01 October 2013

Government Shut-Down & Effect on Bankruptcy

Now that the federal government shut-down is a reality, I wanted to address some common questions people might have about the government shut-down.  This is an elaboration of my previous post.

First, everyone should bear in mind that this is a federal government shutdown.  Services provided for by state and local governments should remain unaffected, except to the extent they rely on federal money or resources.  Also, the entire government does not shut down.  "Essential personnel" are retained to continue operating certain critical aspects of the federal government, though they do so without pay until Congress provides funding.

We are told that the judiciary has funds to continue operating for approximately 10 business days (until about 10/15/2013) without any noticeable effect on services.  This is the first government shutdown in about 18 years, so specific details are not yet known.  If the shutdown continues for long, I will continue to post updates as we learn of them.

Q:  Can I still file for bankruptcy?
A:  Yes.  Bankruptcy filings are done electronically through an automated online system.  Unless and until we are told otherwise, there should be no interruption here.  What I am not certain of is whether the technical staff will be retained as essential personnel beyond 10/15/2013.  The electronic case filing system could go down (as computer systems are prone to do from time to time).  Also, the queues for the 341 calendars have to be entered manually.  If that service is suspended, then to comply with the scheduling rules, filings could potentially be blocked.

Q:  I already filed for bankruptcy.  Will my 341 hearing be canceled or rescheduled?
A:  We expect the 341 hearings to continue without interruption for the next 10 days.  During these 10 days, hearings held in non-government locations, or state/local government locations should certainly not be affected.  Therefore, hearings at Green Bay City Hall, the Green Bay State Office Building, Sheboygan County Courthouse, Winnebago County Courthouse, and Wittman Airport - should not be affected.  Hearings in federal buildings (such as the U.S. Courthouse in Milwaukee) could be relocated.  Beyond the 10 days, we are less certain.  Panel trustees are not government workers, but private individuals.  We believe hearings will continue, but the message we received from the U.S. Trustee has cast some doubt over that.

Q:  Will judges continue to hold hearings?
A:  Judges' pay is guaranteed by the Constitution, so they will continue to work.  However, their staff can only be retained to tend to essential work, and the staff won't be paid until the shutdown ends.  We expect that currently scheduled hearings will continue uninterrupted.  It is unclear how judicial services will be affected going forward, beyond 10/15/2013.  We expect there to be certain scheduling delays.
After October 15, 2013, we certainly do expect non-essential services to be cut-off - particularly anything that requires entry into a federal building.  The judges and UST are expected to be reduced to a skeleton staff.

Q:  How will the economy be affected by the government shutdown?
A:  The shutdowns in 1995-1996 (a total of 26 days) cost approximately $1.5 billion to the government, which is about $2 billion in today's dollars.  Current estimates are that this shutdown will cost $300 million per day - so this shutdown is shaking out to be about 5x more expensive per day.  The actual cost will, of course, depend on how long the shutdown lasts.  As for the rest of the economy, there will be an impact.  Government contracts and spending with private corporations does account for a substantial portion of our economy.  Decreased spending will have a ripple effect.  Potentially, businesses that rely heavily on government work could be forced to lay off their employees, which would decrease consumer spending and ultimately affect other industries, as well.  Also bear in mind that there are some 800,000 federal employees now not working and not getting paid.  Though they will get paid after the shutdown ends, they are in the meantime, effectively unemployed, so there will be some immediate effects on consumer spending.  This will all stifle economic growth.  Source: Bloomberg.