With the limited exception of realizing while in court that I have worn two different colored socks and I am convinced that everyone can tell, there’s nothing that drives me more nuts than exaggerated and half-baked claims about bankruptcy. A recent article on TheStreet.com proves my point. Lauren Tara LaCapra writes in “Bankruptcy Can Hurt For Decades”:
Rules enacted in 2005 made it harder and more costly for Americans to file for Chapter 7, in which assets are liquidated and given to creditors, or Chapter 13, which structures a repayment plan for certain debts over a term up to five years. (Debts outside of the plan would not have to be repaid.)
Harder, no. Costlier, yes. It’s hard to really chide the writer for this lack of understanding because I know many people have it. But, there is also this: “Debtors outside of the plan would not have to be repaid.”
Um….No. If debts are not in the plan, they need to be paid. A best example I can give is with a car loan. If the debtor wants to keep the car, the loan needs to be paid. That loan is paid outside the plan. If it doesn’t get paid, the car gets repossessed. I could (and perhaps will at some point) get into some long analysis as to whether a deficiency must be paid through the plan and why. I could (and perhaps will at some point) blog about what happens when debtors attempt to pay only certain creditors through a plan, while paying others on the side. Suffice it to say, the claim that debts not included in the plan need not be repaid is flat out wrong. (I could reasonably infer that the term “Debts” might really mean “Regular monthly expenses” such as the electric bill and the phone bill. Those do get paid outside the plan…but they are not debts. They are expenses.)
Then, the article refers to an Ohio State University study:
…it can take over 20 years for bankruptcy filers to reach the same financial status as those with similar social and economic backgrounds who did not file for bankruptcy. It took more than a decade for a bankruptcy filer to catch up to peers in terms of savings, income and home ownership, according to the study. It took more than a quarter of a century to reach the same level of net worth.
Translated: people who file bankruptcy will not be in the same financial station in life as their peers who do not file bankruptcy. I imagine that most people facing bankruptcy know this…I also imagine that if they are in so much debt that they probably already know this. I also imagine that some of “their peers” are also quietly suffering with a boat-load of debt while all the while trying to put a good face forward to as not to lead anyone to suspect otherwise.
Jay Zagorsky, co-author of the study and a research scientist at Ohio State, notes that high prices for gas, food and housing, combined with crushing debt, can make bankruptcy seem like an easy way out with a clean slate.
“But,” he adds, “to experience what people may heard of as a ‘fresh start,’ that may take longer than they expect or would like.”
True. But it’s going to be easier to pay the higher costs for food, gas and home heating oil if the other debt is dealt with in bankruptcy. As far as getting credit again, it can happen. I have had clients who have been in bankruptcy (chapter 13) and gotten credit cards (without my knowledge and without court permission…which is actually not a smart thing to do at all). I have had clients who have received their chapter 7 discharge and within weeks were receiving credit card offers (and in some cases, receiving cards). Of course, in those days, if you had a pulse, an address you could get a credit card.
Today, it’s not so easy. We are in a credit crunch. Underwriting standards are changing, and some merchants are rethinking whether they will accept credit cards. Just this week, I received a letter from Filene’s Basement telling me that they were discontinuing their credit card after September 1. They were also kind enough to send me a coupon for 15% off of one-item. But I digress…
Gas and food costs are going to make it difficult for people. Actually, it is making things difficult for people…which includes people like me. Then, the article offers this not-particularly-sage advice:
Those grappling with high costs and excessive debt should seek out other options first — whether restructuring or consolidating debt, negotiating a payment plan or lower interest rates with creditors, selling off assets or simply cutting back on costs — before putting a 20-year “scarlet letter” on their credit scores.
You cannot restructure your mortgage if your lender will not return your calls. You cannot consolidate your debt if you cannot qualify for a consolidation loan. You shouldn’t consider repaying debt with credit counseling without exploring whether chapter 13 is actually a better and more cost effective route. Selling assets: sure. So long as it’s not a house you need to sell anytime soon, and so long as you’re not selling something to a buddy because you’re concerned about losing it in a later bankruptcy filing. And as for cutting back on costs, some cannot cut back anymore.
Finally, the bankruptcy filing does not stay on the credit report for 20 years. It’s on the credit report for 10. It’s also not a Scarlett Letter…harkening back to that Nathaniel Hawthorne novel about an adulterous Demi Moore who is forced to wear an “A” so as to let the world know how sinful she is.
For the overwhelming number of people who walk through my office door, that bankruptcy filing is exactly what they need to move on. The bankruptcy is exactly what it will take to get things back on track and to help them face the new economic challenges that face us all. While I encourage debate with others with different points of view, I urge anyone who is “knee-deep in debt” to get the facts. It’s a shame that this article is short on them.
2009: Perchance to Dream
New Years is a time when many make resolutions. Some resolve to quit smoking. Some resolve to lose weight. The list of resolutions is endless. Personally, I think many resolutions are pretty useless. I didn’t stop smoking because of a resolution (but I did quit… a few Novembers ago), and I have not exactly kept up with resolution diets. I’ve been racking my brain trying to come up with something appropriate to write about for New Years. The last thing I want to do, especially today, is sound trite. It’s not like you can simply “resolve” to get out of bad mortgage or you can “resolve” to get a better job when companies are laying off. But then yesterday, I had a surprise visit from an old client who helped my thought process move along.
My client went through a long chapter 13. At times, it was not particularly pleasant. But all plan payments were paid and the discharge was received a few years ago. Now, she’s dedicated to her business and determined to keep make it grow in a difficult economy.
During our brief meeting, I noticed something different. Was it the hair color, I thought? No. Did she have her teeth done? No, not that. Then it dawned on me. It was something more.
She was happy. She was smiling. While she was not a particularly unhappy person while the case was open, I think it’s fair to say the chapter 13 was not a particularly happy period in her life. But now, the chapter 13 case is behind her and yesterday she sat before me smiling, happy, and talking about the future.
As an attorney, while I try to get my client’s perspective, I really can only get so much. I can only put myself so far into a client’s shoes. So I asked her, now that her case is behind her, now that she is moving forward with her life in new directions, what were her feelings about the bankruptcy process now that she was “on the other side of it.”
She didn’t hesitate with her response. (I can’t quote, but I did take a few notes.) She told me that going through that difficult process allowed her to dream again. That now she could dream and that making those dreams a reality again seemed possible. Her dreams were no longer mired down in a chaos created by debt that had spiraled out of control. She told me that she felt freer than she had felt in a very long time.
The minute these words flowed, I could feel a smile growing on my face….and a bit of a lump in my throat. And then, it dawned on me: ‘this is what I’ve been itching to write about for the New Year.’
Many are looking at 2009 with a sense of foreboding and trepidation. World events are not exactly fueling optimism about the future. Perhaps 2009 will not be a year when dreams will come true. Perhaps things may get worse.
Or perhaps in spite of that, you can find a way to knuckle down, stand straight, bite your lower lip, bide your time, and get through a journey that brings you to the other side of it: a side where you can dream once again. I know it may all sound silly, but I know this place exists. Yesterday, I was fortunate to be reminded that for my clients in or facing bankruptcy, there can be a life afterwards. And that life can be wonderous. The only assurance I can give you is that the big smile on my client’s face proves that anything is possible.
With that, I wish you all a very Happy New Year.
Tags: Chapter 13, Chapter 7, Commentary, Life After Bankruptcy
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