Stockton California gets close to filing chapter 9 bankruptcy. Largest city to do so yet!

Stockton California edged closer to filing for chapter 9 bankruptcy protection on June 6, 2012.  The city council authorized the Stockton city manager to file bankruptcy by a 6 to 1 vote after an intense 4 and one half hour public meeting according to an online article in the Los Angeles Times.  The city manager will file for bankruptcy protection for the city if the current attempt at mediation fails.

Stockton had apparently stopped making payments to creditors back on March 27th 2012.  At that time they entered into these mediation discussions that have since failed to resolve their problems.

And it is unlikely that these mediations will work.  The city has released a public statement calling their situation “dire” and that there will be a 26 million deficit by July 21, 2012.

According to the article Stockton is a river port city with 290,000 in habitants east of San Francisco that has the second highest foreclosure rate in the nation as well as a very high crime rate.  An article posted online by USA Today describes Stockton as a “crop abundant” central valley city with high foreclosure, crime rates and unemployment rates.  But it also says that Stockton was named America’s “most miserable city” in a national magazine- twice.

But then the article got to the real reason for the Stockton bankruptcy.  In one sentence they said it all.  Stockton is embroiled in an ongoing dispute with police and city worker unions over pensions.  Here go those public pensions again backed by public unions.

There are many cities with this same problem across the nation right now.  I have blogged about Harrisburg Penn. and Detroit Mich.  Harrisburg filed for chapter 9 bankruptcy and I believe that Detroit may have to eventually along with many other U.S. cities.

These cities have had disputes with public unions over pensions.  These pensions (and other benefits) were promised to city workers in good economic times.  And they were promised by politicians who have since retired.  And these unions often promise the politicians votes if the politicians agree to these pensions.  The politicians do grant the unions what they want because it is someone else’s money that they are giving away.

It is the taxpayers money that is promised to these unions by politicians who want votes.  The politicians don’t have to pay, they just want to get elected.  We see this time and time again.  Here in San Diego the unions were promised contracts that tripled their benefits.  San Diego could not afford it any more than could these other cities and as soon as the economy collapsed San Diego faced bankruptcy like hundreds of other cities could.

This is why FDR himself did not like the concept of collective bargaining for public worker unions.  If city worker unions can collectively bargain and demand benefits from politicians it sets up a whole conflict of interest.

The politician who agrees to give public unions their benefits is not like a president of a public company.  The politician will just award the benefits that the public unions demand if the unions agree to reelect him which they do.  That does not happen in a private company.  Private workers don’t vote for a company president who will give them more stuff.  Even if they did it would not come out of taxpayer pockets so no one would care.

No doubt the city worker unions of Stockton are saying raise taxes on the people and businesses of Stockton to pay for their union benefits.  This is what we hear from other public unions in other cities.  The people of Stockton are getting foreclosed on and they are probably facing unemployment so they can’t afford more taxes.  The same would go for businesses who would relocate if their taxes were raised.

I wrote in my other blogs about the unfairness and absurdity and unworkability of this kind of taxation.  In many cases taxpayers and businesses would be asked to pay larger taxes to pay the benefits of city workers when the taxpayers cannot afford anything like those benefits themselves.  Remember that in San Diego they tripled city worker benefits before the city went broke.  Who else could demand a tripling of their benefits?  Not me.

I also wrote about how I believe that a city exists or should exist to benefit its residents.  A city is not there to benefit its workers over its residents.  I agree with FDR that public unions should not be able to collectively bargain with a city and demand more benefits.  It is a definite conflict of interest where the taxpayer gets screwed and the city ends up in bankruptcy.

I am a San Diego bankruptcy attorney.  For further questions please visit my websites at www.farquharlaw.com or www.freshstartsandiego.com.  Or call my office for a free consultation or for any other advice about bankruptcy or debt at (619) 702-5015.   Call now for free credit report and analysis!  For a free e-book on “13 things to do to prepare for your bankruptcy filing” please e-mail me at farquharesq@yahoo.com.

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After filing will bankruptcy be a “skeleton” in your closet?

I just read an article that really set me off.  According to an article posted online by the Washington Guardian 13 people running for the US Senate have bankruptcies or criminal records.  One candidate, Scott D’amboise, filed for chapter 7 bankruptcy protection in 2003 where he listed more than $100,00 in credit card debt, doctors bills, and a mortgage.

In the article they state that D’Amboise’s son had a medical crisis that caused him to undergo seven operations and at the time his medical coverage was insufficient to pay for these expenses.  His $100,000 in credit card debt was also probably related to that medical bill too.  This is very common as many of my clients run up their credit cards in an attempt to pay medical bills before they throw in the towel and file for bankruptcy.

Though this type of bankruptcy scenario seems common to me the article takes on a disapproving tone about these bankruptcies.  They describe these people as “candidates with past troubles” and they include bankruptcies and criminal records in the same article which mixes the two up as if they are the same thing.

Bankruptcy is a legal, moral, and federally approved and legitimate way of dealing with debts that one cannot pay.  There is certainly nothing immoral, unethical, or criminal about it.  To include criminal issues and bankruptcy in th same article is extremely unfair.  D’Amboise in under a legal, moral, and ethical duty to provide medical care to his son.  If he does not have the money to pay for it then he has to borrow just like all my other clients and just like any of us without the resources to pay the medical bills.

The monthly payment on a $100,000 credit card debt would be astronomical depending on the interest rate and probably beyond the ability of the vast majority of Americans to pay.  If D’Amboise did not file for bankruptcy he would be hounded by creditors who mostly have no mercy and will call his home endlessly.  He would then be subject to lawsuits and collection efforts which would tap his bank accounts and garnish his wages leaving hin even less money to live on and pay his bills which would undoubtably get him into further trouble.

Another candidate, Hector Balderas, apparently filed for bankruptcy back in 1995 when he was a college student working on an assembly line.  How many college students do you know that also work on assembly lines?  Instead of congratulating him for his hard work there seems to be a strong note of disapproval for his filing bankruptcy when he was only 21 years old.

The article then goes on to talk about the crimes of other candidates as well as alleged bankruptcy fraud of another candidate.  To compare bankruptcy with crime and fraud is a very bad and unfair thing to do in my opinion.  Bankruptcy is certainly legal and often he only good option for people in serious debt.  There are other options to bankruptcy when one has a high degree of debt except they are all worse than bankruptcy for the debtor.

Bankruptcy settles debt by discharging it legally.  If debtors have any surplus assets (above the allowable exemption amounts) those assets are sold to pay their creditors.  The whole system is monitored by a series of bankruptcy trustees and a bankruptcy judge as well as federal law enforcement to prevent fraud and crimes.

How is it then that we still get these articles that seem to connect bankruptcy with fraud and crime as if they are all the same sort of skeletons in closets?  This is ludicrous and wrong. Bankruptcy is not doing something wrong, it is doing something right.  If you have debts you cannot possibly pay and the wolves are at your door to take your bank accounts, your assets, and your income what are you to do?

You can’t escape the debts and you can’t pay them but you have to live.  Many hide or go underground to avoid this situation and that is wrong.  Some check out altogether and that is tragic.  The right thing to do is to admit you cannot pay and file a bankruptcy.  If your kid needs operations then what choice do you have?   He must have the operations which can run into the hundreds of thousands of dollars.  Who in America can pay for this?  Very few.

Again there is often only one good and right and moral and legal answer to this debt situation and that is bankruptcy.  But let’s not mix that up with criminality because it is legal and has been so for hundreds of years.  It is also moral and sanctioned in Deuteronomy in the Old Testament of the Bible.  Bankruptcy has been around a long time and its time we stop trying to put a scarlet letter on any one who does the right thing and files one.

It is time for bankruptcy to come out of the closet and shed its skeletal image.  I say file one and be proud that you took the moral, legal, ethical, and right path to debt freedom and not another road that leads to bad things. The good news is that after a few of these people get elected and the public sees that they are still good people then they will pave the way for others to run for political office proudly after having done the right thing and filed bankruptcy.

I am a San Diego bankruptcy attorney.  For further questions please visit my websites at www.farquharlaw.com or www.freshstartsandiego.com.  Or call my office for a free consultation at (619) 702-5015.  Call now for free credit report and analysis!  For a free e-book on “13 things to do to prepare for your bankruptcy filing” please e-mail me at farquharesq@yahoo.com.