McLeod Law Offices

Years ago, I remember the big push for homeowners to convert from oil or electric heat to natural gas. At that time, it was touted as cheap and clean. While I am no chemist, I have no reason to believe it is no longer clean. However, based on many discussions with clients over the past couple of years, I have no doubt it is no longer cheap, and for some, it’s what’s pushing them over the financial edge and ultimately in my office.

So I was a little taken aback to learn that the 900 employee strong Marcal Paper company filed for bankruptcy protection today. The Chairman and Chief Executive, as well as the founder’s grandson, Nicholas R. Marcalus had this to say:

The price increases in energy have proven to be immensely difficult. Demands by our lenders created liquidity pressures which caused the company to file for the continued restructuring under Chapter 11.

We believe that the decision to file, although difficult, was in the best long-term interest of our company, employees, customers, vendors and other valued business partners. We plan to take advantage of the opportunities presented by this restructuring to address both our financial and operational issues in order to position the company for long-term success.

According to a report in today’s Boston Globe, there’s a “marked increase in the number of troops stripped of their security clearances because they are so deeply in debt.”

The number of soldiers who are losing their clearances because of financial problems has nearly doubled over last year.

When my firm is retained to file bankruptcy for clients, our clients refer their creditors and collection calls to our office. When they call, most creditors merely confirm we have been retained, ask us when we can expect to file their bankruptcy petition, and then hang up. But lately, some creditors are asking if our clients would like to “settle” their credit card debts instead of filing bankruptcy. These creditors are not too swift.

Most clients have more than one debt, and many clients have a mortgage (or two). How can settling with one account benefit the client at all?

Perhaps more importantly, such payments might be considered preferential under the bankruptcy code. Payments made to any regular creditors that total $600 or more within the 90 day period prior to filing must be disclosed on the Statement of Financial Affairs. These are considered “preferential” payments.

In bankruptcy, all creditors are treated equally, and if the debtor knew he was in financial distress on the day he filed bankruptcy, chances are he knew it 90 days prior to that. Therefore, any large payment would confirm that the debtor preferred one creditor over another. In those cases, a Chapter 7 Trustee would be entitled to get that payment returned so it can be distributed to the rest of the creditors. So the client is out the money, and the creditor is forced to give turn it over to the Chapter 7 Trustee.

So where’s the motivation for our clients to settle? There is none. Clients get no benefit from settling any debt prior to filing their petition. If anything they are throwing money away that could be used to get them back on the road to financial wellness. The only benefit goes to the rouge credit card company or collection firm that gets the money. And depending on the payment amount, they only have it temporarily.