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.
