Arizona Bankruptcy Attorney Blog

Jefferson County is suffering, a roughly four billion dollar debt they cannot pay is forcing them to take the road many other cities are already debating: Chapter 9 Bankruptcy.

Since they are just north of FOUR BILLION dollars in debt, they have set both a record and have assisted in establishing a precedence that politicians and lawmakers have been worried about. The record for most substantial Chapter 9 to date was previously held by Orange County, California and their debt was just shy of two billion dollars making Jefferson County the largest Chapter 9 bk in the nation to date.

The precedent, however, is that cities following in this direction will have and example to drawn upon should similar investment have blown their debt out of control. Jefferson County's debt woes are primarily tied to a sewer system investment, similar to other costly attempts to better a city that led down this same path.

That said, expect to hear about two or three more cities making the same announcement within the next few months simply because it's still an option; that is until the Lobbyists persuade a new set of amendments out of Washington.

I hope that I'm wrong, but we'll find out regardless.

The poor folks in Harrisburg, PA have had it pretty rough.

Massive flood damage that led to an exodus of over 10,000 people, huge unemployment and a big investment that never panned out.

They are taking the matter into their own hands in dealing with over 300 Million Dollars in debt.

There appears to be some dissent in the ranks, including the Mayor who insists that the city council went over her head and that the Bankruptcy is going nowhere.

More as it develops!

Remember the "better to be lucky than smart" approach to avoiding a bankruptcy?

I know. Neither do I.

But recently I've gotten to see a lot of hard luck bankruptcy cases.

The hard luck might be a repair crew on the entrance to the shopping center.

Or it might be a federal raid, as in Gibson Guitar (I sure hope they don't have to file a bankruptcy; they employ a lot of U.S. Workers, and make darn good guitars!).

Or your lease might just run out, as with the Scottsdale Six Drive-in Theater, after a good run for 34 years.

Now, you might think that it's just another drive-in theater that couldn't compete with new technology.

Wrong, Celluloid Breath!

The Scottsdale Six Drive-in Theater had been on track for its best year to date.

When I see a business that does everything right, with employees, that puts money into a local economy, and it gets to close its doors just because of bad luck, that makes me sad.

Oh, yeah.

The bad luck that the business experiences?

That gets doubled for the employees.

So does that mean more consumer bankruptcy cases get filed when businesses are unlucky?

Well, yeah.

I'm about to start a Crusade.

I'm sick and tired of seeing kids who have gigantic non-dischargeable student debts, advanced degrees in Fingerpainting as Therapy, who can't get a job to save their lives during a depression where the unemployment rate hovers around 17%; and that's just the official U-6 Unemployment Statistic.

The real numbers are far worse!

So here's what needs to happen.

Student loans are simply debts. There's nothing magical about them.

Under prior law, they were dischargeable.

Under the law today, they should be dischargeable.

So let's change that law, Congress!

Tomorrow would be fine.

Moody's is in the business of predicting the future. It has algorithms and analysts who look at numbers and assign credit ratings to very big entities and deals (including the United States, most famously).

Warren Buffett is the media darling of billionaires, and he also is in the predicting the future business, because predicting the future, or causing the future, is the way you become a billionaire with a "b".

The reason I like this video is the following: it may provide comfort to smart business guys who beat themselves up because their business folded.

I routinely talk to gentlemen who tell me they've contemplated suicide while they were contemplating bankruptcy.

The guys who come into my office, obviously, have made one choice. Other folks opt for early-check out, which is probably the wrong choice.

Suicide is forever. Bankruptcy keeps you from buying a new house on credit for two years, or maybe three, depending on who you talk to.

So bankruptcy is a far more flexible remedy than suicide.

But back to our story.

If both Warren Buffett and Moody's failed to notice the gigantic real estate bubble in the United States, how should a poor little millionaire investor?

So if you were a poor little millionaire investor, don't beat yourself up.

An awful lot of doctors, lawyers, cpas, and business owners believed that real estate investing was the way to go, and all of them were and are very smart people.

So don't let one little error in judgment make you believe you're a loser.

Just file your bankruptcy, and get on with your life.

As soon as you get your debts behind you, you'll feel better.

The Evening Standard recently published a piece suggesting that the Global Economy, something I think of as The Worst Idea Ever, is heading toward a rough landing.

And when I say "landing", I'm really talking about a place seven or eight feet underground.

Why?

When countries are intertwined economically, and some countries (Greece is the current poster child, but many others are among the usual suspects) keep borrowing and spending on early retirement and big pensions for some of their citizens, and the countries don't make the money to support such lavish government spending, bad things happen.

In specific, the wheels come off the wagon.

Of the world economy.

Because when countries keep borrowing beyond their ability to pay back debts, they eventually hit a point where there is no more money to borrow.

And then things get bad. See Greece, for instance, which is currently the poster child for "bad".

I'm only a simple backcountry bankruptcy attorney, but it's clear to me that when the Chinese Economic Miracle sours, and the phonebanks of India fall silent, and all of Europe is dragged into the economic black hole by Greece, Italy, Spain and Ireland, bad things will happen in the United States.

And the article in the Evening Standard also points out that the United States has been bailing out banks for some time now, and the Bank of America may need a new round of bailouts.

And is the Bank of America too big to fail?

Or only too big to bail?

In an article from Reuters, Pedro Nicolaci da Costa wrote about a recent unemployment report.

Unemployment was up, with U.S. Citizens filing new claims after losing jobs: 414,000 new unemployment applications filed for the week ending September 3, 2011.

Here's my question of the day: has anybody tracked the relationship between the sheer number of regulations and the number of unemployment applications?

I talked recently to a business owner who had previously employed 150 people in a manufacturing business.

He now employs 25, and one of those is a full-time compliance officer, so he doesn't fall afoul of any of the hundreds of regulations controlling his ability to provide jobs.

I have a theory: my theory is that there is an inverse numerical correlation between the number of words in government regulations and the number of jobs in the regulated sector.

Does anybody have a slide rule? Maybe an abacus?

It would make an interesting study.

Oh, yeah. Do you think a bankruptcy lawyer likes to see high unemployment numbers?

The answer is no.

There are a bundle of insolvent cities in the United States.

Some file bankruptcy, some don't.

We'll get to compare how the residents of those cities fare.

My guess is that the folks who live in Harrisburg will be downright cranky that they didn't file bankruptcy when they had a chance, instead of dithering, and dithering, and dithering, with some dither sauce.

At this point, Harrisburg is facing bond defaults, missed payrolls, and a takeover by the State.

None of those would make me a happy camper if I lived in Harrisburg, I think.

On the other hand, things are pretty rosy, by comparison, in Central Falls. Payrolls are being met, and the bond payments are being met, as well.

Elections will be won or lost in the future by politicians who promise to file, or not file, bankruptcy for cities.

Imagine the campaign speech:

"My friends, if I am elected, I will immediately put this city in a bankruptcy! I promise!"

I've noticed that not many folks are talking about a double-dip recession these days.

I chalk it up to an inability to keep a straight face when saying goofy things.

For the United States to go into a double-dip recession, it would have had to have come out of a recession, right?

And the jobs report for August was abysmal.

Shaila Dewan at The New York Times has discussed the worst job showing in eleven months.

She pointed out that the unemployment rate is 9.1%, and admirably, also she also referenced the sky-high U-6 measure of inflation.

Now, is this a depression?

Well, global manufacturing is down, down, down. Emily Knapp, at Wall Street Cheat Sheet, gives us the numbers, and they awful.

So here's my answer to the question, is this a double-dip recession, or a depression?

It doesn't matter.

I just want it to stop.

Because as long as unemployment is sky-high, people will need to file bankruptcy cases.

Which are down slightly last month.

Go figure!

Private enterprise uses the word "billion" with a "b" far more than the governmental "trillion" with a "t".

But for a start up, a billion dollars is a lot of money.

A bankruptcy joke may be in the transmogrification process.

The gag used to be "how to make a small fortune? Start with a large fortune, and open a restaurant!"

Then it became, "...and start a dot-com!"; then it was "and invest in consumer real estate!"

The newest iteration seems to be "and build solar panels!"

And the newest poster child for that gag is Solyndra, which has announced that it will file a Chapter 11 Bankruptcy Case.

Solyndra is the third solar company to file a bankruptcy in August of this year, following Spectrawatt Inc. and Evergreen Solar Inc.

Now, there was a half a billion dollar loan guarantee made by the Federal Government on behalf of Solara, and there will probably be political fallout from this bankruptcy.

There will also be more bankruptcy cases, simply because 1,100 employees are now laid off, and that will give rise to more bankruptcy cases.

The City of Freemont, California will also feel a pinch, because stuff rolls downhill. A company that was spending a billion dollars was paying Freemont Restaurants, and there will also be more foreclosures and defaulted rental agreements in Freemont, because when the spigot is turned off with no warning, everybody in the vicinity is left holding the bag.

It appears that the bankruptcy was filed one step ahead of regulators, because the half-billion dollar Solara loan was the subject of a subpoena from the Energy and Commerce Committee.

There is now something that's been called "The Solara Effect", which is the reluctance of investors to jump into solar energy start-ups.

Because investors aren't dumb!

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.

Terry Collins wrote a nice article for the Associated Press about Vallejo and it's emergence from Chapter 9 Bankruptcy.

But reading the article did not give me a warm, fuzzy feeling.

There was discussion of a report that was ignored by the City Council, which report predicted the bankruptcy unless Vallejo changed its free-spending ways.

The part of the article that scared me was the wistful way people talked about the free spending past, and the rueful tone addressing the stay-inside-the-budget present.

See, with a governmental entity of any kind, there's just no excuse for needing to file a bankruptcy.

You KNOW in advance what your income is going to be. You KNOW in advance what the costs are going to be, and you KNOW your historic debt.

You OWN a bean-counter or twenty, and their job description certainly ought to include figuring out when you're in the zone of insolvency, and beating the drums and sounding the alarms.

But the seductive power of giving away other people's money is just too much for politicians, apparently.

Now, I'm a lawyer. A bankruptcy lawyer, to be specific.

And lawyers are trained to be able to argue either side of any argument.

So I can make excuses for Vallejo and talk about how nobody expects tax revenues to go down.

Except.

All you have to do when tax revenues go down is to cut spending immediately, and intelligently (for heaven's sake, don't cut cops and firemen and garbagemen and teachers first. That's just stupid).

Ordinary people have to live within their means.

Why not cities?

And while we're at it, why not countries?

p.s. so it'll be harder for Vallejo to borrow in the future? Well, does anybody think that's a bad thing? Really?

Without Steve Jobs, is Apple doomed to insolvency and bankruptcy?

Nope!

Gigantic Corporations that make vast profits and have products that fly off the shelves often do pretty well after a change in leadership.

Will it do exactly as well as if Steve Jobs was still running the company?

Nope. No more than Disney did precisely as well, or precisely the same thing, when it lost Walt.

On the other hand, there will now be both a Steve Jobs deathwatch in the media, and an Apple deathwatch.

My hope is that both are disappointing to reporters for a very, very long time.

And remember; during a depression, Apple made money.

When you're a newspaper publisher and revenues drop like a rock during a depression, you'd naturally expect your bank to work with you, especially if you'd had a long and productive working relationship with that bank.

Wrong, Insolvency Breath!

Robert Chandler, Publisher of the Bend Bulletin, had some cranky things to say when Bank of America talked about how much it had tried to help the newspaper.

One phrase in the article that I particularly liked was ""They tried to work with us all right--by doubling our interest rate."

See, banks don't like defaults. And big banks really don't like defaults, because once they charge off a loan (an internal bank accounting activity), they have to reserve against that bad loan, and they can't loan as much money.

And if a bank loans less money, it makes less interest on that un-loaned money.

And it makes less profit.

And since banks are for-profit institutions, they tend to be real hard drivers in a negotiation, and sometimes seem irrationally aggressive.

Here's why.

Banks don't care.

They don't have emotions.

They don't care if people will lose jobs when a business closes; that's not their problem, mon.

So if you're on the wrong side of a default with a bank, the bank is not going to be warm and fuzzy.

Practice Pointer: a bank starts warm and fuzzy during a negotiation, in order to get more collateral and additional personal guarantees, and a payment plan that starts small and ramps up to an unpayable amount (they've got your records, right? they know what you can pay!) And that means that when the unavoidable default arrives, the bank is holding all the aces.

Just a thought.

p.s. if you hear the words, "We're from the bank and we're here to help you," you will probably not have a very good day.

So, you've figured it out, right?

You're never going to get to retire.

There are articles like this one by Rachel Louise Ensign in the Money Section of WSJ which suggest that some seniors may need to keep working.

My scientific analysis of this situation tells me that the actual number is going to be much, much closer to "all" than "some".

And that's because inflation is raging, and jobs are in short supply, which means there are more applicants than jobs, which in turn means that when you do find a job, you'll be working for peanuts.

Don't get me wrong; peanuts are nutritious, and even though they are actually a legume, they're nutritionally similar to tree nuts.

No kidding.

And I'm also not kidding about my entire generation having the privilege of continuing to work for a very long time.

Now, experts in retirement sometimes suggest that you enter into retirement debt-free.

How to do that?

Let's talk.