The Securities and Exchange Commission (SEC) plans to propose rules that may diminish the longstanding importance of credit ratings across various markets, including the $3.4 trillion money-market industry, in the latest blow to the rating business stemming from the credit crunch, the Wall Street Journal reported today. The most significant portion of the rules, to be proposed tomorrow, would make it possible for U.S. money-market funds to invest in short-term debt without regard to ratings put on those securities by firms such as Moody’s Investors Service and Standard & Poor’s. Currently, SEC rules generally require that money-market funds purchase only short-term debt with high investment-grade ratings. The new rule would put more discretion in the hands of money managers to determine whether the debt is investment grade.

The Supreme Court yesterday declined to hear an appeal by W.R. Grace in a criminal case brought by the government over the company’s alleged release of asbestos from a Montana mine, the Associated Press reported. Federal prosecutors charged the company and six executives in February 2005 with violating the Clean Air Act by releasing asbestos from a vermiculite mine in Libby, Mont., even though they allegedly were aware of its dangers. The justices’ decision, without comment, allows the government’s case to go to trial. W.R. Grace, of Columbia, argues that the Environmental Protection Agency’s definition of asbestos doesn’t cover most of the substances taken from the mine. U.S. District Judge Donald Molloy of Missoula, Mont., agreed with the company, but the U.S. Court of Appeals for the Ninth Circuit overturned that ruling. The company agreed to a $3 billion settlement in April that would allow it to emerge from bankruptcy without further asbestos liability. The settlement sets up a trust fund to pay claims against the company, which hasn’t yet emerged from bankruptcy protection.

H.R. 4044, a bill that would exempt military reservists called to active duty and certain others from application of the means test in chapter 7, passed the House of Representatives yesterday passed by a voice vote, the Assoicated Press reported. The legislation exempts Guard members and reservists who have served at least 90 days on active duty from the means test established by BAPCPA. According to the House Judiciary Committee, between Sept. 11, 2001, and Nov. 30, 2007, some 450,000 Guard members and reservists have been deployed to Iraq and Afghanistan. It cited estimates that up to one-quarter of deployed Guard members may suffer from money problems because of a fall in income levels while they are overseas.

A federal grand jury in Brooklyn, N.Y., indicted two former Bear Stearns Cos. Hedge fund managers, alleging that they misled investors when their fund was in peril, lied about their financial interest in the portfolios and destroyed evidence in the investigation, the Wall Street Journal reported today. The high-profile criminal case, along with a parallel civil securities-fraud action by the Securities and Exchange Commission, marks the first criminal securities-fraud charges stemming from the mortgage-market crisis. The 27-page indictment paints a picture of the scramble by the managers, Ralph Cioffi and Matthew Tannin, to keep their hedge funds alive. The U.S. attorney for New York’s Eastern District highlighted emails and meetings where the fund managers appeared to reveal their severe doubts about the health of the funds.

The Justice Department announced yesterday that 406 people had been indicted since March on charges of mortgage fraud involving the sale of individual properties, including about 60 who were arrested on Wednesday, the New York Times reported today. The sweep, called Operation Malicious Mortgage, focused primarily on three types of crime: lending fraud, foreclosure rescue frauds and mortgage-related bankruptcy schemes, the department said. Operation Malicious Mortgage represents the joint collaborative efforts of the FBI, U.S. Postal Inspection Service, IRS, U.S. Immigration and Customs Enforcement, U.S. Secret Service, U.S. Trustee Program, Department of Housing and Urban Development, Department of Veterans Affairs and the Federal Deposit Insurance Corp. The indictments stemmed from 144 cases that resulted in more than $1 billion in estimated losses. The FBI has more than 40 task forces around the country that are working with other federal, state and local law enforcement agencies on mortgage fraud issues. Its caseload has nearly doubled in the last three years, from 721 mortgage fraud cases in 2005 to more than 1,400 cases that are currently pending.

While there has been a 40 percent increase in filings over the past year, law firms that have been preparing for the next wave of corporate bankruptcies for the past two years are starting to think that the surge may be more of a swell than a tsunami, the National Law Journal reported yesterday. Loan terms favorable to borrowers, more secured corporate debt, 2005 bankruptcy law changes and other factors, such as alternatives to chapter 11 have contributed to a decline in the number of companies seeking protection, attorneys noted. Expectations that more companies would seek protection from creditors came in 2006 with the slowing U.S. economy and grew late last year as the subprime mortgage crisis turned into a broader credit crunch. Still, the number of business bankruptcy filings for the year ended in March was 30,741, well below the 37,548 filed for the period in 2003. One of the biggest reasons for the turn of events is the different look of ailing companies’ financials this time around. Many companies slipping into trouble have more secured debt, which is backed by assets, as opposed to unsecured debt than in previous downturns. In addition, companies are benefitting from more generous loan terms stipulated before the downturn, when lenders were still competing intensely to provide credit.

The House Financial Services Committee announced today that it will hold a series of hearings starting in July to examine restructuring the financial regulatory system to better adapt to changes in the financial markets, according to a committee press release. Chief among the committee’s concerns are the dramatic growth in the share of assets held outside the commercial banking system, the complex arrangements that link financial firms that are regulated differently and the increasing amount of leverage the differently regulated firms they carry in the marketplace. The committee will explore the potential systemic risks associated with these developments, the adequacy of current oversight and tools, and the extent to which existing structures are adequate to respond to future problems. “As the extraordinary measures utilized to respond to the Bear Stearns crisis demonstrated, we have failed to develop a regulatory system with the reach and capacity to protect the system against the large risks embedded in our increasingly interconnected markets,” said House Financial Services Committee Chairman Barney Frank (D-Mass.). Witnesses expected to be invited to testify before the committee include Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben S. Bernanke, New York Federal Reserve President Timothy Geithner, SEC Chairman Christopher Cox, other federal regulators, academics and economists.

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A “secured creditor” is one that has a lien on property such as a home or car. A lien is an interest in property that a creditor can use to satisfy a debt. Liens can be voluntary (mortgage or auto loan) or involuntary (a lien on property resulting from unpaid taxes or a judgment).

An “unsecured creditor” is a creditor who has no interest in any particular property of the debtor. Unsecured creditors are paid either voluntary by debtors or must receive a judgment through the court in order to collect on a debt. Obviously, the secured creditor has a much greater protection than an unsecured creditor in that the lien on the debtor’s property is usually honored.

See Secured & Unsecured Creditors

Chapter 7: State exemptions are available in the form of wearing apparel, retirement accounts, tools of trade, household goods, and an automobile with limited equity. The thinking behind these exemptions is to ensure that debtors in a bankruptcy are able to file without giving up the essentials of living. In addition, there are also federal exemptions that provide a debtor with even more protection in assets such as a home, but it is important to note that all non-exempt assets will be surrendered when filing for bankruptcy enabling the trustee to use those assets to pay off unsecured creditors.

Chapter 13: Filing for bankruptcy under Chapter 13 differs from that of a Chapter 7 in that a debtor will not have to surrender any property. Chapter 13 presents debtors with an opportunity to repay their debts over a reasonable period of time. Of course, the debtor must have the means to do so or the non-exempt assets will once again be seized by the trustee.

See Also: Bankruptcy Questions

Check out the latest Squidoo page about Chapter 7 Bankruptcy. The page contains a link to David Siegel’s appearance on FoxNews talking about Chapter 7 and Chapter 13 bankruptcy. There is a special emphasis on saving a home through Chpater 13 bankruptcy. “It’s always better to save a home if you can”, said Siegel.

Click this link to view page: Bankruptcy