Arizona Bankruptcy Attorney Blog

Consumer confidence is at its lowest ebb since the great recession's depths, according to a CNN story by Annalyn Censky.

And why not?

Unemployment is huge, with the official number hovering at 9.1%.

But everyone who has boots on the ground and at least one friend knows perfectly well that the real unemployment numbers are higher (remember, the U-6 Official Measure of Unemployment is 16.8%, which is overwhelming).

And the real unemployment situation is far, far worse than that.

Because the unemployment figures don't reflect the fact that people who were earning a hundred and fifty thousand a year a few years ago are now earning $12 per hour, with no benefits.

And even though the official inflation numbers are quite restrained, if you go into a grocery store you'll figure out that those official numbers are officially...cooked, you know?

Now, I have a lot of respect for the opinions of ordinary people, because I are one.

And if consumer confidence is at the lowest point since the Great Recession, you know this for a fact: there was never a question about a double-dip recession.

It's never gone away.

How do I know?

I just count the people coming into my office, and look at the price of coffee, and then look at the price of a car in a 1975 magazine and compare it to the price today.

Things are bad, and I hope they get better fast.

But any attempt to fool consumers into spending money they don't have to bail out the economy when that's economic suicide for consumers isn't going to work.

Consumers are pretty smart.

Do you speak Mandarin?

Me, neither.

But I was discouraged when I saw that a Chinese Rating Agency (I don't know which one; remember, I don't speak Mandarin!) had downgraded the U.S., in the same way as S&P.

I also watched the video posted above, and even though I don't speak Mandarin, it did not make me feel good.

I'm proud to be a U.S. Citizen, and I don't like it when China is a lender to the U.S. in the first place!

I like it even less when Chinese Videos make fun of the United States!

I hope that Washington can get its act together.

I don't want the United States to go down the same road that Greece has traveled, and wind up with "austerity measures" crammed down its throat by our International Bankers!

On the home front, two more banks just failed.

In an ordinary year, that would have been front-page news.

Now, in a year of bankruptcy and insolvency and debt, it's just business as usual.

In a nice article subtitled "a short history of the entitlement state", the Wall Street Journal sets out a group of graphs.

Now, I've seen graphs for all sorts of things, and this is something I know to be true; figures don't lie, but liars can figure.

The graphs in this article look kinda like the real deal to me.

And the underlying message of the article is simple, I think.

Lady Ga-ga can overspend. NFL Players can overspend. Stay-at-home Moms can overspend.

Anybody can overspend when they don't pay attention, because spending is fun. It's been called "retail therapy", which is a fairly funny turn of phrase, but the consequences are much less fun.

And countries can overspend. It happened in the Weimar Republic, which ultimately destroyed a republic and gave us Adolf Hitler. Argentina overspent, and printed money like it was...paper. And crying for Argentina was probably a good idea. The Soviet Union, the ultimate entitlement state, disintegrated when it overspent other people's money.

So now the question will become, "Should the United States keep doing what it's doing?"

My answer?

It may not matter; it may be too late at this point.

After all, the United States is about to lose its perfect credit rating, for the first time in thirty years.

Surprisingly, that won't be the end of the world. The United States has defaulted, on purpose, six times in the past (don't hold me to that; it may be seven or eight). And our credit bounced back.

Of course, when an individual loses a credit rating, the interest rates on their credit cards goes crazy.

But this time, our credit as a country won't bounce back until we get spending under control.

Because anybody can spend more than they make, and we've been on that road for a long time now.

Oh, yeah. The bankruptcy process for an individual is no fun at all.

And you might want to look at Greece to see what insolvency does to the everyday life of a citizen when the country is clearly insolvent.

It's not a pretty picture, and it's getting worse every day in Greece.

Many people can't make up their minds whether they should file a bankruptcy, but they can't make payments on their credit cards and pay for their mortgages, so they stop making payments on the credit cards (because, after all, the roof over your head is important when the weather starts hitting 117 degrees!).

Or they get fired, can't pay their credit cards, but won't qualify for relief under Chapter 7 of the Bankruptcy Code and the Means Test, because the Means Test is a six-month rolling look-back.

In both cases, people are curious about the date when they'll get sued by credit card companies and banks.

The answer is: it depends.

Some people go years without being sued, and some are sued three months after they stop making payments.

The reason is that internal lender policies determine when a credit card company will sue you, and those internal policies are subject to change over time.

Some companies are very quick on the trigger, and some are pretty relaxed and easy-going.

Frankly, it always surprises me when credit card companies sue, because that virtually guarantees that the defendant is going to file a bankruptcy.

And since the credit card company has to pay a hefty filing fee for the privilege of suing in an Arizona Court, it seems counterproductive to me for a credit card company to be quick on the trigger.

But some are, and some are not, and some are fast in one case, and slow in another.

Bear in mind that the statute of limitations is pretty substantial for unsecured credit card debt in Arizona, so that the plan of out-waiting a creditor is generally not a smart idea.

And when a credit card goes stale, the bank will generally sell the debt to somebody further down the food chain for pennies on the dollar, and they retail the bundle of debt further down the food chain, and eventually suits are filed by somebody.

And if they aren't filed quickly, they frequently get filed just prior to the lapse of the statute of limitations, because by then high interest rates and penalties, and fees on the fees on the fees, have transformed the ten thousand dollar debt into a seventy-five thousand dollar debt, and it makes more sense to sue on that amount, in any case.

But don't wait until you're sued to talk to me; and certainly don't wait until you're being garnished!

When should you talk to me?

On the first day you even consider taking money out of your retirement funds to pay your unsecured debt.

Seriously.

Most individuals don't need to file bankruptcy because they spent too much on the good life.

I know that for a simple reason; I've been a bankruptcy specialist in Arizona for about thirty years, and I've talked to thousands of individuals and business owners about insolvency.

Frankly, the usual reason that people get to file bankruptcy in the United States is bad luck, and bad judgment (which means working with the best information you have at the time, and then discovering that the information was wrong!).

For instance, if you have a business, and the city decides to do construction work on the street leading into your business, you may well not have a business anymore. But you still have your Small Business Administration debt, and that's secured on your house in most cases, so there's probably a bankruptcy in your future.

Or suppose you simply stop being able to work. If you had a perfectly manageable debt level, and you're out of work for chemotherapy, surgery, and radiation treatment, and then for a recurrence, you probably have a bankruptcy in your future.

Note: as I usually tell people, DO NOT use your otherwise exempt 401(k) or IRA to make minimum payments on your credit card debt until they are gone, and then wait until you are sued and garnished to talk to me! It makes me nuts when nice, smart, capable people write me and say, "I'm being garnished and I think it might be time to consider my options."

The time to consider options is at the moment that you start thinking about dipping into your 401(k) or IRA for any reason!

Back on track.

The obvious reasons that people now are filing bankruptcy cases is simple desperation and need. If you're getting garnished by a judgment creditor, that 25% of your net adds up fast; and since most people have a debt and expense structure that requires the use of all their net paycheck, when people are garnished, they have a lot of trouble avoiding a bankruptcy.

Or if your job has been outsourced, you may well get to file a bankruptcy. Or if your employer has "rightsized", you may get to file a bankruptcy. Or if your house gets blown away by a big wind, and you don't have big wind insurance, you may get to file a bankruptcy.

Now, some young people sometimes get into trouble because they have been sold the idea that they need or are entitled to a particular kind of lifestyle, and then they go on to obtain that sort of lifestyle, based on their belief that they can safely use credit, because their earnings will go up over their careers.

And many of them simply miscalculate how quickly their incomes will increase.

Or they get caught with their wallets down because of an unexpected expense, miss one credit card payment by a minute or two, and then notice that their interest rate has gone up to 30%!

And that their credit card bills are now all at 30%, even though they only missed one payment with one credit card, and that only by two minutes (note: this actually happens).

Normally, for individuals, luck plays a big part in the decision to file a bankruptcy, and bad planning can have an effect as well.

For older folks, the "moment of clarity" bankruptcy will occur when they get out their pocket calculators and figure out that their retirement income is going to be two thousand dollars a month, and that their minimum credit card payments are twenty-five hundred a month.

As I've pointed out in the past, bankruptcy is often a pre-retirement financial planning step that must occur to make retirement survivable.

The saddest bankruptcy cases I see are kids with big credit card debt and gigantic student loans, which very seldom get scraped off in bankruptcy. Lately I suspect that a lot of vulnerable young kids are being taken for a ride by their University, which gets paid very, very big bucks, leaving the kid with a Doctorate in Swahili Grammar, and a quarter of a million in student loans, and no possible jobs except flipping burgers.

So over-borrowing and overspending can both lead to the door of a bankruptcy lawyer.

Why am I talking today about overspending?

Well, a lot of bad decisions don't look like bad decisions at the front end, or even for a long time.

But then, the bill comes due, and things happen. Bad things.

That happens almost without exception to celebrities who get very rich very young; when you're young and rich, you think you earned it, and you think you deserve it, and you think you'll keep making those multi-millions forever, so you might as well spend some for fun.

Hence, celebrity bankruptcy cases, and sometimes celebrity bankruptcy fraud.

The reason I'm worried about the national economy right now is that it looks to me a little like a nice couple with a very large credit card debt (because the Federal Government is borrowing 40 cents out of every dollar it spends), and everything is just fine, as long as the interest rate is low and the credit card limits are gigantic, and we have some minimum of manufacturing that still happens in the United States.

But this article scared me; it suggested that if interest rates go up, the national economy will collapse like a house of cards.

And even though I'm a bankruptcy lawyer, I don't want to see that; nobody wants to see that, right?

p.s. It's instructive to watch what happens to a country that borrows and spends more than it makes; Greece is currently about to experience what is lovingly called an "austerity" program, which will be followed by a default.

My take is that being dictated terms by lenders for a "national bailout to prevent a default" is about as much fun as having your country occupied by a hostile army.

But watch Greece, and see how much the folks there are going to enjoy their "austerity" program; putting it another way, the politicians in Greece spent borrowed money like water to buy votes, and the citizens of Greece are going to be living on grass clippings for a decade to pay the bill. And then there's the "asset sales" part of the "bailout".

Greece should have defaulted, and should have declared bankruptcy and started over again; at least, the citizens of Greece would have been better off with that game plan.