Published by Mark

One Of The Big Ones Goes Bankrupt

October 1, 2008 at 5:48 am

A Wall Street powerhouse since 1850, Lehman Brothers has filed Chapter 11 bankruptcy. A Chapter 11 bankruptcy allows a company to temporarily stop paying bills and yet stay in business under the supervision of the bankruptcy court. This buys time for the creditors to organize a compromise plan so that the bankrupt company can make payments on the debt.

As a bankruptcy attorney in Indiana, I’ve dealt with tens of thousands of individuals, families, and small businesses. While I’m not involved with giants like Lehman Bros., I take an interest in the workings of our federal bankruptcy law system and how it functions as a financial safety net.

Actually, there are many ties that Lehman Brothers has to business right here in Indiana. Lehman helped finance Radio Company of America and Chrysler here, and, in more recent years, provided financial services to WellPoint. In an even more direct tie-in, Lehman packaged and sold mortgages on homes in Indianapolis (many of them now in foreclosure). In fact, it’s precisely because borrowers in Indiana and other states stopped making loan payments that Lehman Bros. came up short on cash.

Back in March of this year, Bear Stearns was in financial trouble, and the federal government organized a bailout of that company. Now, though, federal officials made a decision that it’s no longer prudent for them to keep bailing out firms. Unable to find either a buyer or a bailout, Lehman was forced to go the route of declaring bankruptcy.

As I pointed out in my earlier blog, Super Rich Or Bankrupt – You Could Be Anybody, it’s rarely one factor that drives individuals to file bankruptcy, but rather a combination of pressures over long periods of time. Pundits in the press are doing a lot of talking about the troubles some financial giants such as Lehman Bros. are having. Individuals and small business clients are the people I’m seeing every day in my four bankruptcy law offices around the state. Most of these Indiana small clients can’t use Chapter 11, but they can instead seek relief through either a Chapter 7 or a Chapter 13 bankruptcy process. If individuals can draw any lesson from the Lehman Brothers’ story, it’s to seek help and begin implementing a strategy at the first sign of distress.

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