It can sully credit ratings, making it hard to get approved for mortgages or other kinds of loans. It can also cause all kinds of stress and worry. So, it would never be judicious to minimize the pain and suffering resulting from the ramifications of being buried under difficult-to-manage debt.
That being said, two recent news items might give pause, and maybe a little perspective, to those who are coping with their own debt difficulties. If nothing else, they will prove that no one is alone when it comes to the misery of having to deal with a wagon load of debt.
The first story concerns an individual by the name of Steve Fleischli from the town of Labadie, Mo. This past January, Fleischli left the U.S. and went to China to attempt to deal with some debts that his company, NorthPole Ltd., a maker of outdoor and camping gear, and the global private equity fund that owns it, Warburg Pincus, LLC, owed some Chinese suppliers.
Apparently, Fleischli’s March meeting at a factory in Xiamen, China did not go well. After trying to explain NorthPole’s cash flow problems to an unsympathetic group of workers, he actually had to be saved by a squadron of riot police; it seems that his angry business partners forced him to barricade himself inside the factory building for 36 hours while they blocked traffic outside and hurled objects through the windows.
Not only that, since Fleischli is recognized by the Chinese government as NorthPole’s legal representative, responsible for its company debts, his passport has been confiscated and he is not being allowed to leave the country until the debts are settled. To make matters worse, Warburg Pincus has fired him as NorthPole’s CEO, yet refuses to rescind his designation as the firm’s legal rep. Even the U.S. State Department is helpless in trying to redress his situation. So Fleischli is still stuck in China on what has to be one of the world’s most disastrous business trips.
Segue to the town of Stockton, California: After three months of fruitless negotiations with its creditors in an attempt to restructure hundreds of millions of dollars of debt, the city is poised to become the largest in America – population 290,000 – to declare bankruptcy.
Like many municipalities in the Golden State, the sinking economy and the collapse of the housing market has caused a drastic decrease in Stockton’s property taxes and other revenues, while expensive infrastructure investments and generous pension expenses drained its treasury dry.
Over the past three years, the city purged one quarter of its police force, one third of its fire department and approximately 40 percent of all other city workers, while reducing wages and medical benefits for its remaining employees – and yet it still faces a shortfall of $26 million in the upcoming year’s budget. That means no money for its creditors.
City officials have stated that filing for Chapter 9 Bankruptcy is the only option left, giving it protection from lenders’ lawsuits, while allowing it to maintain essential city services. It also shifts the burden of crafting a repayment plan of its debts onto the shoulders of the court’s bankruptcy judge.
Again, it’s normal to be anxious about one’s own debt problems and each individual still has to find ways to dig out from under. But the chances are good that very few debtors are trapped in China without an idea of when they’re going home, or have to bear the debt burden of an entire city – one that will take years to climb back into solvency.
Sources
Wozniacka, G. (2012, June 6). Stockton, California to Declare Bankruptcy. The Huffington Post. Retrieved June 27, 2012, from http://www.huffingtonpost.com/2012/06/27/stockton-california-bankruptcy_n_1629390.html
Logan, T. (2012, June 17). Stranded in China: Debt Dispute Leaves Missouri Businessman in Limbo. The Saint Louis Post-Dispatch. Retrieved June 27, 2012, from http://www.stltoday.com/business/local/stranded-in-china-debt-dispute-leaves-missouri-businessman-in-limbo/article_ad02e834-b71b-11e1-9b6a-0019bb30f31a.html
Katherine Pilnick writes and blogs about personal financial well-being, debt consolidation, and issues that influence it for Debt.org, America’s Debt Help Organization.
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