The Case for Walking Away
Bankruptcy goes hand-in-hand with unemployment and foreclosure
Today the government announced unemployment figures for June that are much worse than expected. Employers cut 467,000 jobs and the unemployment rate rose to 9.5%, the worst since 1983. Unemployment is a lagging indicator, so even after the economy begins to improve, the jobless rate is likely to rise for some time.
With no end in sight to rising unemployment and with foreclosure rates continuing to accelerate, people are turning in droves to bankruptcy. You may find it humiliating even to consider bankruptcy, let alone join that crowd in the courthouse corridor, waiting for your name to be called. But with an economic tsunami rolling over your home, job, and health insurance, it just may be your best course of action.
The time comes when it makes sense to give up the good fight
Many people — honorable to the bitter end — struggle much longer than they should to rein in unmanageable debt. By the time they give up, they’ve lost valuable assets that would have been protected in bankruptcy, which defeats the “fresh start” purpose of the law. If you are a candidate for bankruptcy, the best time to file may be when you’re on the losing track but still have assets worth protecting.
It’s true that a bankruptcy filing remains on your credit record for up to ten years and makes it difficult to obtain competitive interest rates on loans. Most bankruptcy debtors, however, already have badly damaged credit records by the time they file. When you are faced with insurmountable debt, a compromised credit rating can be a small price to pay for the fresh start that only bankruptcy can afford.
Before you decide to file, consult an experienced bankruptcy attorney
Bankruptcy is a significant and complicated legal proceeding. There is nothing to prevent you from representing yourself in bankruptcy court, but it is not wise to do so. When you represent yourself, you are held to the same standards of knowledge and practice as a licensed attorney. Knowing exactly how to navigate the intricacies of the Bankruptcy Code and several other bodies of statutory and common law is essential to an effective discharge of debts.
It costs nothing to get an initial consultation with an experienced bankruptcy attorney practicing in your jurisdiction. It is vital that you receive competent legal advice before deciding whether bankruptcy is the right choice for you.
Looking at the numbers, bankruptcy may not be such a tough choice
An Associated Press analysis for the first quarter of 2009 revealed that U.S. bankruptcy filings were up an astounding 46% from March of 2008 to March of 2009. The jump is an even more dramatic 81% since March of 2007. Some economists predict that the situation will become even worse.
A little over four years ago Congress enacted the Bankruptcy Abuse Prevention and Consumer Protection Act, also known as the 2005 Bankruptcy Amendment Act. Bankruptcy filings surged in the fall of 2005 to a record-shattering 2 million cases for the year as struggling consumers rushed to beat the implementation of the new law. In 2006, filings plummeted to 600,000. This year, bankruptcy filings are soaring again, and the predicted numbers for 2009 range between 1.5 and 1.6 million.
Elimination of debts in Chapter 7 may be an option even for higher incomes
The majority of bankruptcy debtors file under Chapter 7 which eliminates most (but not all) unsecured debts. When Congress enacted the 2005 Bankruptcy Amendment Act, it sought to restrict Chapter 7 filings by requiring debtors to pass a “means test” designed to weed out those who appear to have the ability to pay all or a portion of their debts under Chapter 13. Despite this hurdle, many people still qualify for Chapter 7 relief. Read Bankruptcy|What Should I Do?
The means test allows debtors to deduct certain expenses from their incomes. The greater the deductions, of course, the easier it is to qualify. Despite the congressional intent, the means test contains several variables that may enable people with higher incomes to qualify for Chapter 7. Debtors who own homes with mortgages may deduct the full amount of the mortgage. Having several children or dependants, multiple cars with loans or leases, high childcare and insurance expenses, and making large religious donations may also facilitate qualifying for Chapter 7.