    Most people understand the reasoning behind Senate Bill 105.  Municipal bankruptcy is governed by federal law, but it requires an authorizing statute at the state level that Indiana and some other US states currently do not have.  But they also feel that the General Assembly must be careful in how it goes about passing such a law.
    A second hearing for the bill has been set for this coming Wednesday at the Statehouse.  Charbonneau said there would be some changes to the bill.
    If you or your business would like to file for bankruptcy protection, call us at (813) 200-4133 for a free consultation.

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    What Bankruptcy has done for Vallejo

    The city of Vallejo in California filed for bankruptcy protection in 2008.  What has happened since then?  How has the city fared financially?  Let’s take a look.
    There are four labor unions in Vallejo that represent city employees.  They claimed that California law protects their agreements with the municipality.  But the bankruptcy court disagrees and granted permission to the city to cancel its collective bargaining agreements.  This resulted in the unions having to accept terms they would not have otherwise agreed to.
    One of the changes made by the city was slashing the retiree health benefit from $1,500 to $300 per month and stopping the payouts on accrued leave time.  However, pension plans for retirees and current city employees, including one that allows policemen to retire at 50 years of age and receive up to 90% of their last drawn salary goes unchanged.  This means the city has to bear this cost that amounts to $195 million in pension payments.
    Most of the time, the way the city has cut costs in the renegotiated union agreements is by its reducing staff.  For example, the police force has been reduced by 65 sworn officers from 155 in 2003.  It currently has only 90.  Likewise, the fire department has been drastically downsized from 122 personnel in 8 firehouses to 70 people in 5 firehouses.  Are the citizens happy that there are fewer police and fire personnel in their city?  I don’t think so.
    Another notable point is that bankruptcy did not significantly reduce the debt in Vallejo’s books that amounts to $225 million.  This amount stems mainly from the water authority that is not affected by the bankruptcy case.  Only about $50 million in city obligations, mainly lease payments on buildings, will actually be restructured, with a net “present value” savings of around 40%.
    A major portion of the problem has nothing to do with payrolls, pensions or bond liabilities.  It has to do with plummeting revenue.  The city collected $87 million in taxes in 2007-2008 but only $65 million in the latest fiscal year mainly due to the recession and the mortgage crisis.  The values of houses have fallen by an average of 67%.
    Despite all this, Vallejo has submitted its formal restructuring plan for court approval and hopes to exit bankruptcy by summer this year.
    Just like municipalities, you may also file for bankruptcy to give yourself a fresh start financially.  Call us at (813) 200-4133 for a free consultation.

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    States Do Not Want Bankruptcy Right

    All the states in the US are considered sovereign territories which makes it unconstitutional for them to be under federal bankruptcy supervision.  But in times like these where many states are facing huge budget deficits, would filing for bankruptcy be the answer?  Newt Gingrich thinks so and he is about to propose a new bankruptcy bill to Congress next month.
    As sovereigns, all states are expected to balance their budgets at the end of every financial year, with the exception of Vermont.  To improve their cash flow, most states issue state bonds.  The bond industry is a burgeoning $2.8 trillion business each year.  Among the biggest bond issuers are New York, California and Illinois.
    However all the states including the most cash-strapped ones like New York, California and Illinois reject the idea of a bankruptcy bill.  California’s state treasurer Bill Lockyer outrightly rejected the idea.  He said bankruptcy would destroy the state’s ability to overcome the recession and make the infrastructure investments that would create jobs for Californians.  He also said that California is taking steps like reducing benefits and increasing workers’ contributions in order to close the budget deficit.
    Lockyer draws a distinction between California’s short-term budget deficit and its long-term funding obligations.  Both are presently being addressed without having to resort to bankruptcy.
    Texas Governor Rick Perry stressed the need for states to be responsible over their own finances without having to receive bailout funds from the federal government.  According to him, bankruptcy should not be a means to escape financial prudence and good management.
    Thomas DiNapoli, New York’s state controller said that filing for bankruptcy and defaulting on bond payments would have a detrimental effect on the state’s credit rating and severely destabilize investor confidence.  Bankruptcy is seen as merely an easy cop out.  As such he is against the option for states to file for bankruptcy, preferring to address the financial shortfall with steps that align recurring spending and revenue.
    Illinois Governor Pat Quinn’s director of communications for the Governor’s Office of Management and Budget, Kelly Kraft was even more blunt, avoiding any comments by saying, “We do not comment on hypotheticals. States cannot declare bankruptcy.”

    Even though states do not want to file for bankruptcy, you may want to consider doing so to get a fresh start financially.  If you or your business wish to file for bankruptcy, call us at (813) 200-4133 for a free consultation.

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    The Other Side of State Bankruptcies

    Former House Speaker Newt Gingrich is all for having legislation that allows states to file for bankruptcy protection.  Gingrich says that doing so would free state governments from their crippling debts and allow them to rebuild their finances.  It would also cause state governments not to always approach the federal government for bailout funds.  Although it seems a logical and simple solution to the financial problems of cash-strapped state governments, is there more than meets the eye?

    Many do not realize that there are other options state governments have to reduce their deficits.  For example, the state of Illinois just enacted a temporary state income tax increase to help close its budget gap.  Likewise, California has initiated wage cuts and tax extensions in its struggle to overcome its $25 billion deficit.
    Gingrich contends that the ability to file for bankruptcy would give state governments a greater bargaining power over labor unions who can be unreasonable with their demands.  But whether or not a state is in bankruptcy, if it cannot pay its workers, everybody loses.  Hence, labor unions would naturally have an incentive to compromise with state governments.  In fact, some labor union bosses have already agreed to make concessions on benefits for new workers.
    Another result of a bankruptcy filing for a state government would be an exit from capital markets.  This would cut off a vital source of income for state governments and leave them having to search for other funding sources to finance infrastructure development and provide much needed revenue.  For instance, California would need $10 billion annually to meet its cash flow needs.
    In addition, legal bankruptcy overseen by the federal government goes against the constitution as each state is considered a sovereign entity.  Such bankruptcy would also cost a huge amount of money for the states.  Even when a city files for bankruptcy, it is an expensive affair, as can be seen in the case of Vallejo in California that filed for bankruptcy in 2008.  It has spent about $9.5 million in legal fees thus far without an end in sight as the court case is still ongoing.
    Lastly, if a state government is in bankruptcy, it would not be able to autonomously increase taxes.  Hence, it would naturally mean that the state would have to rely on federal funding to see itself through the bankruptcy period, something declaring bankruptcy was meant to avoid in the first place.
    Unlike the case with state governments, individual citizens have the right to seek bankruptcy protection and many have done so.  If you wish to file for bankruptcy, call us at (813) 200-4133 for a free consultation.

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