I caught a not-very-cheerful Reuters’ news item the other day. Human resource giant Career Protection, Inc. predicts a 37% increase in companies planning layoffs and RIFs (Reductions In Force) for 2008, as compared with last year. The one bright spot is that most of these companies will be offering severance packages.

In an earlier blog, I discussed slowdowns at Chrysler, Ford, and GM, especially severe because of their main supplier of plastic parts having filed bankruptcy. GM, in fact, plans to cut its U.S. labor costs in half, and its newest contract with the UAW union allows it to replace up to 16,000 non-assembly jobs with new, less expensive hires.

In addition to actual layoffs, what we can expect to hear a lot of is buyout offers, especially for workers 50 years old and older. And, make no mistake. These offers will apply to lots of workers. More than 21,000 USW workers at GM alone are eligible for full retirement, and Career Protection points out that other retirement options are available for 25,000 more. Actually, none of these statistics came as a surprise to me, but here’s one that did: BMW announced it’s cutting up to 8000 jobs. These will be mostly in Germany, but still, we’re not used to hearing about big labor cuts outside our country.

I’ve been practicing bankruptcy law in Indiana for a long time, and as you know by now, I’m always reading up on economic events in order to know what’s going on. That helps me offer realistic and timely advice to my Indiana bankruptcy clients. Tell you what – I’ve been counseling debtors for almost a quarter of a century, and it’s a whole new ball game now. I heard a comment that a young person starting a career today can expect to be laid off three or four times during his or her work life. That, as we’re already starting to see, will present a whole new set of challenges. Most people will adapt and survive, as always happens. But in cases where the “chips” of divorce, job loss, and illness fall all at the same time, well, it’s going to be tough. Thankfully, Indiana bankruptcy law is there as a safety net.

The cheerful song heard at Disney theme parks, “It’s A Small, Small World” proved sadly true last week. Chrysler cancelled its contracts with its longtime supplier of plastic parts, Plastech, forcing that company to file for Chapter 11 bankruptcy protection.

Because my life’s work is so tied up with debt and bankruptcy, I’m interested in news stories that can have implications for my Indiana bankruptcy clients. When I came upon this particular item, I couldn’t help reflecting that there was a domino effect here. I think that effect actually began far away in the Mideast, where the price of oil has been rising sharply. Since oil is the key ingredient in the plastic parts Plastech was making for Chryslers, Dodges, and Jeeps, Plastech wasn’t able to buy enough oil to keep up its parts manufacture. Then, in danger of having its car production slow or even stop altogether, Chrysler needed to find another supplier. To save time and costs, Chrysler wanted to take back from Plastech all the thousands of molds and dies used to make the parts. When Plastech filed bankruptcy, the courts prohibited Chrysler from taking anything from Plastech, and then the dominoes really started to fall.

Chrysler shut down assembly plants in four states, idling 10,500 workers. And, since Plastech made parts not only for Chrysler, but also for Ford and GM, thousands of workers in those other companies have been affected as well, including, of course, those in Indiana. The bankruptcy court is encouraging a settlement between Chrysler and Plastech, but meanwhile, thousands upon thousands of families are in financial trouble. As usual, individual people, their spouses, and their children – they are the last dominoes in the chain reaction.

As a bankruptcy lawyer in Indiana, I know this game of dominoes all too well. Despite persistent myths about folks overspending and neglecting to pay the bills, truth is, most often bankruptcy is the last stage in a sad, sometimes inexorable chain of events. That chain is often begun months or even years earlier and perhaps states or even oceans away. When people are sitting in my bankruptcy law office in Indianapolis or Anderson, or Columbus, or Bloomington, it’s rarely one thing that brought them there. No, it’s a chain of events beyond their control, and several forces in combination that lead them to seek protection under Indiana bankruptcy law.

And right there, where the last dominoes are falling, that’s the spot where you’ll find me, helping my clients pick up those dominoes and, with them, build a fresh start using the bankruptcy laws.

Bankruptcies and foreclosures are the stuff of headlines nowadays, and, as a bankruptcy attorney in Indiana, I find it hard to go anywhere without lots of people airing their opinions to me about how other people get into financial trouble by overspending on luxuries. And, just about every time, there’s mention of the ”old days”, when supposedly the former generation was so much more responsible and so less wasteful in handling money.

Not so fast! Several experts warn against rushing to the conclusion that we are less responsible than our parents. Harvard professor Elizabeth Warren claims consumers today spend a greater portion of their income on the basics and less on discretionary items than past generations did. According to Warren, families today are spending three quarters of their income on basics, including housing and healthcare, as compared with 50% a generation ago.

As evidence of our wastefulness, critics of our generation’s ways point to government statistics showing that nearly half our food dollars are spent eating out. But a further look at the government’s numbers reveals that Americans spend only 10% of income on food each year, compared to 20% in the 1970’s. Yes, we like designer brands, but on average, Americans spend 4% of income on clothing, about half what our parents did.

With Americans needing to spend so much less on household goods, food, clothing, and entertainment, what’s our problem? An MSNBC program back in October of last year brought out that our generation’s financial anxieties are focused on housing, health, and education. Looked at with the enormous rise in costs for those three items, life truly is harder now.

While I personally was not interviewed by MSNBC, I could have easily verified that statement about life getting harder, just from working with thousands of people each year in my bankruptcy law offices around the state of Indiana. Very often the problems and pressures that bring debtors fo my office have little to do with overspending on designer handbags or on lattes at the corner coffee shop. Keeping the mortgage paid so the family can be housed in a safe neighborhood with good schools, paying the doctor bills and the costs of schooling, all in an era of job insecurity – it isn’t easy! In fact, that’s the reason we have Indiana bankruptcy laws – they’re meant to provide a safety net and the possibility for a fresh start. The message in all this: Don’t be so quick to judge others – or to judge yourself!

In last week’s Indianapolis Business Journal, I found a very interesting article by neurologist, educator, and former financial planner Shirley Mueller. As a bankruptcy attorney in Indiana who deals day in, day out with people’s money and their emotions, I found this material fascinating. Mueller starts off by explaining that, contrary to the popular belief that emotions interfere with good investing, the opposite is true.

A scientific researcher named Antonio Damasio ran a study comparing normal subjects with patients who had suffered damage to the specific area of their brains that governs emotions. A test was given in the form of a game to measure how the patients handled decisions involving risk-taking. Here’s what happened: The normal patients responded to emotional feedback from their brans after they had made losing choices. These patients then changed their behavior. Since the brain-damaged patients were unable to receive that kind of feedback, they continued on a losing track. Shirley Mueller summarized by saying that, without emotions, we can’t and won’t make decisions that are best for our economic future.

Everyone, and I mean everyone, who comes to see me in my bankruptcy law office seems to have plenty of emotion going on. Debtors tend to have negative feelings about themselves. Some of these negative feelings are caused by the real financial problems people are facing, but very often the bulk of the negativity comes from myths about people filing bankruptcy being deadbeats. In reality, many people who have been responsibly handling their money for years are hit by an extended illness or a layoff that destroyed all their carefully-laid plans. Now they’ve got creditors making their lives miserable, and they themselves are letting negative self-talk and blame make their own lives even worse.

The reason this “Viewpoint” article by Shirley Mueller is so relevant to my work as a consumer debt specialist and bankruptcy lawyer is that it tells me people should deal directly with their own feelings, rather than repressing them. In fact, as we learn from the Damasio experiment, emotions can actually help debtors make the necessary decisions and take the necessary steps to move on with the rest of their lives. Financial pressures can cause lots of negative emotions – fear, self-blame, even despair. But hope – now that’s the emotion I try to instill in my bankruptcy clients. Hope (I don’t mean wishful thinking, but true hope) – that’s the one emotion that comes only from taking action to change things. And that’s my life and my livelihood in a nutshell – helping people take informed action!

Personal and business matters are intertwined for most small business owners, I find. The owners, and in many cases their family members along with them, live and breathe the business. As a bankruptcy lawyer in Indianapolis and ithree other Indiana cities, I learn over and over how difficult it is for the owners of small businesses to perceive where business stops and personal life begins. And, as I in turn reveal to them, if the business is a sole proprietorship, their perception is legal reality – their business is just an extension of them! If the business is in trouble and needs to be liquidated, it’s the owner who files bankruptcy, because the assets and liabilities are those of the owner.

But if the business is held in the form of a corporation, a partnership, or a limited liability company (LLC), that business is a separate legal entity and can file Chapter 7 or Chapter 11 bankruptcy in its own right, without the owner himself or herself filing.

Understand, though, a Chapter 7 business bankruptcy is different from a Chapter 7 bankruptcy filed by an individual. The bankruptcy court can discharge debts of an individual and give that individual a fresh start. Businesses don’t get their debts discharged. What the Chapter 7 bankruptcy can provide is an orderly liquidation under the direction of a bankruptcy trustee, at no cost to shareholders. Creditors are paid to the extent assets are available. If there are any assets available after that, the money can help pay any individual taxes for which the owners may be personally liable.

A Chapter 13 small business bankruptcy is also different from an individual Chapter 13 bankruptcy. The purpose here would be to buy time for the owners to sell the business as a going concern, or at least sell the assets without going down to fire sale price levels. The proceeds could be used to pay salaries or taxes after the creditors are paid. If the business has substantial assets, a Chapter 13 bankruptcy could be a viable choice.

No matter the legal form of the business, bankruptcy is a very bitter pill for many small business owners, whose pride is so vested in the success of their “baby”, to swallow. But bankruptcy is one area in which it may prove a blessing to have the business act as a legal entity separate from its owners.

Job loss is one of the main causes of bankruptcy in Indiana, as I well know from the personal stories I hear in my bankruptcy law offices in Indiana. Last week, the Indiana Chamber of Commerce released a report that reinforced what I know about joblessness and bankruptcy. This report is just statistics now, but it will serve as a blueprint to improve things in the long term in Indiana. The Chamber study found that more than 931,000 adults in Indiana lack the skills, education, and training to succeed in the work force. The lack of education and training is especially serious for in Indiana, because our state is cultivating more high-wage, high tech jobs.

As a bankruptcy attorney in Indiana for many, many years, I am keenly interested in news about our state of Indiana, and especially news that deals with my fields of specialty, consumer and small business debt. I knew before reading the study that Indiana ranks low in terms of percentage of adults with college education. The Chamber study confirmed that we are Number 41 compared to other states in the percentage of working-age adults who have at least an associate’s degree. In fact, 12% of working-age adults in Indiana haven’t even completed high school! Needless to say, I see a direct link between these statistics and the number of layoffs that ultimately have people coming to my Indiana bankruptcy law offices for help.

The positive side of this report is the report, strange as that may seem. Indiana is emerging as a national leader in analyzing adult education and workforce skills. And while studies don’t, in and of themselves, create solutions, the Chamber spokesmen explained that a special committee will be using the information to make recommendations to colleges and to businesses. It’s a long-term proposition, to be sure, but better training and education is going to be the key to improvement of the job situation over the long haul.

The other two main causes of bankruptcy, by the way, are medical costs and divorce, subjects for a different day and different reports. While our economic leaders are busy addressing the big issues, I’ll just keep dealing with individuals and their debts, and small businesses and their debts, one at a time.

In an earlier blog I mentioned the New York Times feature about debt settlement companies, in which I was one of several experts quoted by the reporter. In case you didn’t catch the article in the Times, there was one true tale in it that I’d like to share with you.

In Austin, Texas last summer, a woman named Katherine and her husband were struggling to make the minimum monthly payments on their $59,000 in credit card debt. Katherine had seen a TV ad about debt settlement, and she searched online for “Christian debt settlement” (in the belief that a religious-based agency would have high ethics). She contacted a company in Austin, agreeing to let that company take $676 from her bank account for five months, then $416 for the next thirteen months. The company advised her and her husband to stop making all credit card payments and save up $24,000 on their own. In four years, the debt settlement company promised, they would be free and clear of debt.

After half a year of following this advice, the couple was being absolutely bombarded by calls from creditors. When Katherine repeatedly placed calls to the debt settlement company to ask for help, there was never a response. Finally, Katherine called the Better Business Bureau. Their advice: Close your bank account immediately and file a complaint. This case is now in litigation. Need I say more?

As a bankruptcy attorney in Indiana these many years, I’ve seen more than my share of debtor situations, but I was as outraged and horrified as you must be in reading this story. I can’t help feeling that if this couple had received proper advice, they could now be well on their way towards rebuilding their financial lives, instead of being worse off than when they started.

Two weeks ago, debt relief was the topic of an article in the “Your Money” section of the New York Times, and I was quoted along with nine other experts on consumer debt from different parts of the country. The feature by Jane Birnbaum of NY Times, titled “Debt Relief Can Cause Headaches of its Own”, focused on debt management repayment plans.

An important point made in the write-up was one I want to emphasize: debt management plans are not the same as debt settlement plans. In cases where all that’s needed for a borrower to dig out of debt is some belt-tightening and budgeting, a debt management repayment plan negotiates reduced interest rates, but the balances remain the same. In debt settlement, creditors agree to a lump sum payment of a reduced amount and accept that as payment in full. As a bankruptcy lawyer in Indiana, I am sometimes able to negotiate debt settlements on behalf of clients, and that is one of the many options I discuss with them before we select a strategy to handle their debts.

There are more than a thousand debt settlement companies nationwide, and the Times article quotes several experts who warn that many of these companies exploit debtors by taking monthly fees from clients’ bank accounts, promising to negotiate a settlement when borrowers have saved enough for a lump sum settlement. Meanwhile, the balances shoot up for those debtors who took the advice of the debt settlement company to stop making monthly payments (due to penalties and higher interest rates), and sometimes the creditors begin to attach debtors’ wages! Several of the experts advise consumers to deal only with settlement companies that charge after settlement is complete. Deanne Loonin, a lawyer with the National Consumer Law Center in Boston, goes even further in talking about debt settlement companies. “It’s possible there are honest ones, but I assume they aren’t until proven otherwise.”

Since I have been practicing bankruptcy law in Indiana for almost twenty-five years, the Times reporter wanted my comments about debt settlement. Did I recommend debt settlement as an option, and in which situations, they wanted to know. I responded that many consumers who don’t understand the bankruptcy process seize at any alternative. I explained that others explore bankruptcy, only to find they cannot qualify for a Chapter 7 bankruptcy.

You can read the entire article in the February 9th issue of “Your Money” in the New York Times. But there’s one main thought I want to leave with the readers of my blog. When people first come to the realization that their debt is getting out of hand – that is when they should begin to explore all their options. The message is simple: the earlier in the process you get qualified advice, the greater the number of options you’ll have to choose from. Debt settlement companies, for better or worse, can offer only that one service of debt settlement. My role is not only as bankruptcy attorney, but also as a consumer debt counselor. My task is to help you explore all the options – debt management repayment plans, debt settlement, and bankruptcy. Basically, your debt is a legal issue, and only a lawyer is qualified to advise on legal issues.

Not a day goes by that someone doesn’t ask me whether filing bankruptcy can provide any relief for them from student loans that never seem to get paid down. Since people know how involved I have been with revising the bankruptcy laws of the state of Indiana and with dealing with thousands of debtors every year, it’s natural that people would turn to me with questions about student loan debt.

While I’d love to be able to give a more hopeful answer, the truth is that, almost without exception, student loans are not dischargeable by the bankruptcy courts. The U.S. Bankruptcy Code provides that the only time student loans can be discharged is when the loans impose an “undue hardship”. Essentially the courts interpret this to mean a person would need to prove permanent and total disability for the court to recognize “undue hardship”.

So, should you rule out declaring bankruptcy if a big part of your debt consists of student loans? Not at all. When you file bankruptcy, the student loans won’t be discharged, nor will the interest stop accruing on those loans. But what will happen is this – the people pursuing you to collect on your overdue student loans will be put “on hold” for up to five years. In the bankruptcy process, some of your other debts might be discharged, buying you time to pursue your career and get back on your feet financially. Without being hounded by phone calls from collectors, you will have a better chance of catching up to the point where you can resume payments on the student loans.

Two weeks ago, Mastercard brought out its earnings report, which was very good – and, looked at from a consumer’s standpoint, not so good. The company’s profits were way up, in good part due to card use by travelers and customers overseas. Here in the U.S. card use was up 10 percent for the last quarter of 2007 as compared with a year earlier.

The most interesting part of the report to me was that, while consumers are charging more on their credit cards, Mastercard reports that they are spending less on luxuries and more on necessities, using credit cards to purchase groceries, personal health care items, and gasoline, even medical and dental costs not covered by insurance. Mastercard pointed out that there was less spending on things such as jewelry, restaurants, and furniture. The report went on to say that Americans are paying down their credit card balances at a slower rate.

I must tell you that, as a bankruptcy lawyer in Indianapolis and in three other Indiana cities, I was not surprised by this Mastercard report. Every day I meet with people who are squeezed financially and who have been forced deeper into debt, including credit card debt, just to stay ahead of everyday bills. Then I read another report, this one from the Bureau of Labor Statistics, saying that applications for unemployment benefits soared to the highest they’ve been since 2005.

Two pieces of advice might be useful here: Even if you need to use a credit card to keep the bills paid, make sure to avoid late payments on the credit card . Not only will the credit card company impose high fees, the interest rate on the entire balance could skyrocket immediately, making the situation incomparably worse. Second, if you see your debt situation rapidly deteriorating, get help right away from an attorney specializing in debt help. Waiting can only make things worse.