The President of the New York Federal Reserve recently gave commentary that the municipal bankruptcy of Detroit, along with Stockton’s bankruptcy, may foreshadow more widespread problems in municipal governments across the country that are not reflected by bond ratings.
Bond ratings are similar to consumer FICO scores in that many investors heavily rely on them when making decisions on extending credit. Similarly, in the consumer lending world, FICO scores are not a perfect representation of a lender’s ability to recover credit.
Consumer bankruptcy lawyers often see debtors who have a good payment history with creditors, but have too much debt for their household income. This often occurs when credit cards are used to finance larger purchases. The interest rates are so high that many individuals continue to pay just the minimum payment requirement. Any bankruptcy lawyer can tell you that paying the minimums will not get you out of debt any time soon.
A bankruptcy lawyer should be able to calculate the anticipated date where your cards will be paid in full and then compare your options under consumer bankruptcy.
For example: if you have $30,000 of credit card debt paying 23% interest, and a monthly payment of $600, it will take almost fourteen years to pay the card in full.
A bankruptcy lawyer can take that same $30,000 and $600 per month payment and have you out of debt in just five years if you decide to pay the entire amount back. In many cases, you are able to eliminate your credit cards without any repayment at all.
To close, debt is a problem. Living above one’s means is a problem. A good FICO score does not mean you are positioned for success. Contact a bankruptcy lawyer to discuss your options and how to budget yourself for a better tomorrow.
More on the story of the New York Fed President’s comments on MLive:
DETROIT, MI – Five months later, Federal Reserve officials say Detroit’s municipal bankruptcy could signal bigger problems in the United States, reuters.com reports.
The November decision after a 16-month court process that allows Detroit to shed $7 billion of debt, along with a similar decision from Stockton, Calif., might just be the start of widespread municipal problems.
According to reuters.com, New York Federal Reserve President William Dudley said earlier this week that “While these particular bankruptcy filings have captured a considerable amount of attention, and rightly so, they may foreshadow more widespread problems than what might be implied by current bond ratings.
“We need to focus our attention today on addressing the underlying issues before any problems grow to the point where bankruptcy becomes the only viable option,” Dudley said.
In November, U.S. Bankruptcy Judge Steven Rhodes approved the eighth and final version of Detroit’s plan to reduce its budget-crippling debt, estimated when the case began in July 2013 at $18 billion.
The decision allowed the a big, 10-year plan to restore city services to begin.
Said Rhodes at the time of the decision: “Detroit’s inability to provide adequate municipal services runs deep, and has for years…It’s inhumane and intolerable, and it must be fixed. This plan can fix these problems, and the city is committed to it. So, to fix this problem, the court must require these few creditors who rejected the plan to nevertheless share the sacrifices that the other creditors have agreed to endure… There really is no choice here. There are no viable alternatives to this plan that will solve the city’s problems.
“The city and its people desperately need the shared sacrifice that this plan will impose on all of its creditors.”
Around the same time, former Detroit Emergency Manager Kevyn Orr said other cities should use caution before looking at Detroit’s case as a setter of precedents.
MLive: http://www.mlive.com/news/detroit/index.ssf/2015/04/detroit_bankruptcy_could_signa.html
