What does it mean to file for bankruptcy?
Filing for bankruptcy is a legal way of proclaiming that you are unable to pay your bills/debts. It generally is not a good thing but sometimes it must be filed for in order to allow the insolvent (a person who is racking up more in interest charges than they are able to pay) relief from creditors. Say for example you had no money to pay your bills (hopefully not the case) and you owed money to me, Visa and your phone company. I could continuously call you trying to get my money. I could even hire other people to call you in an effort to improve my chances. This could become annoying for you and because you will be bothered until this situation has been rectified. You could be too embarrassed to do anything and just hope to win the lottery or somehow come by more money but likely this will not be the case. The interest will continue the increase (in terms of payment amount owing) and you will continue to earn the same amount. Generally people (aka lawyers) will help you to file for bankruptcy as a "service" to you. In bankruptcy you pool all of your money/savings/assets together and use it to pay off those you owe money (me, visa and your phone company in my example). If there is anything left you get the remainder. There is a legal list to who gets first title to your assets if you are to become bankrupt. Lawyers fees are near the top of the list so they will help ANYONE who is filing for bankruptcy as they are practically guaranteed their fees. In summary, bankruptcy is a bad thing but it might be the only way out. Lawyers will encourage you to file (through commercials) as they get their fees before most (if not all) creditors depending on your jurisdiction.
Why is Greece on the verge of bankruptcy?
The simple answer is that it has created a system where government expenditures far exceed revenues.The example cited by Michael Lewis in Boomerang is the Greek railroads, which had such low ridership and high subsidies that the government would have been better off paying for citizens to take taxis as two people in a taxi could make a long trip cheaper for the government subsidy than two people on a train Is it cheaper to put Greek train passengers in taxis? - BBC News. Considering that Greece traditionally has constructed legal blind spots that encourage the non-payment of taxes. The former head of the tax department, Harry Theoharis, openly reports that the uncollected taxes of Greek tax evaders amounts to a significant percentage of the GDP but that the power structure of the nation delivers threats when any improvement in tax collection procedures are proposed.Greece's former tax-collection chief just told us why the country has such a massive tax-evasion problem.Combined, Greek irresponsibility on the expenditure side is matched with its inability to create a taxation system that allows it to meet its current and future obligations. That is the usual formula for bankruptcy.
Why do people sue for everything in America?
Well, to get the legitimate reason out of the way . . . there are a LOT of people and companies out there acting irresponsibly and carelessly, causing injury to people and property (e.g., a grocery store letting a broken jar of mayonnaise sit in an aisle for hours until someone slips and falls because of it, or a business polluting a river until people downstream are harmed by it). And people have a right to be compensated for losses incurred thereby (I’m sure you’ve seen Erin Brockovich (2000) and Silkwood (1983)).But a big reason for court-clogging litigation until fairly recently was . . . easy $$$$. Until about 10–15 years ago, many companies, people, etc. would sue over every fender-bender, and the defendant would just file an insurance claim, and let the insurance company pay the plaintiff a token settlement for a minor-to-moderate “wrong” - just so the plaintiff would go away and the defendant wouldn’t have to take the time and trouble to deal with the trouble of the judicial system. THEN at some point, the camel’s back broke, people “scamming the system” skyrocketed, jury verdicts skyrocketed, so insurance rates skyrocketed, and companies/people could no longer afford to just “roll over and pay” (Wal Mart was a major factor here . . . they have a formidable legal team and a notoriously strict policy of taking EVERY claim - from the smallest “slip and fall” to the largest environmental lawsuit - ALL the way). In other words, don’t sue Wal Mart - or most other large American companies - unless you’re in it for the long haul. And trust me, you’ll be broke from legal fees LONG before they will.So now, the money is not quite as “easy,” but as Bill Null says below, the U.S. does not have a “loser pays court costs/legal fees” system like England (one element of their legal system we did NOT adopt), so there is still a lot of questionable litigation, because there is relatively little disincentive - short of cost - in the U.S. for someone to bring a lawsuit (a lawsuit has to be pretty bad for a court to decide that it is a “nuisance” lawsuit and actually sanction someone for that).
Why do we allow bankruptcy?
Bankruptcy is extremely important for a healthy economy. I know it sounds counter-intuitive. I mean why let people get out of not paying their debts?This certainly was the mindset in the past. In ancient Greece a man that couldn’t pay back his debts was forced into slavery until the debt was repaid but not just him his wife and children also.This creates a feudal system like we had in the middle and dark ages of Europe where basically everyone was a debt serf to their landlord (hence the name land LORD).Here’s the problem with that:Say you have a great idea like a horseless carriage but you’re not rich and need investment (for example loans) to get your idea off the ground. How likely would you be to take that risk if not just you but your family could be jailed if that idea didn’t work out?How many great inventions and ideas would’ve never come to fruition because the entrepreneur was too afraid of being jailed or enslaved?Ray Kroc took out a second mortgage on his house to get McDonalds off the groundHenry Ford took a $430,000 loan (in today’s dollars) to start FordIn order for an economy to grow you must have people i.e. entrepreneurs who are willing to take a risk because if that risk pays off it means more jobs for everyone and more tax revenue for the government.This is why even now with all the talk of ‘bankruptcy reform’ entrepreneurs who became insolvent due to business debts still get a fast track to a chapter 7 bankruptcy dischargeAre there some unscrupulous people that try to abuse the system?Sure, but the benefit that bankruptcy provides FAR exceeds the cost of the relatively few people that try to cheat.References:Learn All About Debt Quiz
Should we allow people who declare bankruptcy to also re-negotiate with the lenders of their student loan debt?
The law should be changed to allow both federal and private student loans to be discharged in bankruptcy. The anti-abuse provisions in the US bankruptcy code are sufficient to prevent abuse, such as an able-bodied student filing for bankruptcy immediately after graduation. The purpose of bankruptcy is to permit individuals who are experiencing financial distress an opportunity to get a clean slate. Excepting student loans prevents borrowers from obtaining a clean slate. Regardless of how one feels about bankruptcy in general, it is inconsistent to allow discharge of credit card debt while blocking discharge of student loans.An added benefit of a repeal of the exception to discharge for student loans is that it will encourage lenders to offer more options for financial relief to financially distressed borrowers. Lenders will be more willing to compromise, rather than lose the loan entirely to bankruptcy. This impact of a repeal of the exception to discharge will have a minor impact on lenders, on the order of a 25 to 35 basis point hit to their spread. Less than 1% of borrowers in repayment would seek a bankruptcy discharge of their student loans. Lenders are already somewhat protected from bankruptcy discharge, since 90 percent of new private student loans require a creditworthy cosigner, so if the borrower files for bankruptcy, the lender can still seek repayment from the cosigner.
How can a bank go bankrupt?
I came here looking for specific answers to that question. But very few answered on point. My best knowledge on the topic is that the bank is not loaning people its money, it lends people other people’s money. It takes deposits from person A and gives a loan to person B and collects interest as profits. Most banks are leveraged around 20 times, meaning for every 20$ they lend you, one dollar is theirs, 19 dollars are other people’s money. So if a significant percentage of people go bankrupt and fail to pay back the bank, the bank will now be in negative territory (bank owes depositors more money than it has) This can still be salvageable if depositors do not panic (in which case the bank will collect interest and slowly build up money again) but if at the same time depositors panic, the bank is now in a hole.Banks = trust. If a bank does not have trust or reputation anymore it will go bankrupt, doesn’t matter how much money is in it.
Why are liberal-led places like Detroit, Chicago, and California going bankrupt?
Please don’t confuse the economy of California with the fiscal health of its state and local governments. They are not the same by a long shot.Nor should being the 5th or 6th largest economy lead to the assumption the state government is equally healthy. I lived in CA from my college graduation in 1969 until 2017 when I gave up and moved away. A few observations: First, what goes up must come down. I lived through a number of recessions and CA falls faster and further than other states because it always climbs higher during the up cycles. The dot com/Y2K boom resulted in a horribly long recovery in CA. Second, the state seems to set its spending based on the peak tax revenue which, of course, is not sustainable when the downturn arrives. It is then CA faces a fiscal crisis. I can remember 2001 when the state revenue set a record and spending was increased to match—even though the businesses and individuals who generated those revenues in 2000 were already seeing sales fall and were laying off staff and cutting costs like crazy. Third, California’s infrastructure is in terrible shape. Estimates for deferred highway maintenance are obscene. From Gov Brown’s own 2017 budget, the deferred infrastructure estimate is $78 billion. The recent projection of a one year surplus by June 30, 2019 of $6 billion is just a drop in the bucket—-if it comes true. http://www.ebudget.ca.gov/2017-I... Fourth, CA has a huge unfunded pension liability. And it continues to get worse. California’s public pension crisis in a nutshell. Fifth, the water system was designed for a population of about 20 million, not the near 40 million in the state today. Bottom line, the State of California is headed for a financial crisis across the board. Believing it isn’t an issue is naive.
Can I still sue a company that has declared bankruptcy?
If they are bankrupt there is little you can do but get in line; however if you paid with a credit card, you have recourse. challenge the charge on your credit card and you should get a credit under federal law (this may be a california law though...) The credit card thing is one reason most of the consumer advocates encourage use of credit cards for buying tickets on shakly airlines!!!