Category Archives: Bankruptcy

While congressional debate continues over health care, there is another element worth considering.

Personal bankruptcy filings have been cut in half over the past six years. Some experts credit health coverage available under the Affordable Care Act for the drop.

Katie Weber knows the importance of good health insurance.

The 29-year-old is fighting cancer, and she says her treatments would have bankrupted her if not for the financial protections available under the ACA.

"I don't know how many MRIs I've had, but in the dozens for sure," Weber said,.

Bankruptcy courts never ask people why they are filing, but many bankruptcy and legal experts Consumer Reports spoke with agree medical bills were a leading cause of personal bankruptcy before health insurance expanded under the ACA.

"Medical bills are often unexpected, large and unavoidable, so people who don't have insurance can run up massive debt in a relatively short period of time," Consumer Reports' Allen St. John said.

Since 2010, personal bankruptcy filings have dropped by about 50 percent. Experts credit the improved economy for part of the decline, as well as laws passed in 2005 that make it harder to declare bankruptcy.

But nearly all the experts Consumer Reports interviewed also point to expanded health insurance as a major influence on the drop.

"Our reporting found that coverage for pre-existing conditions and also a ban on lifetime limits were really important because it prevented people with serious medical issues from having to file bankruptcy," St. John said.

Weber said she hopes those safeguards remain a part of any new health care legislation.

"Even if I get better, when I get better, the follow-up will be continuous," she said. "The idea that, moving forward, insurers wouldn't cover some of the things that I really need to be covered is really scary to me, to be honest."

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Experts say Affordable Care Act has helped people avoid bankruptcy - WRAL.com

Pacific Business News (Honolulu)

Servco says Takata bankruptcy won't affect its airbag service in Hawaii Pacific Business News (Honolulu) "The safety of our customers is a top priority for Toyota Hawaii and we don't anticipate the bankruptcy filing of Takata to affect our efforts to ensure our customers' safety" a spokesperson for Servco told PBN. "We're still asking our customers to ...

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Servco says Takata bankruptcy won't affect its airbag service in Hawaii - Pacific Business News (Honolulu)

A group of professors recently wrote Congress to alert it to the folly of repealing orderly liquidation authority and replacing it with bankruptcy. The professors letter is fine as far as it goes, but it does not go far enough.

The professors largely take Dodd-Frank at face value: When a big bank fails, we should try to use the bankruptcy courts first and resort to orderly liquidation authority only in extreme circumstances. That is fine in the abstract, but it bears thinking a bit more deeply about this issue.

Is it really plausible that any of the top half-dozen or so American financial institutions could resolve their financial distress in bankruptcy court? It could happen, just as I may travel to Mars some day.

More realistically, we have to worry that the hurdles to such a case, and the potential knock-on effects, are so significant that such a bank failure would and should proceed immediately to orderly liquidation authority.

That means that bankruptcy for banks should primarily focus on other creatures. For example, it might make sense to devise a bankruptcy court procedure for the next tier of banks and broker-dealers, should they fail. At present the failure of one of the larger regional bank groups might overwhelm both the F.D.I.C.s traditional bank rescue tools and the bankruptcy code.

Seen in that light, it is at least as important that the bankruptcy code address a wide range of financial institutions as it stands ready to address the failure of the next Lehman Brothers.

This reveals the fundamental problem with Congresss present approach. Not only would it leave regulators with no tools to address the failure of a big financial institution, but it would replace that approach with a form of bankruptcy that would be entirely useless for those financial institutions that might actually use a bankruptcy filing.

In particular, Congresss proposed bankruptcy process for banks tries to move the single point of entry strategy developed for the big banks in orderly liquidation authority to the bankruptcy court. Under this strategy, a bank is recused by forcibly converting junior debt to equity.

All the big American banks are revamping their capital structure to facilitate single point of entry. The medium-size financial institutions are not.

So Congress proposes to kill off orderly liquidation authority, the tool that would be of most use to the really big banks, and replace it with a bankruptcy system that will be irrelevant for the really big banks and wont work for medium-size banks.

As a result, we will bail out both in the next financial crisis.

Stephen J. Lubben holds the Harvey Washington Wiley Chair in corporate governance and business ethics at Seton Hall Law School and is an expert on bankruptcy.

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A Proposed Bankruptcy for Banks That Will Lead to Bailouts - New York Times

Todays bankruptcy filing by beleaguered Japanese airbag supplier Takata Corp. puts a spotlight on what has become the biggest safety-related recall in automotive history, a deadly defect linked to at least 16 known deaths and more than 100 injuries.

As part of a settlement with the U.S. Justice Department earlier this year, Takata agreed to pay a combination of fines and reimbursements, as well as set up a victims compensation fund, a deal worth $1 billion in total.

The suppliers bankruptcy and sale to Chinese-owned Key Safety Systems isnt likely to impact that settlement. But it's expected to help speed up repairs on the estimated 42 million vehicles sold in the U.S. equipped with the defective airbags. So far, only 38 percent of those vehicles have had their airbag inflators replaced, a situation that could lead to even more deaths and injuries, industry safety experts warn.

Part of the problem is that many of the vehicles using faulty Takata airbags are older some dating back to the 1990s. Some are already off the road but others may have been sold several times, making it hard to track down the current owners.

RELATED: Faulty Airbag Maker Takata Files for Bankruptcy, Sells to Rival

The other issue has been a shortage of replacement parts, said Cliff Howard, service advisor at Ferndale Honda in Michigan. In the beginning, it was a nightmare, he said. We had to put people on a waiting list.

That was especially true in warm, humid regions like Miami, where the Takata airbag defect was first identified. Manufacturing problems at two North American factories meant the companys airbags were especially sensitive to moisture which would cause their inflators to over-inflate, sending shrapnel spewing into the passenger compartment.

Initially, the Takata recall was focused on products sold in places like Southern Florida. But after several deaths occurred in cooler, drier climates, research revealed that the pyrotechnic compound used in those inflators explosive ammonium nitrate can break down over time, with as much as 50% or more of decade-old inflators tested by the National Highway Traffic Safety Administration failing.

But the government still wants automakers to focus their repair campaigns on places like Miami first. That was a real strain, until recently, for dealerships like Toyota of North Miami, where Service Manager Antoine Kerlinst said his repair department is only just now getting good supplies.

The situation has improved, but not for all models, he said, noting that the dealership is telling owners of some Toyota Corolla models they might not be able to be fixed until this December.

Under pressure from federal regulators, automakers have made it easier for owners to check out their vehicles without going into the service shop. Every manufacturers website now has a link to a recall database.

Alternatively, owners can go to the NHTSA site, SaferCar.gov, and enter their VIN to see if theres an outstanding recall.

The "Vehicle Identification Number" is listed on state registration papers and can also be found by peeking through your windshield at the plate bolted to the front of the instrument panel.

What happens if youre on a recall list?

Under the terms of the Takata bankruptcy and sale, the new owners will owner a pledge to set up a $125 million victims compensation program. Experts say it is possible that some instances where airbags malfunctioned havent been reported. If that happened, report your experience on the SaferCar.org website.

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After Takata's Bankruptcy, Is Your Airbag Safe? - NBCNews.com

The revised health care bill drafted behind closed doors by Senate Republicans includes massive cuts to Medicaid that would leave 15 million fewer people enrolled in the program by 2026, according to the Congressional Budget Report released Monday.

Those drastic cuts could result in more personal bankruptcy filings from Americans, reversing course from a decrease after the Affordable Care Act was implemented, health care and bankruptcy experts said.

Unpaid and costly medical bills are a significant contributor in the decision to file for bankruptcy, experts said. And even if the finanical distress from being uninsured doesn't send someone into bankruptcy, high and sometimes unexpected medical costs can still send Americans into a lot of debt.

"The evidence here is to the point where it feels like a pretty robust fact," said Matthew Notowidigdo, an associated professor of economics at Northwestern University who specializes in health and labor economics.

"If you were to roll back the Medicaid expansion, that's going to lead to more bankruptcies," he added.

The largest single health insurer in the U.S., Medicaid covers 74 million low-income Americans about a fifth of the entire country that includes predominantly low-income adults, children, elderly people receiving long-term care and people with special needs.

Former President Obama's signature health care law, which Republican lawmakers have aimed to dismantle since its inception, included hefty Medicaid expansions through the use of federal funding and other measures.

The number of personal bankruptcy filings fell from 1,536,799 in 2010 to 770,846 in 2016 in part due to Medicaid expansion. But the new Senate bill, called the Better Care Reconciliation Act , proposes phasing out federal contribution to Medicaid for states, which under the ACA was used as an incentive for states to have Medicaid cover more Americans. The bill also would lower the annual income limit for subsidies.

Personal bankruptcy offers a remedy for indebtednessbut not a long-term one. While there is no definitive estimate on how many filings come as a result of predominately high medical costs, it is a "significant reason" why consumers may file for personal bankruptcy, said Lois Lupica, a bankruptcy expert and Maine Law Foundation Professor of Law at the University of Maine School of Law.

"It seems absurd that we're using the statutory benefit of debt discharge rather than using a statutory benefit of health insurance, because the people who get sick and defer preventative medicine are going to be sicker," Lupica said.

The CBO score of the revised bill notes that 16% fewer Americans under the age of 65 would be insured through Medicaid if the bill becomes law. In total, the CBO estimates 22 million fewer Americans would be insured in 2026 than those would if the current law stayed in place. The cuts to Medicaid would reduce federal spending on the program by $772 billion by 2026.

"This will make a hugely negative impact on many American lives," Lupica said. "It's scary. If it ever gets to the point where it's law, it will have ripple effects throughout the economy."

One of those effects could land on hospitals, which are often hit with extra costs to cover when medical bills go unpaid. Emergency rooms will not turn away uninsured patients, but prices can quickly reach thousands of dollars just from one visit, both Lupica and Notowidigdo said.

Before the CBO score was released Monday afternoon, the National Association of Medicaid Directors, a bipartisan group of directors of state Medicaid programs, came out against the federal spending cuts Monday, calling it "insufficient and unworkable."

"No amount of administrative or regulatory flexibility can compensate for the federal spending reductions that would occur as a result of this bill," the group said.

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The Senate Health Care Bill Could Lead to More Personal Bankruptcies - Money Magazine

Japanese air bag maker Takata Corp. filed for bankruptcy protection in Tokyo and the U.S., saying it was the only way it could keep on supplying replacements for faulty air bag inflators linked to the deaths of at least 16 people. (June 26)

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Takata Announces Bankruptcy Protection Filing - Olean Times Herald

YAKIMA, Wash. -- The owner of a longtime medical supply business said he plans to stay open despite filing for bankruptcy earlier this month.

Chuck Vetsch, president of Keeler's Medical Supply, said several issues, including changes in federal Medicare and Medicaid programs, led the company to file for Chapter 11 bankruptcy on June 15 with the Eastern District of Washington of U.S. Bankruptcy Court.

Keelers Medical Supply, which has been in business since 1948, sellsa variety of home medical equipment including walkers, bathroom safety products and breast pumps.

Vetsch said he tried to keep the business operating in recent years despite reductions in reimbursements from Medicare and Medicaid programs the business once received. In addition, the business was dealing with several audits which the business is fighting that led both programs to reclaim distributed payments.

Sales fell from just under $10 million in 2010 to a little over $1.6 million in 2016, Yakima attorney Roger Bailey wrote in a court document. As of June 1, the company had about $785,000 in assets including pending payments for sales, inventory and office supplies.

Court document show that the company liabilities include nearly $1 million owed in various federal and state taxes, including $862,000 with the Internal Revenue Service.

When it became clear that issues would not be resolved quickly, the company decided to file so it could negotiate payment plans with its creditors, Vetsch said.

We just needed everyone to take a breather, he said.

This story will be updated.

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Yakima medical supply business to remain open during bankruptcy process - Yakima Herald-Republic

Houston Business Journal

Ignite bankruptcy expected to create corporate office job cuts Houston Business Journal ... Chapter 11 bankruptcy protection earlier this month. At the time, the company said it had a buyer lined up for its two brands, Joe's Crab Shack and Brick House Tavern + Tap, but other companies would be allowed to bid through a court-supervised ... and more »

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Ignite bankruptcy expected to create corporate office job cuts - Houston Business Journal

Legendarybankruptcy expert Dr. Edward Altmancautioned that this benign credit cycle characterized by low default rates, low yields, low spreads, and lots of liquidity could come to an abrupt end.

Its been a terrific market for investors for quite a long time and if anything is concerning its that we now are more than eight years into a benign credit cycle, Altman, a professor at NYU Stern School of Business, told Yahoo Finance. Weve never had such a long benign cycle. And just that one little fact is something that we should be concerned about because if it comes to one and it could come to an end very dramatically.

Altman, the creator of the financial-distress sniffingAltman Z-Score, warned in mid-2007 of a Great Credit Bubble and that there was going to be trouble in the market.He predictedthat a meltdown would stem from corporate defaults. While the primary culprit of the financial crisis turned out to be mortgage-backed securities, investors who heeded Altmans warning nevertheless avoided a lot of grief.

So, how does todays market compare to the market in 2007.

There are some similarities, yes, although the situation back in the great financial crisis was pre-meditated by the mortgage-backed securities and we dont have that problem now, he said.

Troublingly, Altmansees the reckless behaviorof 2007 surfacing again.

Lehman Brothers world headquarters is shown in New York, the day the 158-year-old investment bank, choked by the credit crisis and falling real estate values, filed for bankruptcy. (AP Photo/Mark Lennihan)

Back in 2007 prior to the crisis in 08 and 09, the fundamentals of credit risk of the companies issuing bonds and taking out loans were quite low, he said.And the similarity that I see now between 2007 and 2016 is very similar fundamentals, quite a bit high risk and it doesnt seem to bother the market because its the only game in town in terms of getting yield greater than what you can get for low-risk securities like governments and high-grade corporates.

In other words, investors arent buying junk bonds just because the risk-reward balance is favorable. Theyre buying because the rewards of investing in lower risk bonds just arent cutting it anymore.

Altman is perhaps best known for the Z-Score, a formula he created 50 years ago thats used to predict bankruptcies. Since that time, he noticed that bankruptcies have gotten increasingly bigger.

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[What] Ive seen over the years is larger and larger companies filing for bankruptcy on a regular basis. On average, in the United States, something like 15 more than $1 billion companies, in terms of liabilities, go bankrupt every year, on average, Altman said. This year already its 13. Last year, it was almost 40.

He noted that inflation has something to do with it, but whats actually happening is companies have been taking advantage of debt and low interest rates like never before, and the corporate debt ratios are way up.

Speaking about the Z-score, if you compare the average Z-score of companies in 2007 with the average in 2016, which is the last time we looked at it, guess what. The average is actually lower today than it was in 2007, and 2007 was right before the great financial crisis, and of course, in 08 and 09 we saw a tremendous increase in corporate bond defaults and loans.

Low Z-scores are associated with financial distress.

He added: So the good news is that its no worse, but the bad news is, fundamentally, the companies are no better than they were back in 2007at least by our model.

At the moment whats keeping companies from going bankrupt as they did during the financial crisis is the incredible amount of liquidity and lowinterest rates.

Well see how long that lasts.

Julia La Roche is a finance reporter at Yahoo Finance. Follow her on Twitter.

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Bankruptcy guru Edward Altman sees similarities to 2007 in the credit market today - Yahoo Finance

Italy will pay up to 17 billion euros ($19 billion) to rescue two Venetian banks that are facing bankruptcy, the government said Sunday.

"The total resources mobilised could reach a maximum of 17 billion euros -- but the immediate cost to the state is a little more than five billion," said Finance Minister Pier Carlo Padoan.

After Brussels had last week firmly placed the liquidation ball in Rome's court, Padoan's ministry said Friday night the government would put up around 10 billion euros of state cash to rescue the stricken Banca Popolare di Vicenza and Veneto Banca.

Both face bankruptcy and European authorities had urged Italy to devise a rescue framework, selling off their good assets and transferring toxic assets to a "bad bank," essentially financed by Rome.

Padoan said about 4.8 billion euros would be set aside immediately to "maintain capitalisation" of retail bank Intesa Sanpaolo, which had made that a condition of any cooperation.

Intesa, Italy's biggest retail bank, has put one symbolic euro on the table and attached a further string to the deal by insisting its share dividend policy remain unaffected.

Rome will provide a further "guarantee" of 400 million euros, Padoan said, with the remaining cash going to cover a huge hole due to bad loans.

"This decree allows the stabilisation of the Venetian economy and safeguarding of the economic activity of the Venetian banks," Padoan said.

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Italy may pay $17 billion to save two banks facing bankruptcy - Daily Sabah