It Appears California’s New Neutral Evaluation Process is a Failure Just Like Debt Consolidation is a Failure

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Stockton California is the first municipality in California, that I am aware of, that has had to comply with AB 506 or Government Code Section 53760 before filing a Chapter 9 municipal bankruptcy.  As of this moment Stockton has not filed for bankruptcy protection yet.  What we do know is that the Neutral Evaluation process failed.  The city was not able to work out agreements with enough of their creditors to prevent having to file for bankruptcy protection.

Why the Neutral Evaluation process envisioned by the California legislature will most likely fail to prevent municipal bankruptcy cases are the same reasons why debt consolidation fails for our clients time and time again.  Creditors rarely choose to actually take less and work out a reasonable settlement that is possible for the city or person that owes the money.  It is also almost impossible to work something out with each and every creditor.  Unfortunately there always seems to be a creditor that files a lawsuit.  Credit card companies force our clients into bankruptcy just like the City of Stockton’s creditors are forcing them to file bankruptcy.  It is no different.

What happens when you miss a few credit card payments?  The first thing that will happen is late charges will be added to the amount owed.  Then your percentage rate will skyrocket to well over 20%.  Both of these things make it very difficult if not impossible for someone who is already having difficulty making the minimum payment to ever get out from under the debt.  Is this in the credit card company’s best interest?  Common sense would tell you no.  They are not making it easier to pay back the debt, but much more difficult.  So if you try and reach a settlement with them to make the terms easier for you to pay back the debt and avoid bankruptcy you will most likely be unsuccessful.

The City of Stockton was forced by California State Law to try and do some sort of debt settlement with their creditors.  The creditors new the other option would be bankruptcy and they still said no to better terms to keep the City of Stockton out of bankruptcy.  They would rather take their chances after the City of Stockton files for bankruptcy protection.  For some reason large credit card corporations and it appears creditors’ owed money by the City of Stockton have crunched the numbers and bankruptcy is better for them too.