What’s in your wallet? These huge credit card companies are plenty rich- it’s okay to file for bankruptcy!

Bank of America, Chase, Wells Fargo, Capital One, Citibank, Discover, American Express.  Recognize these guys?  You probably owe them money right now and I’m not talking about for your mortgage, car, or for some other secured asset.  I’m talking about credit cards.  What’s in your wallet?  Probably there is some credit card in there right now with one of these names on it and you are in debt.

If you check you will see that these are very large companies.  They have billions of dollars in assets and if you think about it is a very easy business to run.  Think of them like Joe Pesci in the movie “Casino”.  They get a little money and they “put it on the street”.  But you are the street.  They borrow money at a low-interest rate and lend it to you at a higher rate.  If you default or are just late on the payments then they will jack your interest rates and charge you all sorts of penalties.  They make a tremendous profit on you when you cannot pay them.

Remember they don’t have a plant with machinery where they make things or even an office where they give advice.  They just need a little small space where there is a phone with which they can call you twenty times a day when you don’t pay them.  Are you getting those calls now?  Most of us do and they call now not just when you are a month late or even a few weeks late but if you are a day late.  They seemed to have recently decreased the time they allow you to not pay them.

According to Wikipedia Bank of America is the largest financial services company in America and also the largest bank holding company.  It is the second largest bank in the country by market capitalization.  As of 2010 B of A is the fifth largest company in the U.S. by total revenue and the second largest non-oil company in the U.S. after Wal-Mart!

Wells Fargo is the fourth largest bank in the U.S. by assets but the second largest by market capitalization.  JP Morgan Chase has assets of $2 trillion.  Citigroup has the largest financial services network in the country and it has over 200 million customers.  Get the picture?  They are huge and they won’t miss your debts if you get them discharged in bankruptcy.  Most of the big banks received federal bailouts financed by your tax dollars when they ran into financial difficulty.

Where is your bailout?  Do you get a break when you get into financial difficulty?  These companies are the largest and richest companies in the world and they are deemed “too big to fail” and when they get into trouble they run to the federal government (that’s you) and they ask for and get a bailout so they can make more money.  Did you get a break?  A bailout?  Where can you go when you run into financial trouble?  How about they only call you ten times a day when you owe them money?

Forget about it.  It’s not going to happen.  You will get no breaks from these companies.  They only move one way and that is forward in collecting money from you.  They will call you, hound you, and harass you into paying them.  Your only way out is to file bankruptcy.

Bankruptcy stops the calls, the harassment, and relieves you of the liabilities for those debts.  It makes sense and is the only break you are going to get.

So don’t feel bad for these banks who are too big to fail.  They are the largest and richest entities in the world and they won’t miss your little debts when you file bankruptcy.  They will write it off as a loss on their corporate taxes.  Remember that most people have paid back all of the money they borrowed on their credit cards with interest before they file bankruptcy.  It’s just that the interest rates are so large that they have to keep paying indefinitely.

How long does it take to pay off a card if you make the minimum payment?  I don’t even know anymore but it used to be 30 or 40 years.  That is debt slavery.  Don’t let yourself be a slave!  File for bankruptcy if you have debts you cannot pay!

I am a San Diego bankruptcy attorney.  Please visit my website at www.farquharlaw.com or www.freshstartsandiego.com.  Or call my office for a free consultation on any bankruptcy or debt related issue at (619) 702-5015.  Call now for free credit report and analysis!

For a free e-book: “13 THINGS YOU SHOULD DO TO PREPARE FOR YOUR BANKRUPTCY FILING” please send a request by e-mail to: farquharesq@yahoo.com.

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Should American states like California and Illinois file for bankruptcy? Turns out it can be done but with a cost!

A number of the states in the USA are completely broke with little chance of paying off their debts.  California is one that reportedly has a $500 billion unfunded pension liability problem.  $500 billion is obviously more than the citizens of the state of California can pay so some have talked about the possibility of a federal bailout.  I am personally against a bailout because it will only continue the problem of overspending and unfunded pension liabilities that California can’t afford.

Numerous other states have huge debt problem often related to their unfunded pension liabilities.  Hawaii, Connecticut, and Massachusetts, Oregon and New Jersey are among the small states mentioned.  California, Illinois, and New York are the large states with huge debt problems.  One article says as many as 46 states need bankruptcy.  According to reports I’ve read Utah seems to be the best financially managed state in the union and it has little debt.

For many states it was the housing collapse that resulted in a great reduction in tax revenues that started the slide.  For other like California the unfunded pension problem has been building for years.  For states like New Jersey and Nevada, who relied on gambling taxes, times are really tough as people have slowed down on gambling because of the slow economy. But most states that are in financial trouble seem to have some level of this same unfunded pension liability problem.  A state bankruptcy would allow the bankruptcy courts to throw out these pension contracts just like with a city if the law can be changed to allow states to go bankrupt.

As I wrote in a previous blog, states are sovereign entities and they thus cannot go bankrupt.  But there is a way for California and the other states to make it happen anyway.  Congress can pass a law allowing the individual states to declare bankruptcy but the states would have to petition the Congress for such a right.  Without the petition the law won’t change and states will be stuck with their debts.

Congress passed the law that originally created chapter 9 municipal bankruptcy seventy years ago during the great depression.  Chapter 9 allowed cities and counties to file for bankruptcy protection and 600 such entities have taken advantage of this law since it was passed in the 1930s.  Presumably Congress could now authorize a whole new chapter in the bankruptcy code.  We could call it “chapter 10.”  A chapter 10 would eliminate the barriers to states filing and eliminate the “sovereign entity” problem that still exists today.

Apparently Newt Gingrich is in favor of just such a law.  Ironically it is the republicans, who are not normally bankruptcy friendly, who seem to be more in favor of just such a law.  This appears to be because the republicans do not want any state to receive a federal bailout which would impose a tax on the whole country to pay for the worst fiscally managed states.  If  states like California, Illinois and the others would file bankruptcy then a federal bailout would be unnecessary.

With a bankruptcy these states can eliminate their debts such as the unfunded pension liabilities that have plagued cities.  With a bankruptcy the state can also save its assets.  In a chapter 9 bankruptcy the law is clear that the bankruptcy court cannot interfere with the city’s day-to-day activities and the cities can even borrow money during the bankruptcy.

In a chapter 9 municipal bankruptcy the court also cannot force the city to sell any of its assets like city land or buildings.  Presumably this would apply to states’ bankruptcies too.  A state could therefore keep all of its assets during and after the bankruptcy.  As I reported in a previous blog this is because of constitutional protections like separation of powers that prevent a court from interfering with any day-to-day functioning of a city because a city is a public entity.  A public political entity like a city (or a state) simply cannot be operated or directly interfered with by a bankruptcy court.  This is made clear on the federal courts website under chapter 9 bankruptcies.

A state could presumably enjoy these protections in a chapter 10 bankruptcy just like the cities can protect their assets under chapter 9.  Bankruptcy would mean for these states that they could continue to run their affairs as usual with no interference from the bankruptcy court and they would not have to sell any assets.  They could just cancel the debts of all kinds including these pension contracts that were negotiated with the unions.  They could renegotiate new contracts that the states could afford and that were on par with what people earn in the private sector.  Bankruptcy could indeed save the states from disaster and financial ruin.

But there is a price to pay for all of this.  State bond interest rates will have to  increase to reflect the new threat that a state can go bankrupt.  There is currently no such threat as states cannot now go bankrupt so state bonds are given a very good rating.  Since bond investors will now have to risk that the state can go bankrupt and wipe out their investment, the state will have to pay a higher interest rate to attract investors.  Presumably once the law is passed allowing states to go bankrupt then any state can declare bankruptcy as often as the law allows.

I would argue that if the states don’t get this debt problem under control then the bond rates could increase anyway as they would have a greater risk of defaulting on the bonds.  The bond issue can be dealt with so the effect of a bankruptcy on state bonds will be lessened.  Bonds could be given some kind of special preference for instance.  If the states can protect the bond holders position in the bankruptcy or reaffirm (agree to pay) the bond debts then the harm to the bond market could be minimized.  Then states could still find buyers for bonds in the future when they need a new road or bridge or airport.

My advice to the states with the most debt is to strongly consider the bankruptcy option.

I am a San Diego bankruptcy attorney.  Please visit my websites at www.farquharlaw.com or www.freshstartsandiego.com.  Or call me for free with any bankruptcy or debt related question you might have at (619) 702-5015.  Call now for a free credit report and analysis!

For a free e-book: “13 THINGS YOU SHOULD DO TO PREPARE FOR YOUR BANKRUPTCY FILING” please send a request by e-mail to: farquharesq@yahoo.com.