States that allow debt collectors to seize consumers’ wages have sharply higher bankruptcy rates than neighboring states that prohibit or strictly limit the practice, an Associated Press analysis has found.

This link highlights a dilemma for credit-card companies and other debt chasers: By going after wages — an increasingly popular maneuver since the recession began, lawyers say — they risk pushing consumers into bankruptcy court, where judges can reduce or wipe away all sorts of financial obligations.

The apparent relationship between so-called garnishment laws and states’ bankruptcy rates also bolsters the arguments of consumer advocates, who have long said that intercepting someone’s wages to pay their debts only increases their financial vulnerability.

After gathering millions of bankruptcy records from 2006 until now, the AP plotted the number of filings for each U.S. county in its Economic Stress Map — a geographic, chronological and visual depiction of economic misery based on unemployment, foreclosure and bankruptcy data.

While bankruptcy rates vary for many reasons, the five states that prohibit or strongly limit wage seizures — North Carolina, Pennsylvania, South Carolina, Florida and Texas — all have drastically lower rates than their neighbors, with particularly striking differences along borders, where economic conditions are similar but bankruptcy rates are not.

South Carolina’s bankruptcy rate is almost one-quarter that of Georgia’s; Pennsylvania has half the rate of Ohio; North Carolina has about one-third the rate of Tennessee; Texas has a smaller rate than all its neighbors; and Florida has just about half the rates of Georgia and Alabama.

The Carolinas, Pennsylvania and Texas prohibit wage garnishment, except in special circumstances such as unpaid taxes or child support. Florida prohibits garnishing wages from the head of a household.

The nationwide bankruptcy rate is 42 percent higher than the rate in those five states.

Bankruptcy filings have been steadily rising since the end of 2005, when a change in federal law sent filing rates plummeting. The number of filings in May were 35 percent higher than a year earlier, and more than 1.2 million cases have been filed in the past 12 months.

Debts are usually delinquent for several months before companies target consumers for recovery. Creditors must get court approval to seize a person’s wages or other assets. Federal law and state laws restrict how much can be taken — typically 25 percent of “disposable” income, or income after taxes and other legally required deductions.

If a person files for protection under Chapter 7 or Chapter 13 of the federal bankruptcy code, it automatically overrides a court order to seize somebody’s wages.

While counties do not maintain statistics on wage seizures, attorneys say the recession and credit crisis have made lenders more aggressive about seeking court orders to grab borrowers’ wages. The reason is simple: with the competition for collecting unpaid debts on the rise, a creditor that gets the authority to garnish wages gets the first grab at a person’s finances, leaving others to fight over what’s left.

The mere threat of a wage seizure is enough to cause some people to seek bankruptcy-court protection, attorneys say.

Still, credit collection companies view wage seizures as a tool of last resort, according to David Cherner, the director of state government affairs at ACA International, a trade group that has hundreds of debt collection members around the country.

“The debt collection industry isn’t necessarily enjoying a lot of success at this point,” in part because personal bankruptcies are on the rise, Cherner said. “While volume (of credit collection activity) is up, consumers are hurting.”

In South Carolina, limits on wage seizures have given people leverage in their negotiations with creditors and have helped keep them out of bankruptcy court, said Carri Grube Lybarker, a staff attorney with the state’s department of consumer affairs. Lybarker said those who are behind on their debts because of an emergency medical expenditure, divorce or job loss are sometimes able to regain their financial footing and make good on what they owe.

Professor Rich Hynes, who teaches and researches bankruptcy and finance issues at the University of Virginia School of Law, said he sees signs that garnishment is playing a role in bankruptcy rates, but he added that plenty of other factors are at play.

Bankruptcy rates may be influenced by a variety of state laws that protect consumers, including rules on how foreclosures can proceed, regulations on attorney advertising or debt-to-income ratios. Hynes also said issues such as the culture of local courts can play a role in those differences.

In Tennessee, which has the highest concentration of bankruptcies, Nashville-based attorney Edgar Rothschild said wage seizures frequently tip his clients over the edge, and into a Chapter 7 or Chapter 13 filing. He also said the rates may be influenced by the differences of local judges, trustees and lawyers.

Cheryl Greer of Vinemont, Ala., sought protection from creditors under Chapter 7 of the federal bankruptcy code in May.

Before filing for bankruptcy, Greer, who mainly lives off Social Security checks but also works part-time as a clerk at Wal-Mart, managed to pay off thousands in credit-card debt and keep up with other bills, including the monthly mortgage on an $80,000 home.

But she couldn’t escape the unpaid debts of a former roommate she had tried to help out.

Greer agreed a few years ago to help her roommate consolidate debt. That left Greer on the hook for several thousand dollars her roommate owed to a debt collection company, which in February 2008 was granted the authority to begin seizing up to a quarter of Greer’s monthly income.

When she eventually filed for bankruptcy, Greer reported $7,112 in non-mortgage debt, most of it stemming from her former housemate.

In Greer’s county of Cullman, bankruptcy rates are moderate by Alabama’s standards. But over the past year there have been 16 bankruptcy filings for every 10,000 individual tax returns — a higher rate than any county in the five states with stiffest anti-wage garnishment laws.

For people in dire situations, filing for bankruptcy may be the only way to prevent themselves from digging an ever-deeper financial hole.

For her part, Greer said she might have one day been able to pay off her debt — if it wasn’t for the court order allowing her wages to be taken away. Although disappointed by her financial failures and somewhat stung by the stigma that comes with a bankruptcy filing, she’s also feeling a sense of relief now that she’s filed for bankruptcy.

“I don’t have (creditors) hounding me,” she said.

Copyright 2009 The Associated Press.

Peter J. Walsh, the owner of Walsh Dodge in Jersey City, N.J., started out selling used cars in his hometown 28 years ago after the birth of his daughter. He slowly built his business, and felt as if he’d finally made it when he earned his Chrysler shingle in 2000.

But on Tuesday, Walsh Dodge will lose that shingle — as will 788 other dealers across the country. Auburn Hills, Mich.-based Chrysler has asked a bankruptcy court for permission to terminate the franchise agreements of about 25 percent of its dealers. Chrysler needs to cut costs, and claims current sales levels don’t justify a network of 3,189 dealers.

For Walsh and the others on the “hit list,” the last days of selling Dodge, Jeep and Chrysler vehicles have been filled with quick sales at deep discounts, along with sad goodbyes from longtime customers and feelings of dismay and anger toward the automaker they worked with for years.

“It is what it is. It’s just a tough situation,” Walsh said, speaking inside his dealership Saturday morning. “It’s been difficult mentally the past couple of months, but we’ll be OK. I don’t feel as bad for myself as I do for the young guys with families that work for me.”

Chrysler maintains that the franchises singled out for termination were chosen because they weren’t profitable, didn’t have all of the automaker’s three brands under one roof, or were located too close to another Chrysler dealer.

But the dealers argued in court that a smaller dealer base won’t save the company any substantial money. They say the dealers cover their own costs, paying for everything from the vehicles on their lots to employees, advertising and tools.

Walsh said that while Chrysler’s products were good, its dealer support was always poor — too focused on the automaker’s own short-term needs.

And while he might have been underperforming some of Chrysler’s sales criteria, Walsh claims some of that was the automaker’s fault, pointing to its insistence that he sell more pickup trucks — a vehicle unsuited to the densely populated urban strip he serves across the Hudson River from New York City.

“How many Dodge pickups can I sell in Jersey City? It’s not Waco, Texas,” Walsh said.

A court hearing that began Thursday in New York with testimony from over a dozen dealers is scheduled to continue with legal arguments on Tuesday. U.S. Judge Arthur Gonzalez is expected to rule after the arguments conclude.

Steven Landry, Chrysler’s executive vice president of North American sales, said Tuesday’s deadline remains fixed. Dealers can sell the vehicles after that date, but they won’t be able to offer Chrysler sales incentives, making it tough for them to compete.

“We won’t be changing any dealers on the list. We won’t be changing the date,” he said.

Landry said Chrysler had commitments for the inventory of 42,000 vehicles on the lots of the affected dealers. Dealers have sold 16,000 vehicles to customers since the May 14 announcement and Landry said the remaining 26,000 cars and trucks would be purchased by remaining dealers.

Chuck Eddy, a Youngstown, Ohio, dealer who was among those chosen to remain with Chrysler, said dealers have quickly bought up the inventory of those going out of business and are preparing for the transition.

“I have no fire sale going on. There’s no dealer in my town who was terminated having a fire sale,” Eddy said. “People are buying the car for the true value.”

At the Viva Chrysler, Jeep, Dodge in El Paso, Texas, finance manager Jay Welsh said news of financial trouble with Chrysler and the upcoming terminations of other dealerships has done little to deter new car buyers.

The dealership, which sells all three of Chrysler’s brands and escaped termination, sold between 55 and 65 cars a month in April and May, compared with an average of about 25 cars a month in January, February and March, he said.

A few buyers have questioned the viability of warranties, while others have been looking for “fire sale” prices that the dealership has yet to offer, he said.

But other dealers said they moved quickly after finding out they were losing their franchise agreements, hoping to keep their losses to a minimum.

By late last week, Dale Horn, owner of a Chrysler-Dodge-Jeep dealership in Malvern, Ark., had sold 30 of the 35 cars and trucks he had when the company told him that his franchise would be yanked.

Horn said that in exchange for its help unloading the vehicles, Chrysler wanted him to sign papers allowing it to shop the inventory “at a figure less than it cost me.” Instead, he decided to try to sell it all himself, taking losses on all but a few, while making tiny profits on the others.

“In essence, I paid people to take some of my cars,” he said. “It’s just not a pleasant deal. If I’m as small as I am, having the problems that I’m having, I feel so bad for the guys that have got 200 in inventory, or 300,” he said.

At other dealers, longtime customers have showed up to both buy a car and say goodbye.

Janet Reuther Schopp, dealer and general manager at Reuther Chrysler Jeep in suburban St. Louis, said former customers and people she’d never seen before came in to help whittle down her already scaled-back inventory of 125 vehicles.

“It was a huge show of respect for us,” said Schopp, who continues a family business her father started 50 years ago. “They thought it was the right thing to do.”

A neighbor sent her niece in to buy. Her attorney bought two cars for himself and his wife. A stranger who lost his job made a point of driving out of his way to buy at Reuther and a Boeing employee in St. Louis bought a car from her on principle. Nearly all of them paid full price.

Mike Lobb, general manager of Dave Croft Motors, in Collinsville, Ill., outside St. Louis, will try to survive by selling used cars and running a service center, but still held out hope Saturday that a reprieve might come from Chrysler or the bankruptcy court.

Croft, which normally has 350 new cars on the lot, is down to 100 vehicles. Eighty of his sales in the last three weeks have been to longtime customers.

Walsh, the Jersey City dealer, said he has about 14 vehicles left, which he expects to be redistributed to other Chrysler dealers. He said he’s glad he didn’t take more vehicles when Chrysler officials were pushing dealers to help save the company by boosting their inventories this year.

For Walsh, who plans to keep selling used cars, the move marks the end of Chrysler’s slow painful demise for him. He had to reduce his work force from 30 people to 14 during the past year. And his sales of new and used vehicles have declined a third from their peak of 1,500 units a year in 2000, he said.

“My employees have been with me an average of seven years — they’re all local people — and it puts a hole in my heart when they come in here and I have to tell them I’m letting them go,” Walsh said.

___

Associated Press Writers Victor Epstein in Jersey City, N.J; Ken Thomas in Washington; Tom Krisher in Detroit; Alicia A. Caldwell in El Paso, Texas; and Cheryl Wittenauer in St. Louis contributed to this report.

Copyright 2009 The Associated Press.

Want to learn more about bankruptcy directly from the courts?  The U.S. Courts website has some great information about the basics of bankruptcy.  Of course, you shouldn’t try to go through the bankruptcy process alone.  Not only is bankruptcy stressful, but navigating the court system is even difficult for attorneys.  Always consult a bankruptcy attorney about your options so you can best protect you rights.

Check out the Bankruptcy Basics series from the U.S. Courts below:

BANKRUPTCY INTRODUCTION: Watch the Video!

TYPES OF BANKRUPTCY: Watch the Video!

LIMITS OF BANKRUPTCY: Watch the Video!

FILING FOR BANKRUPTCY: Watch the Video!

CREDITORS’ MEETING: Watch the Video!

COURT HEARINGS: Watch the Video!

THE DISCHARGE: Watch the Video!

LEGAL ASSISTANCE: Watch the Video!

And finally, access LawInfo’s directory here: FIND AN ATTORNEY IN YOUR AREA

Lern more about Bankruptcy in LawInfo’s Free Legal Resources Center: BANKRUPTCY

A new year, a fresh start?  Most industry experts believe bankruptcy will continue to boom in 2009. 

Bryan Marsal, Co-Chief Executive Officer at Alvarez & Marsal predicts a “tsunami” of bankruptcies and business restructurings for 2009.  With declining revenues all around, many individuals and businesses can’t afford to pay their debts.  On top of that, with the tight lending and credit markets, its tough to get a loan to “cover” through the difficult times. 

Bankruptcy has been booming for the last couple of years and new filings are predicted to increase even more for 2009.  According to BankruptcyData.com, filings among publicly traded companies increased 74 percent in 2008!  Personal bankruptcy also increased by nearly a third in 2008, according to data collected by the National Bankruptcy Research Center and published by the American Bankruptcy Institute.  

Increased business bankruptcy means more layoffs.  Analysts predict the unemployment rate could spike to 9.5%, which would represent a net loss of jobs for 3 million people beyond those who are already unemployed today.  With families already struggling to pay their mortgages and other bills, even more lack of income will result in additional foreclosures and personal bankruptcies as well. 

It’s a mad, mad, mad world out there.  Seek higher ground, put on those life jackets and try to stay afloat as the bankruptcy tsunami hits.  Your best life boat could be consulting with a bankruptcy attorney or foreclosure attorney today.  There may be options to help you make debt payments more manageable so you can avoid bankruptcy or other negative consequences of these troubling financial times.

On January 1st, 2009, laws mandating stores sell only cigarettes that are slow-burning and comprised of fire-safe paper went into effect in Delaware, Iowa, Oklahoma, Pennsylvania and Texas. Fifteen other states have laws that will take effect this year or next, according to the Coalition for Fire-Safe Cigarettes.

The paper on these cigarettes is thicker in two separate areas so they will extinguish (if not puffed) when they burn to these spots. This was designed to prevent fires caused by unattended cigarettes. It is estimated that about 800 Americans die each year in fires caused by careless smoking.

“There has been a rash of smoking materials deaths,” Oklahoma Fire Marshal Robert Doke said Monday. “A cigarette will fall into overstuffed furniture or mattresses when people fall asleep, or it rolls off an ashtray and on to the carpet, then the possibility for ignition happens. This cigarette is supposed to snuff out before it can cause enough heat to start a flame.”

States that have already implemented fire-safe cigarette laws are New York, Vermont, California, Oregon, New Hampshire, Illinois, Maine, Massachusetts, Kentucky, Montana, New Jersey, Connecticut, Maryland, Utah, Alaska, Rhode Island and Minnesota, as well as the District of Columbia. Idaho, Indiana, Kansas, Colorado, Arizona, Washington, Louisiana, Hawaii and Wisconsin have laws that take effect this year. Florida, Georgia, North Carolina, Tennessee, Virginia and South Carolina have laws that will take effect in 2010.

A New Year brings new laws across the United States. Some laws will have a small impact; others will be felt by thousands, if not millions of people. Some of these laws include the no-texting while driving law in California, no trans-fat in fast food restaurants law for Oregon, and a referendum that bans non-married, cohabitating couples from fostering or adopting a child in Arkansas. To find out more about the new laws in your state, simply visit your state’s home page (e.g. www.ca.gov for California, etc.)

In the midst of the stress and worry that accompanies a lay-off, a newly unemployed person is bound to question what he or she has coming to them, in the form of financial compensation. Will I get paid for accrued vacation time? The expenses I put on my personal credit card for business? How much am I entitled in unemployment benefits? All of these are legitimate questions that deserve answers.

Jobless claims are now at a 14-year high and are unfortunately expected to rise. If you have been laid off, or if you feel a lay-off may be in your future, here is some information on unemployment rights.

1. Unemployment benefits
Full-time employees who lose their jobs (through no fault of their own) are eligible for unemployment benefits, depending on their length of unemployment and how much they earned. Eligibility requirements vary by state, but in most cases, you must work four out of the last five completed quarters before you file for benefits. The money you receive is based on the money you made over the previous 52 weeks. In most states, you can be paid benefits for up to 26 weeks.

It is important to note that independent contractors and the self-employed are not usually eligible for benefits.

2. Unused sick days, personal days and vacation time
Few laws require employees to be paid sick days, personal days or vacation time and being paid for such is usually a matter of contractual obligations on the part of your employer. If you signed a contract when you were hired that states you are entitled to all of your unused sick time, vacation time, etc., when you leave a company, then you should be reimbursed.

3. Severance pay
There are no federal or state laws that requires employers to pay out severance, unless this was signed into your employee contract.

It is important to note that even if you receive a severance package, you are still entitled to file for unemployment benefits.

4. Unpaid bonuses
If you’ve earned a bonus, you should be paid the bonus. Bonus statements are usually provided annually, or at the start of employment, and spell out the terms and conditions of bonus calculations and payout practices.

5. Expenses owed
If you incurred expenses during a company business trip, or you purchased a work laptop or cell phone on your credit card and have since been laid-off, you are entitled to reimbursement. Business expenses are considered “wages” in many states, and there are penalties for non-payment. If an employer refuses to pay up, laid-off workers can file a claim in small claims court.

For more information on unemployment rights, visit LawInfo’s Legal Resource Center for articles, blogs and answers to unemployment-related frequently asked questions, or contact an experienced Labor and Employment attorney in your area to discuss the specifics of your case.

Pilgrims Pride Corp., the nation’s largest chicken producer, has filed for bankruptcy protection.  While the company will reorganize, it does not intend to go out of business. 

How does a company which controls nearly a quarter of the market fall into bankruptcy?  The company’s problems apparently stem from rising feed costs and increased debt.  The company recently acquired a competitor, Gold Kist, at the same time feed and fuel prices went up.  Also, consumers are spending less – not only are they eating out less frequently, but their pinching their grocery budgets as well.  Like many companies these days, those in the poultry business have been unable to raise chicken prices enough to offset those increased costs.  Tough economic times aren’t exactly the best time to hike up prices.  A case of bad timing perhaps, but unfortunately the economic conditions have forced many businesses to reassess themselves as a going concern. 

There is good news about Chapter 11 bankruptcy, however.   Businesses that voluntary file for Chapter 11 protection are seeking to reorganize their debts so that the company can remain in business. All is, therefore, not lost!  Pursuant to Chapter 11, the court has the authority to give companies a fresh start by granting them complete or partial relief from their existing debts.  Chapter 11 exists because there are times when it makes more sense for both a company and its debtors to see the business succeed.  A plan is developed that is approved by creditors and the court that allows the business to continue operating and to pay its debts over time.

Business owners are not eager to give up control of their company when filing for Chapter 11.  However, Chapter 11 is designed to protect the greater good.  It protects the jobs of the existing employees and it keeps the business going so that it can make the money necessary to pay off its existing creditors. 

In this case, it will be interesting to see what happens to chicken prices.

Due to the financial meltdown felt by millions of Americans across this country, the number of people acting as their own lawyers is on the rise. In the past, less complicated cases such as uncontested divorces or small claims were often filed by parties serving as their own attorney. But in this tough economy, even those tied up in child custody cases, complex lawsuits and complicated bankruptcies are representing themselves as well. “It’s not just that poor people can’t afford lawyers. This is really a middle-class phenomenon,” said Sue Talia, a judge from Danville, California.

The result of this legal trend is causing court systems to clog with filings from people unfamiliar with the legal process. Sadly, some of these pro se litigants, as they are being called, are making mistakes with expensive and permanent consequences. “Courts are absolutely inundated with people who do not understand the procedures,” said Talia. “It is a disaster for high-volume courts, because an inordinate amount of their clerks’ time is spent trying to make sure that the procedures are correctly followed.”

Luckily, there is self-help Web sites (such as LawInfo) and desks at court offices that offer standard legal forms for such things as simple divorces. The American Bar Association is encouraging all states to set up such self-help desks and adopt standardized forms to help cut legal costs. Also, volunteer lawyers are available in some states to give legal advice to those who cannot afford legal counsel. Further, a majority of states promote a growing legal trend known as “unbundling,” in which an attorney handles just part of a contract, lawsuit or other litigation for a small fee, rather than taking on an entire case.

Despite these tough economic times, however, there are situations where hiring a lawyer is not only imperative for your case, but critical to your fundamental freedom, such as fighting a criminal charge. Matters like this leave no room for penny-pinching. For more information, contact a qualified attorney in your area today for an initial (and usually free) consultation to discuss the specifics of your case.

If you’ve been injured, arrested, or sued, you’re probably wondering how much it would cost to hire a lawyer. Or you might not even TRY to hire a lawyer because you just assume that it’s too expensive, or that you could probably get by on your own.  This is, unfortunately, all too common.  In fact, a lot of people who DO hire lawyers have learned their lesson by getting burned the first time. 

The good news is  this – many attorneys offer free consultations.  So, there is no reason, other than a bit of your time, to meet with a lawyer and let them tell you how they could help you.  Also, most personal injury attorneys work on what’s called a ‘contingency fee basis.”  This means you don’t have to have a lot of money to hire a lawyer.  The lawyer will not charge you legal fees upfront, but will take his or her fees out of whatever settlement or award you receive.  Usually, the attorney takes a percentage of the recovery.  And.. if you loose the case, then the attorney doesn’t get a fee either.  Although, keep in mind the costs incurred for the lawsuit are ordinarily the client’s responsibility, either way it turns out. 

Or, another way to think about it is this… what would it cost you NOT to hire a lawyer?  What consequences could you suffer by not having proper legal advice or representation?  While in minor cases, you might be able to successfully resolve the matter yourself, for cases in which anything valuable is at stake (your freedom, your health, your money, your pain and suffering), the consequences of not hiring a lawyer could be devastating. 

Take the example of a debt collections case.  Many people don’t hire a lawyer because they figure they’re already in debt, how much worse could a lawsuit really make it?  Trust me, it can be worse.  Having a judgment for a debt owned and unpaid is another negative on your credit report.  Also, that creditor may have been willing to negotiate if you got a lawyer involved, because a lawyer knows better how to deal with creditors and what risks they take in pursuing a collection against you. 

Another example – getting arrested.  Too often, those charged with crimes try to go it alone, thinking they’ll figure it out as they go along.  Wrong!  Getting a lawyer involved as early in the process is crucial to protecting your rights. Law enforcement, including the prosecuting attorney, are highly skilled at getting criminal defendants to talk.  Most times, you unwittingly say something that ruins your chances of getting a plea deal.  If you have an attorney speak for you, that won’t happen.  Also, an attorney may even be able to get the case dropped or the charges reduced early on… making everything else easier for you. 

Finally, if you’ve been in an accident, most times it is not in your best interest to talk to that nice insurance adjuster.  Their job is to make you think the settlement they offer you is a “good deal”… but the insurance adjuster, no matter how nice they seem, is looking out for the insurance company’s best interest – not yours.  Only an attorney would know what a “good deal” is under the law given your situation. 
 So, please, if you’ve suffered an injury, are facing criminal charges, are involved in a lawsuit, or have any other legal matter pending, don’t possibly jeopardize your rights.   Contact an attorney and ask about an initial consultation.  Only make the decision NOT to hire a lawyer after you know what a lawyer can do for you. 

Good luck!

Has your employer filed for bankruptcy?  If so, you are probably wondering about what will happen to any medical coverage provided by your employer. 

Business bankruptcy can take one of two forms – reorganization or liquidation.  Under Chapter 11 of the Bankruptcy Code, the business will likely continue operations under the court’s protection while attempting to reorganize its financial affairs. A Chapter 11 bankruptcy may or may not affect your health plan. In a Chapter 7 bankruptcy, however, the company liquidates its assets to pay its creditors and ceases to exist. Therefore, if your employer filed for bankruptcy under Chapter 7, it is likely your health plans will be terminated.

You can learn more about your health care rights related to a job loss or your employer’s bankruptcy in LawInfo’s Free Legal Resource Center. Businesses facing bankruptcy should consult a qualified bankruptcy attorney to learn more about what options may be available to resolve the situation short of bankruptcy or for advice about how to best deal with going through reorganization or liquidation.