What leads a person to the steps of the bankruptcy court seeking relief from debt? That is not an easy question to answer – although there are some out there who may think they know the answer. But as I was digesting a recent opinion out of the Bankruptcy Court in the Northern District of Texas, I read the following:
Anecdotally, this court notes that it sees all sorts of consumer debtors come through the bankruptcy system. At one end of the spectrum, there are individuals who have been plagued with many bad circumstances that have led to their financial demise-such as health problems, injuries, medical bills, job loss or instability, divorce, or death of a bread winner. At the other end of the spectrum, there are individuals who have been blessed with good health and adequate jobs and resources, and yet have somehow created a mountain of consumer debt that they (and probably their creditors) should have known could never be repaid. Some of these latter individuals have even engaged in some sort of fraud along the way-perhaps in a loan application at some point, or with intentional avoidance and nonpayment of taxes, or by hiding assets before entering into bankruptcy.
But the vast majority of debtors this court sees fall somewhere between the two extremes. They are individuals who probably cannot honestly blame “bad luck” as the cause of all of their woes. And many of them have made more poor choices than wise ones, and such choices have finally caught up with them.
So what does this mean, and why am I sharing it with you? The easiest answer is that it is my experience that the court is right. However, there’s a rather significant “but…”
Unless we’re talking about a nefarious character with no sense of right and wrong, most people do not cheerfully enter the bankruptcy process. By the time they enter bankruptcy, or are at least considering it, they regret decisions they made. They know some of their choices were unwise. However, that does not mean that a debtor is not deserving of a chance to start over.
As I continued to read the Texas decision, I learned that the debtors had inconsistent income, high expenses, and some peculiar explanations for their debt. Also, the facts seemed to indicate a bit of ambivalence as to how they came into the financial predicament they were in, and why they sought bankruptcy relief. T heir case was dismissed because the court deemed it to be an abuse of Chapter 7. I did not summarize the case because I do not want people to read more into the facts but also because I want to assure readers who are facing bankruptcy that there’s something far more important in this case than the kind of car the debtor was driving or when they bought it. What’s more important is that they have a sense of who files bankruptcy and who is entitled to the relief afforded by the code.
Far too many talking heads (and readers know who they are) characterize people who file bankruptcy as buffoons with entitlement complexes. Making bad decisions is not evidence of an entitlement complex. Making bad decisions, standing alone, is also not evidence of fraud or other unscrupulous activity. Making bad decisions is evidence of being human (which by all appearances, some of those talking heads might be similarly viewed as such…although I often wonder).
Of course, whether a decision is so bad that it would effectively rule out bankruptcy as an option can only be determined after a careful review of the facts by someone who knows the law. As this court decision points out, there is no one cause that pushes people into bankruptcy and there is no bright line profile of a person who files bankruptcy. Those that attempt to convince the masses otherwise only breed prejudice and fear where it need not exist.
“I Need to Get Through the Winter”
For weeks I have wondered what impact the high price of home heating oil was going to have on people who need it. Would it push them into bankruptcy (or worse)? Since it is usually an accumulation of things that leads one to file bankruptcy, there is no clear way I can predict that the price of oil is going to push people over the financial edge. But last week, I spoke with a client who found himself standing on the proverbial financial precipice, and it was that realization that lead them to think about filing bankruptcy.
The client recently ended a long term relationship. As many of us know, it is far cheaper for two people to live under the same roof than it is for one. The household income had dropped, and every day expenses increased. There was also some debt that continued to linger such as credit cards and consolidation loans. While he was paying a modest rent (less than $1,000 per month), it did not include the price of home heating oil.
To meet his obligations, the client did what many people do: he decreased expenses. However, he did so to the detriment of his health. A few years ago, he underwent a gastric by-pass. Instead of buying the protein and vegetables that his doctor expected him to eat (and that frankly, we all need to eat), he was instead eating the less expensive pasta and starch that he should not be eating.
Since it’s July, his oil use in the summer is limited to heating the hot water, and just ½ tank (100 gallons) can get him through most of the summer. But from December through April, it is not uncommon for his tank to be filled at least once per month. What prompted him to call me was that when he got his summer oil delivery last month, that 100 gallons cost him $429.
Making things more difficult: many (if not all) oil companies are refusing to lock in prices or offer budget plans.
The client realizes that unless the other debt is somehow compromised, he either will not be able to heat his apartment, or his other creditors will not get paid. In other words, he sees that at some point, a choice will need to be made. Without the debt, the client could get through the winter assuming that that there are no dramatic increases in the prices. And it is this scenario that causes me to ponder this: “how many other people are wondering how they are going to do it?”
It’s not an easy question I can answer. However, for this client, who is struggling with the increasing prices on consumer goods and debt, and facing a cold and expensive winter, he has answered that question by considering bankruptcy. For him, it might be the only way to get through the winter.
Tags: Bankruptcy, Chapter 13, Chapter 7, Commentary - Legal
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