Detroit retirees face pension cuts

The battle over the future of Detroit is set to begin this week in federal court, where government leaders will square off against retirees in a colossal debate over what the city owes to a prior generation of residents as it tries to rebuild for the next.

Soon after Detroit emergency manager Kevyn D. Orr and Michigan Gov. Rick Snyder (R) approved a bankruptcy filing Thursday, groups representing the 20,000 retirees reliant on city pensions successfully petitioned a county court to effectively freeze the bankruptcy process.

Now, city and state officials, who say the court ruling will not affect their plans, are asking a federal judge to hold hearings early this week to validate the bankruptcy and move forward with a strategy for Detroit to discharge much of its estimated $19 billion debt.

Orr has promised that retired city workers, police officers and firefighters will not see pensions or health benefits reduced for at least six months. But on Sunday, he said those retirement benefits will have to be cut down the road. Read more >>

Fourth California city to file for bankruptcy this year

Atwater, a city of roughly 28,000 in California's Central Valley, may declare a fiscal emergency as soon as next week, but it is trying to avoid becoming the fourth California city to file for municipal bankruptcy this year, its mayor said.

Under California law, a local government must either declare a "fiscal emergency" or go through a 60-to-90 day confidential negotiation process with its creditors before it files for municipal bankruptcy. Since late June, three Golden State cities-Stockton, San Bernardino and Mammoth Lakes-have filed for bankruptcy protection.

"We are planning to stay current on our ... bonds," said Mayor Carol Joan Faul in a telephone interview with Dow Jones Newswires. "We are hoping to avoid" bankruptcy, she said, "but as far as I'm concerned, we may have to declare a fiscal emergency" on Oct. 3. Read more >>

California City of San Bernardino files for bankruptcy

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The city of San Bernardino filed an emergency petition for Chapter 9 bankruptcy, making a move the City Council approved last month official. According to the interim city manager, city will continue to operate and provide essential services while working through its financial problems.

The city also said there are no immediate plans to reduce or make changes to services. However, officials are continuing to work on a plan that will serve as the city's operational budget during the bankruptcy process. Under that plan, reductions may take place, but there are no firm ideas as to what that may entail, officials said.

The decision to file for bankruptcy was in response to a $45.8 million budget shortfall the city faces this year.

San Bernardino, a city of 210,000 people, began voting on the possibility of bankruptcy July 10. It is now the third California city to declare insolvency this year, joining Stockton and Mammoth Lakes. Read more >>

26 municipal bankruptcy filings since 2010

Many local governments across the U.S. face steep budget deficits as they struggle to pay off debts accumulated over years. As a last resort, some have filed for bankruptcy.

Governing is tracking the issue, and will update this page as more municipalities seek bankruptcy protection. In June, Stockton, Calif., became the largest U.S. city to file for bankruptcy. San Bernardino, Calif., was the most recent city to approve a bankruptcy filing after City Council members learned the city had only $150,000 left in its bank accounts.

Central Falls, R.I., and Jefferson County, Ala., both filed for bankruptcy in 2011. Harrisburg, Pa., and Boise County, Idaho, also filed for bankruptcy, but their claims were rejected.

The majority of Chapter 9 bankruptcy filings have been submitted by utility authorities, special districts and other taxing entities. In Omaha, Neb., eight Sanitary and Improvement Districts have filed for bankruptcy since 2010.

Bankruptcy Filing Totals Since 2010
All Municipal Bankruptcy Filings: 26
City and Locality Bankruptcy Filings: 6
Expected Local Government Filings: 1 (City of San Bernardino)

Municipal Bankruptcies Map
The map shows all municipalities filing for Chapter 9 bankruptcy protection since 2010, along with local governments voting to approve a bankruptcy filing.  Read more >>

Broke City of San Bernardino Can't Pick Up Garbage

The consequences of the city’s fiscal crisis took a trashy turn during a hearing Monday night when San Bernardino officials noted garbage pick-up was among the obligations they might not be able to afford after turning their government into a cash-only operation.

The City Council voted Monday to delay the vote until Wednesday to avoid mediation and head straight to federal bankruptcy. The council previously had voted to file for Chapter 9 bankruptcy protection, but Monday night members expressed a desire for more time to look over financial information and talk to constituents.

CBS2 reporter Jeff Nguyen reports the City of San Bernardino can no longer pay for anything on credit, such as gasoline for its fleet of garbage pick-up trucks. As a result, taxpayers may be left holding the bag for taking away their trash promptly as early as Wednesday.

“The trash and the streets are not going to be swept,” warned city sanitation worker Jerry Zuniga. “You leave the trash there for too long, it’s going to be health issue.” Read more >>

California Bankruptcies Only the Beginning

San Bernardino became the third California city to file for bankruptcy in the past few weeks ... but it won't be the last. Many municipalities in the Golden State and around the nation are struggling to cover their costs as the economic malaise continues to hurt tax revenue streams, experts said. This will lead to more municipal bankruptcies, which have been rare until now.

"This is not the end. This is the beginning," said Peter Navarro, business professor at University of California, Irvine. "As cities see it can be done and is being done, it will give them the idea to do it." The San Bernardino City Council voted Tuesday to file for Chapter 9 bankruptcy after the interim city manager issued a report that outlined its dire straits. Some $10 million to $16 million in annual revenue has evaporated in recent years as taxable sales dried up and property values plummeted.

Despite negotiating tens of millions of dollars in concessions and reducing its workforce by 20% over the past four years, San Bernardino was facing insolvency and would not have enough cash on hand to meet its obligations, according to the report. "The city has reached a breaking point," the report said, noting the municipality of 211,000 residents was facing a $45 million shortfall. Read more >>

Broke Americans Can't Even Afford to File Bankruptcy

This year, hundreds of thousands of Americans are expected to be too broke to file for bankruptcy.
The average cost to file for Chapter 7 bankruptcy protection, the most common form of consumer bankruptcy, is more than $1,500, according to recent research submitted to the National Bureau of Economic Research.

As a result, anywhere between 200,000 and one million consumers are estimated to be unable to afford that steep cost this year. The research, conducted by a group of professors from Columbia University, the University of Chicago and Washington University in St. Louis, examined how bankruptcy filings spiked after people received their tax rebates in previous years. They estimate that another 200,000 consumers, who would otherwise not have enough money to file, will use their tax refunds to pay for bankruptcy this year.

"For lots of people, bankruptcy has been taken off the table as an option because of the severe fees involved," said Jialan Wang, co-author of the report. Among those fees is a charge of about $300 just for filing the paperwork with the federal court, while the rest typically goes to bankruptcy lawyers, said Wang. More...

Consumer bankruptcies on the rise

Image via CrunchBaseCHICAGO (MarketWatch) Consumer bankruptcy petitions rose 4% in the second-quarter from first-quarter levels, the biggest increase since the second quarter of 2009, according a new study issued by Equifax Inc. Thursday. The results raise "questions" about the strength of the U.S. economic recovery, Equifax said.

Bankruptcy filings surged 14% during the first half of 2010

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Courtesy CNN
It's tough out there -- no jobs, home values plummeting -- and Americans are reacting by heading to bankruptcy court.

Bankruptcy filings surged 14% during the first half of 2010, according to the American Bankruptcy Institute. Filings totaled 770,117 through June, compared to 675,351 during the same period last year.

"Years of rising consumer debt and low savings rates, combined with the housing and unemployment crisis, are causing bankruptcy levels not seen since the 2005," said Samuel Gerdano, executive director of the institute, in a press release.

In 2005 Congress amended the Bankruptcy Code, making it harder for Americans to file and sparking a rush to file by October of 2005, when the amendments kicked in. In 2005, bankruptcy filings totaled more than 2 million.

By comparison, Gerdano expects there will be more than 1.6 million new bankruptcy filings by the end of 2010. The institute also said that bankruptcies totaled 126,270 in June, a jump of 8.5% from the same month in 2009, when they totaled 116,365. The institute relied on data from the National Bankruptcy Research Center for its information.

Pension Benefit Guaranty Corporation to seize pension plans covering 4,780 workers

David Shepardson
Detroit News
The government's pension insurer said Monday it will assume responsibility for the underfunded pension plan of a bankrupt Northville auto supplier -- at least the fifth supplier to abandon its pension obligations this year.

The Pension Benefit Guaranty Corporation said it will seize the pension plans covering 4,780 workers and retirees of Hayes Lemmerz International Inc., the Michigan-based wheel manufacturer -- a move that will add nearly $100 million to the PBGC's growing deficit.

PBGC said it is moving now because Hayes Lemmerz failed to meet the minimum funding requirements, and the company cannot afford to fund the pension plan and to successfully exit bankruptcy.

The Hayes Lemmerz International Retirement Income Plan is 54 percent funded, with assets of $110.4 million to cover benefit liabilities of $204.8 million, according to PBGC estimates. The agency expects to be responsible for $93.7 million of the $94.4 million shortfall. The plan was frozen on Dec. 31, 2004.

The Detroit News reported this summer that PBGC was in talks with Hayes to seize its pension plans.

On May 11, Hayes filed for Chapter 11 protection. The company has said it intends to reorganize and emerge from bankruptcy this year to preserve its market share.

On Nov. 4, Hayes won court approval for a reorganization plan that will allow it to shed $480 million of its $720 million in debt.

The PBGC, a government-owned company, insures the basic pension benefits of about 44 million American workers and retirees in more than 29,000 private-sector defined benefit pension plans.

Earlier this year, PBGC assumed responsibility for Troy-based Delphi Corp's pension plans -- a move that saddled PBGC with $6.7 billion in costs for plans covering more than 70,000 people.

PBGC also assumed pension plans at suppliers Metaldyne Corp; Proliance International Inc., an auto parts maker based in New Haven, Conn.; and Portage-based Contech US LLC.

PBGC said earlier this month that its deficit had soared to $21.1 billion this year -- up from $10.4 billion last year. But it improved over its mid-year estimate of $33.5 billion.

Orlando shooting suspect had recently filed bankruptcy

CNN reports
The suspect in Friday's shooting of six people in a downtown high-rise is a 40-year-old "man with economic woes that include a recent bankruptcy filing, federal records show.

In his filing last May for Chapter 7 bankruptcy, under which he sought to have his assets liquidated and his debts discharged, Jason S. Rodriguez listed his assets at $4,675 and his liabilities at $89,873.31.

His 2002 Nissan XTerra with 110,000 miles represented $4,000 of those assets. His personal property filing described the vehicle as having body damage on the right side, an air conditioner that did not work and a transmission that was slipping.

He said his monthly income as a "sandwich artist" at a Subway Restaurant in Orlando, where he had worked for nine months, was $890.67, and he listed his monthly expenses at $815.

A man who answered the phone at the restaurant referred a caller to company headquarters, where spokesman Kevin Kane confirmed that Rodriguez had worked for the company, but left six weeks ago. Kane said the company has a job title of "sandwich artist."

Before leaving Subway, Rodriguez's income had already taken a hit, dropping from $27,686 in 2007 to $13,936 in 2008.

Rodriguez estimated the value of his household goods -- a TV, microwave, bed, computer, dresser, two night stands, etc. -- at $500 and said his girlfriend owned the remaining household goods.

He faced an $11,085 claim of child support.

In addition, he was behind on his rent ($1,402.05), owed $450 to American Express, $110 to AT&T for his cell phone service and $343 to Florida Hospital Orlando for unspecified medical services, the document said.

Among his creditors were the Internal Revenue Service for unpaid 2005 and 2006 taxes totaling $2,415.

The largest debts were for student loans -- $8,500 to Wachovia, $28,912 to Sallie Mae.

Orlando lawyer Charlie Price represented Rodriguez in his case. "It's not that atypical from most everyone I see," he told CNN in a telephone interview. "That's how it is right now. He's a very typical client. Of people that are suffering through the economy right now, there's nothing extraordinary about him ... except that."

Price said he had had no contact with Rodriguez for several months, and added that his former client did not owe him money.