Bankruptcy Benefits

Bankruptcy gives an individual or business a chance to start fresh by forgiving debts that just can't be paid while offering creditors a chance to get some amount of repayment based on what assets are available. In theory, the ability to file for bankruptcy can benefit an overall economy by giving persons and businesses another chance and providing creditors with an amount of debt repayment. Bankruptcy filings in the United States can fall under one of several chapters of the Bankruptcy Code, such as Chapter 7, which involves liquidation of assets; Chapter 11, company or individual "reorganizations"; and Chapter 13, debt repayment with lowered debt covenants or payment plans. Bankruptcy filing specifications vary widely between different countries, leading to higher and lower filing rates depending on how easily a person or company can complete the process.

When a company is planning on walking away from billions in debt, it has no right to expect things to go smoothly. The largest power company in Texas is still pursuing a “prepackaged” bankruptcy.  A “prepackaged” bankruptcy is a plan for financial reorganization that a company prepares in cooperation with its creditors that will take effect once the company enters bankruptcy. This plan must be voted on by shareholders before the company files its petition for bankruptcy, and can result in shorter turnaround times. The idea behind a prepackaged bankruptcy plan is to shorten and simplify the bankruptcy process in order to save the company money in legal and accounting fees, as well as the amount of time spent in bankruptcy protection. The sooner the company can emerge from bankruptcy, the sooner it can implement its reorganization and return to generating revenues from its core operations. That type of restructuring usually costs less and finishes faster than a traditional Chapter 11 case and it often conforms to management’s vision. 

In 2013, 29 percent of the bankruptcy fillings by the public companies have been “prepackaged,” according to BankruptcyData.com. This share is almost two times as high as last year’s. The former TXU Corporation is in line now to become the largest bankruptcy, measured by its $40 billion in debt. Energy Future Holdings has many classes of creditors, and some face the prospect of losing 95 percent of their investments. They almost have nothing to lose by rejecting a deal or pushing to break up the company. Private equity firms are trying to salvage their reputation and some of their stakes, and hedge fund managers are trying to capitalize on a financial debacle. For some high-profile local cases, a bitter fight in bankruptcy court produced better returns for creditors and sometimes better prospects for employees.

Source: "Expect an EFH power fight" by Mitchell Schnurman, from Dallas Morning News. 9/22/13

No Longer Seeking Work

The unemployment rate is dropping, but for what reason? It is not because individuals are getting jobs, it is because they have stopped looking for jobs! In a recent newspaper article, Wire Reports announced that many individuals are no longer seeking work. This creates an economic problem, causing the labor participation rate to fall to its lowest level since August 1978.

From 2008 to 2013, the labor force participation rate has dropped from 66% to 63.2%. The labor force participation rate is the percentage of working-age people in an economy who are employed, or unemployed but looking for a job. Typically, working-aged people are people between the ages of 16-64. People in those age groups who are not counted as participating in the labor force are typically students, homemakers, and people under the age of 64 who are retired. 

The unemployment rate doubled from 5% to 10% between 2008 and 2009, and now, in 2013, it has fallen back down to 7.3%. The unemployment rate has fallen because more than 300,000 people stopped looking for work. The unemployment rate is the number in the civilian labor force divided by the number unemployed. However, everyone without a job isn't necessarily unemployed, at least according to the Bureau of Labor Statistics. To be counted in the unemployment rate, you not only have to be without a job, you have to have actively looked for work in the past four weeks. If someone has given up looking for work, they are no longer counted in the unemployment rate. When the unemployment rate reaches 6-7%, as it did in 2008, the government gets concerned, and tries to create jobs through stimulating the economy. It may also extend unemployment benefits to prevent the recession from deepening. Studies show that extended unemployment benefits are the best way to boost the economy. 

How exactly does creating jobs help the economy? Isn't it sort of a backwards approach to create jobs? If all jobs are occupied, then we would have sufficient resources to sustain society/economy and we would have excess people who wouldn't need jobs. If more people are looking for work, less people will be buying, and the retail sector will decline. If less people are looking for work, then that means jobs are being left undone. More jobs means more people having money, meaning more people buying things which goes back to the community and keeps businesses going. People need jobs in order to get a steady income. The employee will use that income to pay for products and services in order to enjoy life. 

Source: "On close look, job numbers not rosy" by Wire Reports, from Dallas Morning News, 9/7/13