Bankrupt, but not broke

Last year was a record-setter in many ways for the financial services industry: the stock market reached new heights and total wealth of consumers continued to increase. Yet 1996 also set another record: For the first time in U.S. history, consumer bankruptcy filings surpassed the one million mark.

Bankruptcy statistics are in the public eye these days as Congress debates whether to toughen laws governing bankruptcy relief in order to stem the tide of consumers filing for protection from creditors.

Theories abound about why consumer bankruptcies skyrocketed in 1996, whether evidence of a severe debt problem exists, and what, if anything, should be done to change the trend. Often, the credit card industry is blamed for causing the bankruptcy "crisis" by "driving" consumers into debt. Mail solicitations offering pre-approved, low rate cards are most often cited as the culprit for encouraging consumers to live beyond their means and forcing them into bankruptcy because of overwhelming credit card debt.

Despite the logical problems with this reasoning (credit cards do not force anyone to buy anything any more than the existence of shopping malls does), there are questions about the effects of excessive bankruptcy filings on consumers. In this area, we do have some new statistical research from the Credit Research Center of Purdue University (soon to be moving to Georgetown University). The Center is conducting an ongoing, extensive study of consumer bankruptcy in the United States. The study measures the ability of consumers who filed for bankruptcy in their local county court relief in the first half of 1996 to repay their nonhousing debts over a three- to five-year period.

The results so far provide many eye-opening insights about the financial status of some consumers who file for bankruptcy protection. Currently, consumers who are considering filing for bankruptcy can file under either Chapter 7 or Chapter 13 of the U.S. Bankruptcy Code.

Under Chapter 7, all of a consumer's debts are discharged in exchange for liquidation of certain assets, the proceeds of which are distributed to creditors. However, both federal and many state bankruptcy laws provide a broad range of exemptions that protect many assets from liquidation. Since those who choose Chapter 7 do not have to make any debt payments from their income stream, most Chapter 7 filers can wipe out their current debt without pledging any future income. They also get legal protection against any attempts at collection by creditors. (See "Bankruptcy: A Debtor's Last Resort," CR, June 1994.)

In contrast, consumers who file under Chapter 13 agree to enter into a court-approved repayment plan for all or some of their debtsover a three- to five-year period. After a debtor completes payments under the plan, any remaining debt is discharged. Chapter 13 is often the choice of debtors who have substantial assets they wish to keep. Because Chapter 7 allows for a discharge of debtswithout requiring a repayment plan, it is, understandably, the most popular choice. However, Chapter 7 relief is awarded irrespective of the debtor's future income.

In other words, court-approved debt discharge is not based on actual need. This occurs because "current" bankruptcy laws date back to an age when someone's ability to repay a loan was calculated based on his assets. In contrast, today's lending practices measure someone's ability to repay a loan based on expected future earnings.

The Credit Research Center study shows that the outdated approach of the current code overstates the amount of relief that should be awarded in many cases. The Center's study documents thousands of consumers who were granted a "fresh start" in the first half of 1996, who could have repaid as much as a third of their debt out of future income: "Based on [the debtors'] own financial statements,...25% of Chapter 7 debtors declared income sufficient to repay at least one third of their non-housing debt over 60 months. Ten percent of Chapter. 7 debtors show capacity to repay 78% or more of their nonhousing debt. "

So what does this legal disparity in lending practices mean for prudent consumers? Mainly that excessive bankruptcy relief is not free. The cost of businesses writing off excessive uncollectible debts is ultimately paid through higher prices and tougher credit standards by the majority of consumers who repay their obligations. The Credit Research Center's study shows the Chapter 7 cost of dischargingdebt that could have been repaid reaches into the billions of dollars.

In a sense, unpaid debts are like shoplifting: prudent and honest consumers pay higher prices to cover the actions of the imprudent and dishonest. Of course, bankruptcy is somewhat different from shoplifting and should remain available for those who are heavily indebt and can't repay.

Consumers should know that while filing for bankruptcy may seem like a painless way to crawl out from under heavy debts, the consequences of filing can be far-reaching. A record of filing for bankruptcy protection can remain on a credit report for 10 years. Good creditworthiness, reflected in the report, is important for all kinds of consumer concerns: buying a house, leasing a car, applying for a loan.

Consumers with heavy debt burdens should carefully consider all available repayment options before filing. Non-profit Consumer Credit Counseling Services are available in most states to help consumers get back on track.

Meanwhile, as Congress hems and haws about how to stem the current bankruptcy "crisis," it should carefully consider the imbalance of the current law: Bankruptcy relief based only on the value of one's assets, and not on the ability to repay debts with future income, is unfair to the financially prudent who subsidize this relief. Adjusting the Code to reflect modern-day consumer credit practices will help ensure that only those who really need bankruptcy relief get it.

Abstract: 

The number of bankruptcies filed in 1996 exceeded one million, causing the financial industry to examine why this happened. Many consumers filed Chapter 7 to clear their debts without paying them, when they should have filed Chapter 13 to get on a payment schedule.

10 simple cost-cutting ideas; here are 10 techniques you can use to slash operating costs quickly and easily

Here are 10 techniques you can use to slash operating costs quickly and easily.

If you're like many of today's independent hardlines retailers, you're finding it tougher to make a profit. The everyday costs of doing business rise while competition forces you to give up precious profit points on many products.

The solution is clear: When you're operating with less profit, lower expenses. But doing that is tricky. Your biggest outlays - payroll and health insurance- are tough to change.

There are less risky, though still involved, ways to save money. You can refinance debts at lower interest rates, for example, or negotiate better rates on services like accounting, attorneys, and business insurance. You can pursue delinquent accounts.

But there are some simple, fast steps you can take to reduce your everyday expenses. Some of the best and easiest involve saving energy (see "Do What Your Customers Do: Save Energy,. page 58), but there are other effective ideas as well. Here are 10 of those, based on suggestions from retail experts and hardware and lumber/building center dealers like you:

1. Sell off slow-movers. Keeping merchandise that isn't selling is a waste of space that could be holding profit-making merchandise. David Heavener, owner of Heavener Hardware and Lumber in Blacksburg, VA, sold $50,000 worth of computer-identified losers last year. Similarly, Dick Farrar, Jr., owner of Williams Lumber and Hardware Inc. in Fayettesville, TN, auctions off damaged or returned special-order merchandise once every two years. He generates $10,000 to $15,000 with the sale, but more importantly, clears shelf and warehouse space for more profitable items.

2. Negotiate better advertising rates. Tell your media representatives that you have less to spend, but still want to get the most from their services. Kim Jones, vice president/general manager for Pleasants Hardware Co. in Winston-Salem, NC, told his newspaper, radio and direct-mail services they had to "do better for us with fewer dollars."

"We were able to reduce probably 10% of our expenses," he says, "and keep the same amount of advertising in place."

3. Review your telephone-book advertising listings. Multiple listings under minor product categories or services that you offer may not be necessary. Roger Siskoff, director of member services for the Midwest Hardware Association, based in Stevens Point, WI, offers the example of a store owner who eliminated a display ad he didn't need, and "cut his bill by 70%," with no loss of business.

Siskoff also suggests questioning the need to be in more than one phone book, and also to be sure who's calling when it comes time to renew advertising. He says salespeople for alternative phone books have been known to trick retailers into running ads in their books when they never had before.

They'll call retailers, he says, and ask if they can repeat last year's ad. What they're referring to, though, is an ad that was placed in another phone book. If the retailer agrees, he ends up with two identical ads in two different phone books, and two bills.

4. Review wholesaler report generating services. Do a yearly review of the services you've signed for. If there are any which are no longer useful to you, eliminate them. One Florida retailer who belongs to several co-ops eliminated $100 a month this way. "If you get a report every month, and you do nothing with it," he says, "trash it."

5. Produce your own advertising flyers. Circulars that are tailored to the merchandise you already have in stock or that you know will sell can cost you less than distributor-produced circulars, which sometimes require large orders of merchandise you might not want.

Chuck Krause, co-owner of King City True Value in King City, CA, for example, will save $10,000 in inventory costs per circular this year by producing six monthly pieces himself. They will feature "merchandise we're already heavily stocked on" or that he can order in smaller quantities from his wholesaler's warehouse, he says.

6. Reduce use of check-approval services. If you use a check-approval service, use it only for the riskiest checks. San Diego Hardware in California cut its monthly check-service costs from $200 to $100 by assuming more risk. Co-owner Rip Fleming says he only sends checks from shoppers who cannot produce a valid driver's license and major credit card on to the check-approval service. Since the service charges a percentage of the check amounts, reducing the number he sends cuts his bills.

7. Recycle. Anything you can reuse or recycle rather than throw away will cut garbage-hauling costs. Ellen Dennis, manager of the Salina, KS, branch of Waters True Value, a five-store chain, recycles cardboard, computer paper and some copy paper. She also uses extra paper from the store's computer as writing paper before recycling it. Dennis says she reduced the store's trash pick-ups from twice to once per week. Because her trash-hauling rates went up at the same time, her net savings was about 20%.

8. Challenge your orders for store supplies. This includes office supplies, employee uniforms, etc. Kim Jones at Pleasants estimates he cut 10% from his office-supply bills by asking employees to justify their requests. Also, a nine-store home center chain in the Midwest saved $23,000 by slashing this catch-all category.

9. Reconsider equipment service contracts. Retailer Tom Shay in St. Petersburg, FL, eliminated a $300a-year service contract on a fax machine when he found a customer who knew how to fix it. And so far, he says, the machine "hasn't gone down yet, so at this point, we went from $300 to zero" in costs.

Similarly, Rip Fleming at San Diego Hardware saved "a couple hundred a month" by altering the service contracts on his computers. He buys an expensive, immediate-response service contract for his cash registers, but for his back-office computers, he opted for a less expensive version that doesn't guarantee such quick action.

10. Find the best long-distance telephone rates you can. Increased competition in long-distance services is driving costs down, and you can find discounts based on all sorts of criteria. Fleming runs long-distance calls through a local third-party firm, for example, that groups them with those of other businesses in his area. He saved 15% on his long-distance bills, he says. If you regularly call long-distance to your suppliers, or have a modem for your computer that uses long-distance lines, you can cut a significant amount of your expenses this way.

While any significant improvement in your financial picture has to come through increased sales, using these ideas you can still make a noticeable difference in your bottom line.

Bankruptcy Advice For Those Living Abroad, But From the UK  

Assuming you have moved from England or Wales you may declare bankruptcy whilst overseas, depending upon certain conditions.The Official Receiver is assigned by the High Court to handle your bankruptcy in the United Kingdom. The Insolvency Service will make contact with you abroad, generally via email, and they're going to study the circumstances of your bankruptcy. They're going to look into the background of the bankruptcy since they should prepare a report to your debt collectors outlining the circumstances which have driven you to file for bankruptcy.When your bankruptcy is evaluated and the Insolvency Service feels that you have got extra income they can apply what is known as an Income Payment Agreement (IPA) or an Income Payment Order (IPO). The aforementioned is applied through the UK Court system should the individual won't accept the initial proposal and income payment agreements or orders will run for a period of thirty six months, regardless that the bankruptcy alone only lasts for one full year. An IPA or IPO can begin from £20 upwards and might be evaluated throughout the agreement period. The instalments can be considerably increased or lowered depending upon the person’s earnings and in some cases could also be revoked in the event the particular person seems to lose their income or employment.When you are residing abroad and also have credit card debts in the UK, there are various expert services that an individual can consider, to help them to take care of their debts. Oftentimes it will depend on both the sum of credit card debt that you may have, as well as the funds available that you have to utilise in the direction of these strategies.The last solution mentioned here is to apply for bankruptcy from overseas. Typically this can be the most beneficial option because it clears the money you owe entirely without having affected your credit overseas. This approach is just the thing for people who do not have much surplus income or lump sums of money that they can use for settlements. If you owe an excessive amount of cash, bankruptcy could be your best solution as other options could be very costly and long winded.Regrettably though, personal bankruptcy in the UK isn't a total walk in the park. The restrictions it's going to place on you can continue for a significant amount of time after you are discharged from your bankrupt status. Which means that attempting to obtain credit may become a nearly impossible task. Nevertheless, if you've previously struggled to make repayments, you will most probably prefer to steer clear of asking for money regardless.After you have paid the court expenses the District Judge will make their assessment and notify you.Nobody really wants to consider a bankruptcy proceeding in England, however the recent change in perspective towards extensive debt seems to reveal that this party has finished and individuals ought to start being answerable for their extreme spending.

The Bankruptcy Process

Once you have sought out financial advice, you may document the needed documents your self, as well as utilize assist of an attorney, Liquidation Specialist or perhaps Individual bankruptcy help want to take better care of every little thing.}Professional advice will make sure that just about all Court documents is finished, collectors are generally put away, law suit will be averted, which you are fully educated all the way up. These facilities come at a price for you personally.Carrying it out on your own could be difficult, however you will discover different assets positioned on this kind of internet site and more that can enable you to. Understand that there are plenty of disagreeing data available on the web, therefore you would advantage by the at least talking about your position together with somebody that has been created belly up inside a year ago. An existing bankruptee is essential as the Financial distress Services produced alterations towards standards throughout Apr Next year.In addition, the judge price, which usually have to be paid towards Court round the day of the personal bankruptcy hearing, will be £700.You'll be able to eligible to the lower cost, that's £525, nevertheless this really is dependent on a variety of elements. An advisor will have a way to find out regardless of whether you should do be entitled to the courtroom price remission. I'm prepared to application form of hosting bankruptcy.

Once you have compensated legal court charges your Region Decide could make his or her examination as well as notify you.

Successful Bankruptcy

Once the bankruptcy works you are no longer accountable for your overall unprotected bills.Normal duration for any Court gets to the very least 40 * 1 hour. You will get a Personal bankruptcy reference number once the Order enables. You may provide you with the dpi towards the credit card companies that will contact you, since they might not obtain notice in the a bankruptcy proceeding instantly.Approximately 1-2 times later their state Radio could have contacted simply to make certain that situations are appropriate and also to focus on the alteration in almost any assets * if required.Although your credit score is negatively affected, you will have an opportunity to reconstruct your financial budget without burden involving financial debt ending you continue.

Tips To Avoid Bankruptcy

When individuals or businesses cannot meet with their financial obligations, many make the assumption that only solution is bankruptcy. That is not always the case though.If the right steps are taken from the beginning, you can keep yourself and unfortunately your family out of financial trouble and faraway from bankruptcy.First off, start by educating your children. Many of us growing up weren't presented with the tools and knowledge to establish and maintain good credit and stay away from the scare of bankruptcy.Parents need to be honest with their children about finances. Teaching children that hard work, no matter the job, has its rewards of course, if you spend on some sort of budget, there will never be described as a fear of bankruptcy.Establishing a budget is usually key in the prevention of bankruptcy. You cannot spend that which you don't have. Many people today have multiple credit cards and tend to be in essence spending money they don't actually have, plus more for curiosity.So much so that folks are paying off plastic cards with credit cards and causing an awful chain reaction. Spend genital herpes virus treatments can afford, after that bills are paid.But you'll want to make sure you have something socked away on an emergency. Something along the marks of two thousand dollars constitutes a base to have stored away on an emergency.It is another step to look at to keep out with financial trouble. Probably it is important though is to watch your bank account. Don't get yourself into a situation where you are overdrawn.The fact is regarding green third of adults count on their banks overdraft to keep them going on a month-to-month basis. Such actions are versions that lead individuals for a path to bankruptcy.

Bankruptcy information for UK citizens living here or abroad.