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When institutions fail us: Mistakes of others can cause bankruptcy

Bank mergers, nonprofit closures, and code itself reveal loopholes that need closing


Any number of reasons might compel one to file for bankruptcy protection; often cited are job loss, medical debt, divorce, and overspending.  Sub-niches might include underemployment and lack of savings to deal with emergencies. Yet another might be natural disaster, such as floods or tornadoes. Another might be that bankruptcy protection is the only available avenue left to save one's home.

Another, unfortunately, is that our institutions might fail us, either as clients, customers or employees.

Bank foul-up triggers woman's bankruptcy to save home, other investments

Take the case of this 68-year-old woman, reported May 2 in the Chicago Tribune:
When one bank takes over another, foul-ups with customer accounts can occur.

Ask Suzanne Aleshire, who blames her personal bankruptcy on mix-ups dating to the takeover of her lender, Villa Park Bank, by Harris Bank more than five years ago.

Aleshire, 68, who launched a business buying and rehabbing houses, originally as a sideline to being a national sales manager at Sears Roebuck, claimed in a federal lawsuit that Harris began double-reporting her loans to credit bureaus, making it appear that she was overextended. That, in turn, damaged her credit and scared potential lenders when she tried to refinance. As time dragged on, she drained her savings and fell behind on payments.

On Feb. 21, only days before her David Adler-designed, six-bedroom home in Winnetka was scheduled to be sold in a sheriff's sale as a result of a foreclosure action, Aleshire filed for bankruptcy protection to try to hang on to her residence and investment properties.

Big medical bills--for former medical workers

A May 23 opinion piece in the South Bend (Indiana) Tribune discusses the unfortunate circumstances of some employees of a nonprofit medical center who are facing large medical bills--even though their premiums had been paid.
The plight of former Madison Center employees slapped with unpaid health insurance claims ought to catch the attention of state and federal lawmakers. These workers were promised and paid into medical benefits that disappeared, saddling them with staggering debt.

Most of us, even in a good economy, strive for a job that offers health insurance. We trust that paying our premiums means that a good part of the cost of our medical care, should we need it, will be paid for.

But a Tribune report Sunday revealed that two women who had worked for Madison Center have learned their bills won't be paid even though they'd met their premiums covering the times of their illnesses. Madison Center, which had been the community's primary mental health provider, was dissolved in St. Joseph Circuit Court last month following its financial collapse. Because Madison Center operated as a nonprofit, it wasn't subject to federal bankruptcy rules that might have provided a better outcome for the employees.

Employment discrimination: law of unintended consequence?

As a result of the nonprofit loopholes, the two former employees may have no choice but to file for bankruptcy protection themselves. As the editorial concludes, legislators need to act quickly to remove such loopholes and protect employees and consumers alike.
Another loophole involves the bankruptcy code itself; Congress needs to rewrite one section about employment discrimination against people who file for bankruptcy. An example is a County Clerk in Washington state; from the May 21 Wenatchee World:

Five months after she was sworn in as Okanogan County clerk, Charleen Groomes is now legally qualified to hold the office, an Okanogan County judge decided Friday.

Superior Court Judge Jack Burchard warned Groomes last month that she could lose her position unless she found someone to cover her surety bond. Groomes said she found out in March that five insurance company declined to cover her for the $150,000 bond, required under state law in case of a negligent or fraudulent misappropriation in the Superior Court Clerk’s Office.

Groomes said a personal bankruptcy 10 years ago hurt her credit rating, making insurance companies unwilling to cover the bond.

“I just had no clue this was something that would come back and bite me after 10 years,” she said on Thursday.

Say what you want about a candidate's not realizing the requirements of office; regardless, bankruptcy law makes it pretty apparent that people aren't supposed to be subject to discrimination in the workplace simply for having a bankruptcy on their records. Unfortunately, the way the statute is written, at least one court has ruled that government employers are due more protection from the bankruptcy code than are employees of private business. An excerpt from section 525 reads, in part:
. . . a governmental unit may not deny, revoke, suspend, or refuse to renew a license, permit, charter, franchise, or other similar grant to, condition such a grant to, discriminate with respect to such a grant against, deny employment to, terminate the employment of, or discriminate with respect to employment against, a person that is or has been a debtor under this title or a bankrupt or a debtor under the Bankruptcy Act, or another person with whom such bankrupt or debtor has been associated, solely because such bankrupt or debtor is or has been a debtor under this title or a bankrupt or debtor under the Bankruptcy Act. . . .

To be continued: Time after next, the language addressing private employment and the court case that allows private employers to deny employment based solely on the candidate's having filed for bankruptcy.

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