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The New Face of Bankruptcy: Public Employees

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    The New Face of Bankruptcy: Public Employees

    June 7, 2011

    State and local governments facing financial pressures have turned to their employees to help balance their budgets. But now a prominent Bankruptcy attorney is warning of an unexpected consequence: more Bankruptcies.

    "Traditionally, public employees were not eligible for Chapter 7 Bankruptcy due to the fact that they had good salaries and typically didn't have to pay much toward their benefits," Attorney Michael Greiner said. "In the current fiscal crisis, that is changing."

    Cuts in pay have been only part of the story. State and local government, school districts and other governmental entities facing financial pressures have resorted to a number of strategies to reduce their staffing costs:

    Governments now make the employees pay more for their benefits

    It's not just health insurance that governments are now making their employees pay more for. Employees now often must pay toward retirement benefits, life insurance, and even health care costs for their retirement. These are costs that were often entirely borne by the government employer.

    Governments now make employees give back some of their salary in deductions

    Certain government managers have required teachers and other employees to pay a certain percentage of their pay back into a fund to support the governmental entity. Greiner pointed out that this approach is in effect a tax to support the government paid only by the government employees. In certain states, there are legal challenges to this approach, but it is being followed in a number of places nevertheless.

    Governments now put wage freezes on employees while requiring them to do more: This strategy has been used in the past but has become particularly prevalent of late. Teachers are managing larger classes. Police and Firefighters work more hours without overtime.

    Government officials, particularly conservatives, have championed some of these approaches. But an unexpected consequence of these strategies could be more Bankruptcies among teachers, firefighters, police officers and other government employees. The Bankruptcy reform legislation passed with the support of President Bush in 2005 would have made most of these employees ineligible for Chapter 7 due to their high salaries. But most of these new deductions get applied against their salary, making many of them eligible for Chapter 7 Bankruptcy where they might not have been eligible in the past.

    "I had a teacher come to me recently who has a very high salary and lives on her own," said Greiner. "In the past, she would not have been eligible for Chapter 7. But she hasn't received a pay raise in a number of years, and almost half her pay goes to deductions. As a result, once the deductions were factored in, she became eligible for Chapter 7 Bankruptcy. She will not be alone."

    /PRNewswire/ -- State and local governments facing financial pressures have turned to their employees to help balance their budgets. But now a prominent...
    Filed/discharged/closed Chapter 7 in 2010!

    #2
    Public employees followed behind private employees in getting laid off, so it makes sense that now public employees will follow behind private employees in filing bankruptcy in larger numbers.
    Filed Chapter 7 July 2010
    Attended 341 September 2010
    Discharged November 2010 Closed November 2010

    Comment


      #3
      more insane destructive policies...

      Comment


        #4
        It's sad but funny at the same time. People used to look down on people filing bankruptcy because we're taught that only deadbeats file bankruptcy. Now that public employees and other rich people are hurting for money, who's the deadbeats?

        Now that I have filed for bk, I have learned that there is a story behind every bankruptcy. Also, I will not to look down on people and their misfortunes.
        +125K Unsecured so far. Change your cellphone#, give all creditors your Google Voice#, and turn on the "do not disturb." Now enjoy the rest of your day . Thank you Chase: I deal with you last.

        Comment


          #5
          Originally posted by IHateToBeEmo View Post
          "I had a teacher come to me recently who has a very high salary and lives on her own," said Greiner. "In the past, she would not have been eligible for Chapter 7. But she hasn't received a pay raise in a number of years, and almost half her pay goes to deductions. As a result, once the deductions were factored in, she became eligible for Chapter 7 Bankruptcy. She will not be alone."
          I'd like to know the details regarding this lady's financials.
          Filed Chapter 7 July 2010
          Attended 341 September 2010
          Discharged November 2010 Closed November 2010

          Comment


            #6
            In October 2010 I joined the public sector and it is definitely not what I thought it would be, or for that matter, what most people assume it is. With the negative spin the media puts on public employees, it makes me ashamed to even admit I am one, even though, like most of my fellow employees, I don't get any of the benefits the media claim exist. I expected to pay for my health insurance and for retirement, but my state dips its hands in my pocket every chance it has. Try having a private sector employer withhold 5 days of your pay so they can "borrow" it with the "promise" it will be returned when you leave state service (interest free of course). The kicker is, these policies apply to only those that are lowest on the food chain, where there is no real money to begin with. Don't get me wrong, I am appreciative to simply have a job, but I naively thought it would be our ticket away from BK and lead to financial stability.

            Comment


              #7
              Very frankly Shanfish, one part of the political spectrum benefits from the total destruction of government services...remember JFK inspiring people to enter public service? Well, it ain't that aspect of the political system.

              Comment


                #8
                I never really thought that state & local public employees made a lot of money. I know they have better benefits and retirement however.

                I am certain that federal employees make much much more the the private sector.
                The essence of freedom is the proper limitation of Government

                Comment


                  #9
                  Originally posted by Unibrow View Post
                  It's sad but funny at the same time. People used to look down on people filing bankruptcy because we're taught that only deadbeats file bankruptcy. Now that public employees and other rich people are hurting for money, who's the deadbeats?

                  Now that I have filed for bk, I have learned that there is a story behind every bankruptcy. Also, I will not to look down on people and their misfortunes.

                  I have been saying on this forum for years that bankruptcy is the new normal. It's normal for individuals, corporations, and governments.

                  One day everyone will know several people that are bankrupt we may see less discrimination of bankrupt folks.

                  Most of us realized it sooner. Just think of all of the millions that are going on with their lives right now in their comfortable bliss that ignorance provides, looking down on bankrupt folks and this time next year they will be bankrupt, scared, up at night crying in their pillows, fighting with their spouses, etc.
                  The essence of freedom is the proper limitation of Government

                  Comment


                    #10
                    Hey all. I will give a face to this. I am a public employee and have been for 15 years. I know everyone gripes about our retirements and our benefits, but what a lot of people don't realize is what we gave up in exchange for those were raises. That's right, we did not take raises every year with the idea that our pensions were funded. Well that fell through due to a lot of mismanagement of money and now we must pay our pension costs and increased medical costs(they go up every year). I am 1 of at least 2 people in my small dept that I know have file bk and I'm sure more will be following. It truly is scary. I don't make great money, 70,000 a year, but increased costs and no increased revenue over the years finally took its toll.

                    Comment


                      #11
                      The whole article is based on the word of one attorney, makes you laugh. I am confident that if there was a way to figure out how many public employees filed bankruptcy over the years the percentages would probably be proportional to that of private workers. All I can say as a retired public employee is that back in the 1990's when any people were making money on all sorts of dot com investments and they thought the 401k's would guarantee them an early retirement they often would let you know how underpaid you were. Fast forward ten years and suddenly everyone thinks public employees are the richest guys on the block. Rather than attacking public (defined benefit) pensions I honestly believe folks need to start demanding that they be put back in place in the private sector.

                      Comment


                        #12
                        Let me tell you an additional thing they aren't saying that will be a HUGE ripple: many federal employees are not allowed to have a foreclosure or a bk in their credit history AND if they do go through foreclosure, they can be fired. I ended up not getting hired for a 5 week contract to do document control work for the GSA this month because anyone who is 60 days or later late on anything showing on the credit report is automatically disqualified from hiring. So that meant I can't get a $4-5K contract that could have really helped my family! Now take that, imagine you live in DC for one of the branches of gov't there, you get in a regular house (the real estate is expensive there) and then your spouse loses their job and suddenly you can't keep up on the mortgage with just the one gov't job. Now you go late, the gov't employer finds out, fires you making you even more poor, more unhirable in a town where many work for gov't, and now you have to lose your house and file BK. Isn't that just a charming concept? And I predict it will happen to thousands of people if the federal gov't refuses to get its head out of its butt when it comes to discriminating against people who are down on their luck often due to no fault except being unlucky for awhile.

                        Comment


                          #13
                          Resigned I totally agree with you. I especially don't see how admitting you made financial mistakes and seeking the help of the Bankruptcy Courts makes one a threat to national security. At least that person knows they have problems and is doing something about it. I am more nervous of the person who will never accept that he or she has problems and is so desperate to conceal it they will do anything but seek the help they need. Just my two cents.

                          Comment


                            #14
                            Originally posted by banca rotta View Post
                            I never really thought that state & local public employees made a lot of money. I know they have better benefits and retirement however.

                            I am certain that federal employees make much much more the the private sector.
                            well not all...we are one of the lucky one's, in this family one of us worked for the state for over 25 years and were offered an early buy out so we are fortunate in this case.

                            however, my poor son in law, moves to nc to get a teaching job for the county, which there is no collective bargaining in the state of nc. he has a duel masters in special ed blah and blah and more blah. they uproot their family since he was unable to get a job in nj since the state mandates anyone with a masters gets paid higher than that of a ba or bs. and, of course with the cuts that past 6 years or so, he couldn't get a thing other than subbing here and there. my daughter has the type of degrees where she usually has no problem anywhere, but frankly, i think she was pretty sick about the fact she was watching him fall apart since he was unable to do what he loved. so, what do they do...pick up and leave for this teaching job last year.....and NOW....

                            he was JUST hired last school year.

                            first they cut his salary 2.5%
                            cut his medical and upped the monthly payment so much that he could not longer afford to cover the family
                            then they cut out his pension completely

                            that put them into a situation where he now makes enough to qualify for WELFARE!!!!!!!!!!!!!

                            but it doesn't matter because he just got laid off.
                            8/4/2008 MAKE SURE AND VISIT Tobee's Blogs! http://www.bkforum.com/blog.php?32727-tobee43 and all are welcome to bk forum's Florida State Questions and Answers on BK http://www.bkforum.com/group.php?groupid=9

                            Comment


                              #15
                              Originally posted by kjrmom911 View Post
                              Hey all. I will give a face to this. I am a public employee and have been for 15 years. I know everyone gripes about our retirements and our benefits, but what a lot of people don't realize is what we gave up in exchange for those were raises. That's right, we did not take raises every year with the idea that our pensions were funded. Well that fell through due to a lot of mismanagement of money and now we must pay our pension costs and increased medical costs(they go up every year). I am 1 of at least 2 people in my small dept that I know have file bk and I'm sure more will be following. It truly is scary. I don't make great money, 70,000 a year, but increased costs and no increased revenue over the years finally took its toll.
                              Just a little comaprison for a typical "middle class" wage earner. I am a private sector employee for a metals manufacturer. Hourly wage is $21/hr. Pretty good wage until you take off all the deductions. No pension unless I fund it. Only a 9% raise over the last 8 yrs. Not even a cost of living increase. Here is break down of my pay stub. Its pathetic.

                              401k contribution - 6%
                              Medical insurance - 15%
                              Union dues - 2% ( great union, huh?)
                              Uniforms - 1% (required by company fire retardent material)
                              Federal tax - 11%
                              State tax - 5%
                              Local tax - 2.5%

                              TOTAL - 42.5% deductions

                              ACTUAL HOURLY WAGE AFTER DEDUCTIONS - $12.10/hr

                              WAGES BEFORE DEDUCTIONS - $43,680/yr (no overtime)

                              WAGES AFTER DEDUCTIONS - $25,168/yr (almost qualifies for food stamps)

                              I would kill to have a job making $70k/yr.
                              Filed July 2009. Discharged 08/08/2014. Awaiting closing. We made it !!!! Woo-hoo!

                              Comment

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