Is the general public "paying" for my BK?!

[OhioFiler]

How do you think the accrued liability is created? Debit an expense ("Losses due to defaults"). Credit the liability (Reserve for Defaults).

When they debit the expense to create the reserve, they are increasing expense and lowering income. This is absolutely an income statement effect. If they only make high quality loans the reserve created is smaller. If they have high risk activity, they have to create a larger reserve (acrued liability) and take a larger loss on the income statement.

By creating the reserve they are trying to take the expected loss over a longer period, usually a year. Rather than taking the hits when they actually occur. If they over accrue and have less actual loses than they expected, they will lower the estimated accrual the following year. And if the accruals were not large enough for the current year, most likely they will increase in the next year. All of these accruals are calculated by actuaries, based on historical data and expectations for the future.

If a bank hasn't accrued enough cost to cover the actual defaults they will also have to make a "catch up" charge to expense for the difference, at the end of the reporting period. Usually at the end of the quarter or year.

But the end result is that the banks do take an income statement hit for loses from defaults.

Unless of course the government gives them money.

Absolutely. My point is no ONE debtor defaulting affects anything and the shareholders are aware of the companies business lending models including the reserve calculations.

Those expected losses and subsequent reserves are a normal cost of doing business.

[frogger]

Those expected losses and subsequent reserves are a normal cost of doing business.

That's all that needs to be said.

It is factored into the cost of doing business just as is shrinkage, shoplifting, returns, handling charges, etc.

[BCA2009]

Absolutely. My point is no ONE debtor defaulting affects anything and the shareholders are aware of the companies business lending models including the reserve calculations.

Those expected losses and subsequent reserves are a normal cost of doing business.

Yep, I agree. But if the defaults occur at a higher rate than expected, the bank has to take an additional charge. Which is what should happen. If the bank didn't build enough premium into the interest rates, the bank (and it shareholders) deserve to lose money.

All I am saying, is that in response to the OP's question. The general public does not have to pay to make up for our defaults. The Banks owner's do because they made a bad business decision and loaned money to people they shouldn't have.

The OP shouldn't feel guilty at all. and she shouldn't feel like she owes that person on her internet forum any response at all.

[bakergrl]

I have a feeling that you may be on the same mom site as I am. They are very judgemental there, just ignore them. If you need another mom to talk to PM me. =)


Edit: yeah it is the same site and I commented on the post. ;)

[justbroke]

I equate that to the people who yell at police officers saying "I pay your salary". Well, unless you actually pay significant federal taxes, own a home, and pay significant State taxes... you probably pay none of that officer's salary. Same goes for Bankruptcy.

[blessed]

I equate that to the people who yell at police officers saying "I pay your salary". Well, unless you actually pay significant federal taxes, own a home, and pay significant State taxes... you probably pay none of that officer's salary. Same goes for Bankruptcy.

Reminds me of my step-child's mother complaining about buying school supplies because she "already paid the school enough in taxes!" Um, no honey you didn't, you're a renter and pay no property taxes. LOL

[bethgould]

Really? I'll have to go look to see if I can figure who you are on CM.

I have a feeling that you may be on the same mom site as I am. They are very judgemental there, just ignore them. If you need another mom to talk to PM me. =)


Edit: yeah it is the same site and I commented on the post. ;)

[addision]

Don't worry about it!

In the same way that yes all of us would would be paying for your bankruptcy, so are we paying for the bankruptcy of GM and Chrysler. To go even further, we also paid for the debt of Orange County California a few years ago when they went BK.

Every time there is a BK some amount of earnings gets lost and is suffered by the companies who are left with debt they can't collect on after BK. That burden is then placed on the employees of the companies and consumers to make up for it somewhere down the line, usually in layoffs or higher prices respectively.

However, I would gladly be willing to accept the debt of hard working individuals who had a difficult time rather than the debt of large corporations such as GM who can't figure out how to make a quality product yet are allowed to discharge billions.