Recently, we have seen the cities in California make the news for filing for bankruptcy protection. Stockton recently made headlines with this and now Mammoth Lakes. If you are in California, chances are, you have enjoyed the Mammoth ski resorts at one time or another. We’ve watched Mammoth Lakes’ growth over the years from the influx of skiers, snowboarders, and other outdoor activity seekers. So what can be learned from their situation that you can apply to your financial difficulties?
Essentially, the purposes of the bankruptcy are very similar to what a consumer can do. The city of Mammoth Lakes had an outstanding debt amount of $30 million that the city could no longer afford to pay. The city filed a Chapter 9 bankruptcy which is basically the type of bankruptcy used by municipalities that can stop court actions against it until finances are reorganized. Mammoth Lakes owes the money to a development company that helped build the city into its current state. The debt is now stated to be up to $43 million including legal fees and penalties. So, it appears that the city’s budget may have been based on revenues goals that were not met, leading to defaults in payments to the development company. It is not too different from someone who took used a credit card to improve a home, expecting to be able to make the monthly payments based on average monthly income. If the person unexpectedly loses their job, they will not have enough income to make the payments to the creditor and the creditor will take them to court to try and get the funds. If the person has become insolvent due to insufficient income and wants to protect the funds they have left, they can file for bankruptcy protection just like Mammoth Lakes is doing.
With bankruptcy protection in effect, the bankruptcy court will not allow any more collections proceedings until the bankruptcy court takes a look at all assets and income to help settle some debts without wiping out all assets. Bankruptcy protection will allow the city to keep what it needs so it can survive. The same thing would occur in a Chapter 7 bankruptcy with a normal consumer.
A Chapter 7 would protect the assets you need to live and continue to function normally. If you are down to your last few thousand dollars of funds, you will keep those funds so you can continue to survive. You can keep retirement assets, vehicles, even home equity. By helping you survive, bankruptcy protection is also helping you to become a contributing factor to the economy after bankruptcy protection is over. The same would happen with a city like Mammoth Lakes. If bankruptcy protection does not help the city recover, the city may have to stop all services, leaving the town’s residents stranded in snow without any help from the city. Everyone would leave the city and migrate to a more functional town where public services are available. Bankruptcy protection can help the city recover from its past mistakes and become a positive contributor to California’s economic future.
If you are interested in finding out how bankruptcy protection can help you, contact us for our Riverside bankruptcy attorneys or Orange County bankruptcy attorneys at (855) 257-7671.