Like many other Americans, for the foreseeable future I am locked in the credit-card death cycle of “pay now, pay later, pay forever.” While I would like to say that I have a showplace home filled with beautiful designer furniture and the latest in high-tech electronic gear, my life just isn’t that glamorous. A guided trip through my bills will highlight college tuition, car repairs, a few of my dentist’s BMW payments and some much-needed upgrades to the condo I currently have up for sale.
According to an ad running in the papers here, I could file for personal bankruptcy, lose none of my assets, pay only about 20 percent of what I owe, and come out smelling like a rose. For a split second, I considered it. Then I woke up.
Unfortunately, others are snoozing, and there could be a whole new future spate of small-business tankings if rules remain slack and capital remains tight.
Personal bankruptcies have risen from a scant 39,000 in 1940 to around 1.3 million last year. Businesses don’t file as often, but the consequences of any going concern going south can add up to billions. Congressional reforms, according to some experts, could grant even more leniency to those who want to walk away from creditors. Rep. George Gekas (R-Pa.) believes his plan will tighten restrictions. However the vote goes, there will be an impact on the wireless industry.
Vern McKinley, a bankruptcy attorney, said that only 15 percent of businesses that declare bankruptcy really are experiencing true difficulties. “It’s a `heads they win, tails you lose’ proposition,” he said. “If business is doing well, the entrepreneur gets rich. If it goes bad, he walks away.” The government needs to enforce contracts between private parties, and while Congress may consider getting tough on bankruptcy, McKinley said such action would be “politically unfeasible.”
Chapter 11 reorganizations rarely are successful, said Dr. Joseph Pomykala, who has taught at the University of Maryland. Access to Chapter 11 should be limited, and incumbent management should not be permitted to continue “to manipulate the system to buy time and extract value from creditors.” To ensure this, Pomykala suggests accelerated filing deadlines, especially for small businesses, along with a strict time limit on reorganization. Stockholder voter rights should take precedence, and the court trustee’s role should be increased. Creditors also should be able to reclaim their property, he concluded.
The resolution of one high-profile wireless bankruptcy case is imminent. The question is, how many others will follow and how tough will lawyers, courts, federal agencies and creditors be?
