My mother was right. In the course of twenty-plus years in practice providing bankruptcy services in Indiana, dealing with tens of thousands of individuals filing personal bankruptcy in Indiana, plus thousands of Indiana small business bankruptcy cases, I’ve realized that what she always used to say is absolutely true – everything that happens affects everything else.
Almost exactly two years ago, in Bankruptcy in Indiana, I wrote a piece called “Cities Can File Bankruptcy, Too!” I was referring to Vallejo, Califormia and McCall Idaho, two cities that had filed bankruptcy under a new section of the bankruptcy code called Chapter 9, just for municipalities. (Of course in the four Zuckerberg bankruptcy law offices we help people file Chapter 7 bankruptcy, or in some cases file under Chapter 13 bankruptcy law in Indiana. But as part of providing up to date bankruptcy information in Indiana, I have often used companies that are in the news to illustrate different aspects of how bankruptcy works.).
What’s interesting is that, in keeping up on all the reading I do in the fields of tax law, financial planning, employment benefits, and other fields, (because all of those fields relate to my work in bankruptcy in Indiana), I came across an article in the July issue of Financial Planning Magazine talking about Vallejo, California and other municipalities that filed bankruptcy.
The city of Vallejo had issued tax-free municipal bonds, and many investors owned those bonds, expecting to receive regular interest payments. In the meantime, the city has thousands of employees. What Financial Planning Magazine brings out is that
cities and towns that have police offers, firefighters, teachers, and other employees have pension obligations to those employees. When, in the course of a bankruptcy, the court sets up a plan stating the order in which creditors get paid, if it’s a city, pensions take precedence over interest payments to bondholders. As Financial Planning Magazine points out, “It will be at least three years until Vallejo resumes making any bondholder payments”.
As a debt consolidation lawyer, I was very interested in what financial planner Donald Jay Korn had to say. Korn thinks cities and towns filing Chapter 9 bankruptcy is a serious issue for investors, especially if those cities owe pension money to retired and current employees. Korn thinks perhaps investors ought to put their money in other kinds of investments than muni bonds and that they should keep a close eye on municipal bond investments they already own.
One bankruptcy – but look how many different parties are affected! As all good bankruptcy attorneys in Indiana would verify, big business bankruptcies in other states can affect small business bankruptcy in Indiana. Small business bankruptcy in Indiana is often linked to individual bankruptcy in Indiana. Owners, workers, families – it’s a real ripple effect. As my mother so rightly said, “Everything affects everything else.”
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