Vallejo, California Bankruptcy Lessons

Recently, the city council of Vallejo approved a plan to exit bankruptcy (http://www.reuters.com/article/idUSN3028542420101201). It is the largest city to ever seek such protection. The case presents a story very common in many cities, counties, and states in the country. Governments received increased funds from the housing boom and the business that followed it. When the crash came a couple years ago, the loss of revenue hit the pockets of the treasuries. Specifically, Vallejo had to cut expenses, but was not able to make large enough cuts.

One of the reported problems in this case surrounds creditors allegedly unwilling to make concessions and deals with the city. Without such cooperation, the city turned to a measure that could end up losing those creditors significant payments on their debts.

How does this translate to consumers?

First, many in the Bay Area have seen ups and down in their own personal economic situations. Whether it was that initial purchase of Chipshot.com, Pets.com, or Webvan.com (although I still think it is a great idea), many here were caught up in the ride of the dot coms. After lost jobs, and the thought that Silicon Valley businesses could be hurt forever, we survived and new businesses emerged and took a stronger hold, such as Google, Facebook, and a rebounded Apple.

In recent years many thought that home values could continue to increase, even though prices seemed incredibly out of control to many. Home equity conversations were regular occurrences at dinner parties. Home equity mortgages were even more common. We are now in the middle of how our economy is reacting to this new adversity.

Second, the threat of bankruptcy can provide reason enough for creditors to work with you. Try talking with them directly to see what plans are available. If you fail to receive a response, or if their offer is completely one-sided in the creditor's favor, contact a debtor's attorney, such as the Henshaw Law Office, to see what your options are. Banks, home lenders, credit card companies, an even landlords should be willing to discuss alternative methods of payment with you or even debt reduction.

Once these negotiations fail, bankruptcy may be the best option. While bankruptcy is not a cure-all, it is a powerful option that can restore confidence and stability. Additionally, the bankruptcy process provides time for individuals and families to decide their financial direction without the constant onslaught of collection calls and repossession and foreclosure notices.