What is bankruptcy?

[JasonA]

For us accounting novices, what is the total extent of legal bankruptcy? I know general items, like sometimes debts are written off while you're allowed to restructure, etc. I understand that for the most part, bankruptcy doesn't necessarily mean the end of the world, but sometimes.

I thought this topic might be more appropriate discussion in light of current automotive industry buzz.

Thanks!

[Marika]

For us accounting novices, what is the total extent of legal bankruptcy? I know general items, like sometimes debts are written off while you're allowed to restructure, etc. I understand that for the most part, bankruptcy doesn't necessarily mean the end of the world, but sometimes.

I thought this topic might be more appropriate discussion in light of current automotive industry buzz.

Thanks!

For most companies, and now many ordinary folk, bankruptcy allows them to restructure their debt so they can pay it off on easier terms.

For corporations, it allows them to cancel such items as retirement plans and union contracts, under the new bankruptcy laws. Good for the capitalists, bad for the workers.

[OynxSTS]

Good for the capitalists, bad for the workers.

And in the short run anyway... really bad for shareholders.

[kevinrea]

and for the average john q citizen..

it can mean being let out of all of your debt, including court settlements against you, taxes owed to the irs or local governments, and a chance to start over again.

this can be as martha stewart might say.., "A Good Thing"

and, to go a little further with this... are you perhaps going to claim bankruptcy ?

if so...., might you have some cars or real estate you would like to sell me first at a high discounted rate before you do ?

yes,, . I am a vulture.

[Dadillac]

and for the average john q citizen..

it can mean being let out of all of your debt, including court settlements against you, taxes owed to the irs or local governments, and a chance to start over again.

Almost correct. Back taxes owed to the IRS, is not bankruptable. Either is child support or alimony. All others can be washed away though.

Don

[Ranger]

It means the employees loose so that the CEO's, VP's and lwayers can continue to live in the manner to which they are accustomed.

[OynxSTS]

It means the employees loose so that the CEO's, VP's and lwayers can continue to live in the manner to which they are accustomed.

Correction, it means that:

the employees and shareholders loose so that the CEO's, VP's and lawyers can continue to live in the manner to which they are accustomed.

[lowsixfo64]

I work for a dealership as a salesman... starting october 15 it will not be easy to file bankruptcy. They will track down every source of income and debt and figure everything out for you. Kinda sucks.I was thinkin about buyin everything i could while my credit is good then dump the debt. It takes alot to get back on your feet and for banks to reconsider your worthyness for large installment loans. I spoke with many a people and experts. Its always good to know this stuff.

[JasonA]

and, to go a little further with this... are you perhaps going to claim bankruptcy ?

if so....,    might you have some cars or real estate you would like to sell me first at a high discounted rate before you do ?

Uh...no. I'm asking what's going to happen to Delphi, and maybe eventually, GM and Ford. But thank you for your offer.

[Marika]

and for the average john q citizen..

it can mean being let out of all of your debt, including court settlements against you, taxes owed to the irs or local governments, and a chance to start over again.

Almost correct. Back taxes owed to the IRS, is not bankruptable. Either is child support or alimony. All others can be washed away though.

Don

College loans are not bankruptable either.

[Marika]

and, to go a little further with this... are you perhaps going to claim bankruptcy ?

if so....,    might you have some cars or real estate you would like to sell me first at a high discounted rate before you do ?

Uh...no. I'm asking what's going to happen to Delphi, and maybe eventually, GM and Ford. But thank you for your offer.

Ford might be in deep trouble.

Read here: http://www.toxiclegacy.com

[lowsixfo64]

yeah... um... ill try to stay on topic next time. some times my type happy fingers get the best of me

[Marika]

and, to go a little further with this... are you perhaps going to claim bankruptcy ?

if so....,    might you have some cars or real estate you would like to sell me first at a high discounted rate before you do ?

Uh...no. I'm asking what's going to happen to Delphi, and maybe eventually, GM and Ford. But thank you for your offer.

Most likely, they will just reorganize which can adversely effect workers, pensioners and shareholders. I doubt they will go belly up completely. They might sell off some of their assets but without us little folk knowing exactly what those assets are, it will be hard to figure out. No doubt the price of spare parts at the stealerships will go sky high as demand increases. There will be a point in time when Delphia will have to do an inventory, and that will effect parts availability for a few days to perhaps a week as they probably won't be able to ship anything in order to gain an accurate inventory. That "might" push prices a little bit higher on certain hard-to-get items.

[kevinrea]

Sorry Dalliac,

but you are incorrect.

Back taxes owed the IRS are eligible for bankruptcy.

I did it in the year 2004.

I owed the IRS over 15,000.00 and the bankruptcy court included it in my bankruptcy, and , I no longer owe the irs anything.

this is evidenced by my receiving a refund for my taxes last year.

And to lowsixfo64, it is not that hard to get back on your feet..

here it is , just 1 1/2 years after my bankruptcy.., I have already qualified and bought a new house., 3 new cars, and 2 new bank accounts.

My credit is already at 680., so, recovery after bankruptcy is not tough at all.

It was worth the 1,000.00 I paid to my lawyer to do it.

I was forgiven all my debts which included over 15k to the IRS, 6k to the california state taxes, 7k to california unemployment, and over 100k in other various bills.

kevin

[JimD]

Personal bankruptcy and corporate bankruptcy are subject to different legislation and procedures.

[kevinrea]

yes JimD you are right.., and in my case.., I was lucky..

out here in the los angeles area.., the federal bankruptcy court is presided over by judges that rotate.

these judges are judge advocates., and they are actually the bankruptcy lawyers chosen from the surrounding area that the court is physically located in.

in my case, my lawyer is one of the judges that decides., even though on that day she was not on the bench.. all connections help.

[Marika]

More importantly, he owns about 40 percent of domestic production of flat-rolled steel – the material used to make automobiles and appliances and the last major steel market that is free of competition from scrap-using mini mills. The Wall Street Journal reported that “the emergence of London’s Mittal family as a significant force in the U.S. steel market will diminish the bargaining power [of Ford and General Motors] and put further pressure on their efforts to control costs.” Additionally, Mittal Steel holds a major share of domestic tin-plate production at Sparrows Point and Weirton, W.Va.

Read all about it here:

http://www.makingsteel.com/whoishe.html

[67coupedeville]

It may be different up here in Canada than in the US. From what I know, if a person files for bankruptcy, everything is wiped, along with your credit rating. Then for 7 years you are followed around with the bankruptcy monkey on your permanent credit rating. Go apply for a mortgage, lease or buy a car, try and start a business, everywhere you go there is always a "Bankruptcy" stamp there.

But from what I can remember, after 7 years it is taken off your permanent record, but only kind of. The way that it was explained to me was it is taken off your permanent record but it is still there and always will be there no matter what, kind of like it was moved to the second page of your credit rating. If I made any errors I'm sure someone can point them out.

Spence

[Marika]

and speaking of pensions and bankruptcy....

http://www.alternet.org/story/26813/

Leaving Workers Naked and Helpless

By Molly Ivins, AlterNet

Posted on October 14, 2005, Printed on October 14, 2005

http://www.alternet.org/story/26813/

The entire political world is agog: Tom DeLay indicted, Scooter Libby in danger, Karl Rove rumors abound, Miers' nomination in doo-doo. So I'm writing about ... pensions. They're just so sexy, I couldn't resist.

Of course, the word pension is a terminal turnoff for anyone under 60 -- so redolent of the blue-rinse perm set. As one whose idea of financial planning consists of playing bingo at the Safeway, I'd prefer to be out listening to reggaeton, myself. Still, when you're getting screwed, you really should know about it.

This column is part of a continuing effort to see if we can keep our eyes on the shell with the pea under it, even while some other shells, mighty flashy and colorful, are whizzing around. Our particular shell bears the fatal rubric, "You are getting screwed again."

Even the most paranoid among us would not suggest that members of the Bush administration are getting themselves into legal trouble just to keep attention away from the effects of their policies. But it is the policies that can mess up our lives. Indictments may provide satisfaction to some, but they do not clean up the messes left by bad policy.

Envision this, oh mod, rad, chic young people: Until 20 years ago, about the time you were born, most geezers approaching retirement had a traditional defined-benefit pension plan. The longer you worked at a company and the more money you made, the more you got at your retirement. Employers kept increasing their contributions to these plans, and whatever risk that came with them was assumed by the employers.

Gone with the wind. For years, companies have been cutting their contributions and moving more and more of the market risk from themselves to their employees. They switched to "defined-contributions" plans, like the 401(k), where the employee chooses the investments and assumes the risk (think of the stock market in recent years).

In 1984, only 19 percent of employers with plans used defined-contribution plans. In 2004, it was up to 93 percent, according to a comprehensive series in the Minneapolis Star Tribune on what the pension changes are doing to people in that state. By contrast, in 1984, 57 percent of companies had defined-benefit plans. By 2004, that number was 15 percent.

The Bush administration has approved a change that makes it legal for companies to modify their pension plans in a way that usually discriminates against older workers who were covered under the earlier plans. But this is the just the beginning.

Making your pension disappear is a new corporate art form. There is, for example, the "wear away." The Star Tribune gives this example: Say you've been working for a company for 20 years, at the end of which you are entitled to a pension of $2,000 a month. BUT, your company decides to "revise" the plan and, lo, suddenly you have to have worked for 40 years to qualify for $2,000 a month.

Technically, the company has not reduced your pension benefit -- it is just holding the benefit in place until time "wears away" the difference between the new terms and the old terms.

Another trick is just underfunding the pension plan. During the last five years, underfunded company pension plans have increased by five times and are short in funds by $340 billion, up from $20 billion.

The latest corporate craze is for companies to declare bankruptcy, dumping pension responsibilities on the federal government and walking away, only to start doing business again without that nasty pension anchor around their necks. Your pension gets dumped to the Pension Benefit Guaranty Corp., a government entity that ensures $2 trillion of pension benefits. The PBGC is funded by employers, who pay it $19 per employee annually.

This worked fine for years, until a bunch of steel companies and airlines declared bankruptcy. The Guaranty Corp. is now responsible for $62.3 billion in pension checks, but it has only $39 billion. Employer contributions have not kept up, so the PBGC now has a $23 billion deficit -- and chances are the taxpayers will wind up bailing it out, as we did the savings and loan industry.

In addition, the PBGC does not cover health benefits. If your company chooses the temporarily-bankrupt-until-we-can-dump-our-pension-plan route, you'll be out that much more. Among the Fortune 1000 companies, the number of pension plans frozen or terminated went from 45 in 2003 to 71 last year, according to Watson Wyatt Worldwide, an employee benefits consultant quoted by the Star Tribune. Another 25 companies closed their pension plans to new hires.

There are several proposals now about what to do rumbling around in Congress. One I particularly like would forbid companies from continuing to fund their special executive retirement plans if their rank-and-file pensions are seriously underfunded.

"The biggest byproduct of these changes is fear," said the Star Tribune in its series. Fear may be a more dangerous emotion than anger. It turns life into an "every man for himself scramble" without unity, community, caring or sharing.

In fact, every one of us comes into this world naked and helpless, and most leave it in the same condition -- and we are dependent on one another every single day in between. The "stand on your own feet and take care of yourself" attitude the right wing keeps pushing is not only cruel, but stupid, too.

Molly Ivins writes about politics, Texas and other bizarre happenings.

© 2005 Independent Media Institute. All rights reserved.

View this story online at: http://www.alternet.org/story/26813/

[Marika]

It may be different up here in Canada than in the US. From what I know, if a person files for bankruptcy, everything is wiped, along with your credit rating. Then for 7 years you are followed around with the bankruptcy monkey on your permanent credit rating. Go apply for a mortgage, lease or buy a car, try and start a business, everywhere you go there is always a "Bankruptcy" stamp there.

But from what I can remember, after 7 years it is taken off your permanent record, but only kind of. The way that it was explained to me was it is taken off your permanent record but it is still there and always will be there no matter what, kind of like it was moved to the second page of your credit rating. If I made any errors I'm sure someone can point them out.

Spence

That pretty much applies to private citizens in the USA as well.

It just doesn't apply to corporations that file bankruptcy one day, and reappear the next day with a slightly different name, example, Enron Corp. The day after it went belly up, it came back on the stock market as Enron, LLC and other cute, new names.

http://www.enron.com/corp/pressroom/releas...02Release2.html

Press Release

ENRON ANNOUNCES NEW STOCK SYMBOLS

FOR IMMEDIATE RELEASE: Tuesday, January 15, 2002

HOUSTON – Enron Corp. announced today that its common stock will now be traded as an over-the-counter equity security under the symbol "ENRNQ." Quotation service will be provided by the National Quotation Bureau, LLC "Pink Sheets." Investors should call their brokers for daily pricing and volume information.

In addition, other Enron securities will trade under the following new symbols: Enron Capital LLC 8% Cumulative Guaranteed Monthly Income Preferred Shares (ECTPQ), Enron Capital Resources LP 9% Cumulative Series A (ECSPQ), Enron Capital Trust I 8.30% Trust Originated Preferred Securities (EONNQ), Enron Capital Trust II 8.125% Trust Originated Preferred Securities (ENRPQ), Enron Capital LLC (ERNCF), and Enron Corp. 7% Exchangeable Notes for common stock due July 31, 2002 (EONPQ).

The company's announcement follows a decision by the New York Stock Exchange to file an application to delist Enron's common stock.

Enron markets electricity and natural gas, delivers energy and other physical commodities, and provides financial and risk management services to customers around the world. Enron’s Internet address is www.enron.com.

Cute huh???? and perfectly legal, for them.

All the investors got screwed except of course, for those who had inside information as to what was about to happen and where it was all heading.

[Marika]

And yet another example of things going terribly wrong in America....(below my comments)

What amazes me is that the politicians must be living in a dream world to imagine they can ask americans to invest in the stock market and other markets. There is something very seriously wrong in America right now and it's hurting everyone except for the extremely wealthy of this country as well as some extremely wealthy foreign investors.

A long time ago my father said that the american economy is going to end up like the economy in Colombia, South America. "You either have a maid or, you are a maid" he said. Looks like he was right.

One interesting point that the article states is that Goldman Sachs will try to get an infusion of money into the company (Refco) most likely from hedge funds. If this happens and Refco still ends up "belly up" (which it probably will), the hedge funds will also fail. Hedge funds play a powerful force in the value of our dollar on the international market. If the Hedge fund fails, our dollar could end up being worth even LESS on the international market than it is right now.

It's just another one heading to the bankruptcy courts. Thank you Mr. Bush for making it so easy to screw investors and citizens when you signed the new Bankruptcy laws into effect.

The New York Times

October 14, 2005

Refco Imposes a Partial Moratorium as Customers Seek to Close Accounts

By JENNY ANDERSON

Refco, one of the world's largest futures and commodities brokerage firms, said yesterday that it would suspend operations at one of its two main businesses because of a lack of cash.

The announcement, coupled with another cut in its credit ratings, sent Refco's bonds into a tailspin, a sign that creditors believed the company would default.

Refco imposed a 15-day moratorium on the activities of its capital markets business, an unregulated entity that offers securities services like stock lending and foreign exchange and fixed-income transactions, informing customers that they could liquidate their accounts but could not get the funds in them for 15 days.

The moratorium appears to have been prompted by an exodus of client accounts.

"Customers were withdrawing their accounts and liquidating what they could and moving cash out," said Tom Foley, a credit analyst with Standard & Poor's, which downgraded the company's debt twice this week.

The announcement of the moratorium, and the general uncertainty around the company, caused some clients of the firm's regulated futures brokerage business to withdraw their money as well.

The firm remains in a precarious financial position. On Monday, the company announced that its chief executive, Phillip R. Bennett, and the head of its capital markets group, Santo C. Maggio, would be on leave indefinitely as the company investigated a $430 million debt owed to it by a company controlled by Mr. Bennett. The company has said its financial statements back to 2002 cannot be relied upon.

Mr. Bennett, 57, repaid the money on Monday, but was arrested on Tuesday night and charged with securities fraud, accused of hiding the debt at the end of every quarter from investors and regulators.

As some clients run for the exits, Refco is faced with two pressing problems: trying to persuade its creditors, led by Bank of America, Credit Suisse First Boston and Deutsche Bank, not to force it to repay the loans; and trying to persuade clients that it has the money and stability to continue operating.

Refco said that its mandated level of capital at Refco L.L.C., the regulated futures commission merchant, and Refco Securities, its regulated broker dealer, had been "substantially unaffected by the events of the week."

The chairman of the Commodity Futures Trading Commission, Reuben Jeffery III, sought to quell concerns by saying that there were sufficient customer funds in the regulated entity.

"In our sampling of the accounts, nothing has come to our attention on the regulated side indicating insufficiency of customer funds," he said in an interview on Bloomberg Television.

But others say no such confidence can be placed in Refco itself.

"This hasn't happened since Drexel Burnham Lambert," said Mr. Foley, referring to the investment bank that shut its doors virtually overnight after creditors shied from lending it money. "It looks like Refco will default on its debt, at least technically."

Refco tried to address the crisis of confidence by naming new advisers. The firm announced it had hired Arthur Levitt Jr., the former chairman of the Securities and Exchange Commission, and Eugene A. Ludwig, the former United States comptroller of the currency who is now the chief executive of Promontory Financial Group, as special advisers to the board.

Neither Mr. Levitt nor Mr. Ludwig would comment on the appointments or on the scope of their roles.

Refco also retained Goldman Sachs as a financial adviser. Goldman Sachs was an underwriter of Refco's public offering in August.

Refco raised $800 million in bank loans and $600 million in bonds in two deals underwritten by Bank of America, Deutsche Bank and Credit Suisse First Boston. Since Refco has said that its statements as far back as 2002 cannot be relied upon, it is technically in violation of its covenants and banks can call those loans.

Bank creditors were expected to convene a conference call this morning to discuss options.

Goldman, meanwhile, is most likely canvassing the capital markets in search of a capital infusion, potentially from a hedge fund or a consortium of funds. The bank could also try to sell Refco.

Financial institutions frequently get caught up in a phrase repeated on Wall Street: liquidity begets liquidity. When a company is perceived to have substantial liquidity, institutions and individuals trade with it and have faith that they can get their money out. If confidence in a financial entity's solvency is shaken, those institutions and individuals suddenly try to pull their money out, creating a downward spiral.

Trading in Refco's bonds closed yesterday at $40, a precipitous drop for the week. Last Friday, the bonds, which pay a 9 percent coupon and are due in 2012, were trading at $108. When prices drop, yields rise, indicating a belief that the company will default on the debt.

Refco operates two main businesses: derivatives brokerage and clearing, which executes and clears trades of exchange-traded derivatives; and a prime brokerage and capital markets business, which provides prime brokerage services in the fixed-income and foreign exchange markets.

The capital markets business is unregulated. The futures business is regulated by the Commodity Futures Trading Commission, and the broker dealer is regulated by the S.E.C., NASD and the New York Stock Exchange.

In its 2005 fiscal year, Refco earned revenue of $1.3 billion, 30 percent of it from the capital markets and prime brokerage business. The businesses provided almost equal amounts of pretax profit, with derivatives and clearing totaling $134.5 million and prime brokerage earning $137.5 million.

The firm was thrown into turmoil by Mr. Bennett's dealings. Federal authorities said that Mr. Bennett had hidden hundreds of millions of dollars in related-party transactions between Refco and a company he controlled, Refco Group Holding, from late last year through this month.

The transactions were not disclosed in documents describing the company's initial public offering in August, when it raised $583 million by selling stock at $22 a share.

* Copyright 2005 The New York Times Company

[Scotty]

Given the topic I know it's difficult at times, but I thought we were going to stay away from politics. Let's understand that ONE administration is NOT totally responsible for the current climate.

I believe that this GLOBAL economy is a major part of the problem, how did that begin? How are jobs exported to India, Dominican Republic, etc? What was the impact of allowing China into the WTO? What impact did NAFTA have? Why did Nixon and Clinton cozy up with China? How are we going to stop China from purchasing companies like Conoco? Why did our education system become so diluited and watered down? In 1991, the chairman of Sony said, "the US has taught the world everything is knows", why didn't that signal a problem? Why did Clinton cozy up with Korea? How were Clinese allowed in our top secret facilites (Los Alamos) and allowed to steal secrets? Who is minding the store?

In WW2, we won because 1) our manufacturing engine was powerful, and 2) we destroyed Germany's manufacturing capability. What the hell happened to OUR manufacturing capability and how is that going to leave us vulnerable? China said yesterday, you need us more than we need YOU! Imagine that? We need someone to stand up with guts and stop the bleeding.

When are we going to start thinking about the US?

[Marika]

Given the topic I know it's difficult at times, but I thought we were going to stay away from politics. Let's understand that ONE administration is NOT totally responsible for the current climate.

You're 1000000000% right, Mike.

CLINTON signed the laws that allow the politicians to take millions of dollars in legalized bribes from companies while BUSH signed the new bankruptcy laws making it easier for corporations to screw everyone in sight.

They should BOTH be jailed.

[Marika]

Given the topic I know it's difficult at times, but I thought we were going to stay away from politics. Let's understand that ONE administration is NOT totally responsible for the current climate.

I believe that this GLOBAL economy is a major part of the problem, how did that begin? How are jobs exported to India, Dominican Republic, etc? What was the impact of allowing China into the WTO? What impact did NAFTA have? Why did Nixon and Clinton cozy up with China? How are we going to stop China from purchasing companies like Conoco? Why did our education system become so diluited and watered down?

In WW2, we won because 1) out manufacturing engine was powerful, and 2) we destroyed Germany's manufacturing capability. What the hell happened to OUR manufacturing capability?

When are we going to start thinking about the US?

Are you finished editing your comments???

[Scotty]

Given the topic I know it's difficult at times, but I thought we were going to stay away from politics.  Let's understand that ONE administration is NOT totally responsible for the current climate.

I believe that this GLOBAL economy is a major part of the problem, how did that begin?  How are jobs exported to India, Dominican Republic, etc?  What was the impact of allowing China into the WTO?  What impact did NAFTA have?  Why did Nixon and Clinton cozy up with China?  How are we going to stop China from purchasing companies like Conoco?  Why did our education system become so diluited and watered down?

In WW2, we won because 1) out manufacturing engine was powerful, and 2) we destroyed Germany's manufacturing capability.  What the hell happened to OUR manufacturing capability?

When are we going to start thinking about the US?

Are you finished editing your comments???

Not yet, you got me on a roll...