As everyone except three guys on a dogsled in Greenland know, US Airways-you know, the airline that got purchased when it emerged from bankruptcy by America West-US Airways has offered to buy Delta for about $8 billion in cash and stock. Citigroup-you know, the folks who are just itching for you to be a day late on your credit card payment so they can jack you up to 34 per cent-are agreeing to advance the lion's share of the cash to finance the acquisition.
Of course, one of the advantages of buying a company in Chapter 11 is that the stockholders and unsecured creditors of the floundering company are screwed, blued, and tattooed as the saying goes. They're damaged goods. It's part of a continuing picture of businesses using chapter 11 to shuck off their pension obligations, high wage structure, and improvidently entered into financial arrangements, only to re-emerge stronger than ever. Like K-Mart, for one.
Whether this level of consolidation is a good thing business wise, I don't know, and I don't and won't care unless I'm flying somewhere which I probably won't be.
But there's an ethical and moral question I'm confronted with every day in my legal work, and that is, when does or should a debtor cut and run? Many of the folks I deal with have taken the high road, and struggle mightily to avoid bankruptcy at considerable cost to themselves and their peace of mind. They're abused and victimized by predators like Citibank and their prowling lackeys, and they have to be dragged kicking and screaming to the bankruptcy courts.
That raises another subject and that was the bankruptcy reforms that were instituted last year. It's a homily on being careful what you wish for
Previously, the debtors could go straight to chapter 7, and the creditor community made many a grave and ponderous argument about 'payment morality'-the idea that debtors should feel morally responsible to pay their damned bills.
Citibank in particular has refused to work with credit debt settlement outfits, instead resorting to punishing litigation against people who can't afford lawyers. These are the folks who've said "Yes-it IS my debt, and I will do everything in my power to pay you, given some time and breathing room-just don't sue me in front of my neighbors."
So the American Bankers Association among many others lobbied mightily to get 'bankruptcy reform' passed in Congress and they finally pulled it off and got George's Idiot Son to sign the bill. Here's what they got.
If an individual debtor makes below the median income for their county they'll pretty much go straight to Chapter 7. Not much joy there. If the individual debtor makes over the median income for their county, they'll be steered into Chapter 13, which means the creditors will have to accept payments, not all the debt will be paid, and the consumer may well end up in chapter 7 anyway.
That's right, they'll be compelled by law to take the same sort of remedy that they refused when the idea came from the debtor community in the form of debt settlement. The debtor makes payments if he can do it and if not, he gets to chapter 7.
Nice work, Citibank. You got a lot of reform there.