The nonprofit Manhattan Institute says that an “intervention bankruptcy” is a good option for cities experiencing pressing financial problems, as long as politicians are kept out of the loop.
Such a course of action is highly preferable to continuing operations on the brink of insolvency, because eventually they get to a point “where they cannot pay their creditors and [they are] liable to creditor lawsuits,” remarked MI Senior Fellow Dan DiSalvo. However, cities are under intense pressure from voters and interest groups to avoid the bankruptcy route, he added. The so-called Detroit model, which puts a state-appointed manager in charge of the city’s finances, is preferable to the so-called California model, under which elected officials retain control.
Under a 1990 law, financially distressed Illinois cities have access to special emergency funding options, and if they file bankruptcy, the elected leaders must relinquish control to a state-appointed manager.
In the past, many observers criticized politicians in Washington for their “borrow-and-spend” approach to government finances, as according to some, leaders ran up large budget deficits with little thought as to the funding for their ambitious programs. Many cities are in a similar boat, because they promised large pensions to attract and retain workers to jobs that, relatively speaking, paid much less than private-sector alternatives. Later, when those bills become due, a few cities struggle to stay afloat.
Most personal bankruptcies occur because of job losses,divorces, illnesses, and other events largely beyond the debtors’ control. As a result, it is sometimes hard to know when to seek bankruptcy assistance.
- – Unsecured Debt Servicing: As a rule of thumb, if a family accumulates more than $10,000 in consumer debt (credit cards and medical bills), it is all but impossible to repay it, especially if the family’s other loan balances are about average.
- – Secured Debt: Again as a rule of thumb, most moneylenders begin initial adverse action (letters and phone calls) once an account becomes 30 days delinquent; more aggressive adverse action (repossession and foreclosure) follows shortly thereafter.
In most cases, an automatic stay takes effect as soon as debtors file bankruptcy, so for the duration of the case, moneylenders cannot take any adverse action against debtors without special permission from the bankruptcy court.
The automatic stay applies to dischargeable as well as nondischargeable debts. For example, if a moneylender is garnishing a debtor’s wages to satisfy a student loan obligation, the moneylender cannot continue such garnishment while the bankruptcy is pending, even though the underlying obligation will most likely survive.
Typically, Chapter 7 bankruptcy extinguishes unsecured debts in a matter of months; Chapter 13 gives debtors up to five years to repay past-due amounts on secured debts.
Contact Aggressive Lawyers
Bankruptcy provides both short and long-term debt relief. For a free consultation with an experienced bankruptcy lawyer in Chicago, contact the Bentz Holguin Law Firm, LLC. We routinely handle cases in both Illinois and Indiana.