I really do read all the comments, all the Twitter messages you send me and appreciate the feedback. Over time a common statement I get is about my recommendations is that people think I suggest bankruptcy too often.
For more information on this topic, please see all the links in my free guide about how to deal with debt.
So Let’s Talk About Bankruptcy and Clear Away the Bullshit
I just saw an email from “Anonymous” that said:
Bankruptcy seem to the standard answer you give everyone. You must be a bankruptcy lawyer. I don’t agree with all the answers you give–my only defense is maybe you’re a bankruptcy lawyer.
I am not a bankruptcy lawyer and having lived through bankruptcy myself in 1990 I don’t ask people to consider bankruptcy as an option, lightly.
Bankruptcy can be a difficult process, both financially and emotionally. But my increasing recommendations to consider bankruptcy as a logical solution is not based on my love of bankruptcy, but the direct result of ineffective legal solutions other than bankruptcy to allow people to repay their debt in a fair, reasonable, responsible and sustainable way.
America excels at a lot of things and I am proud to be an American but I am also truly disgusted with the options given debtors in the United States.
Unlike in other countries where a binding repayment plan can be created that creditors must honor and the debtor can afford to meet, outside of bankruptcy in the U.S. no such tool exists.
All other options available in the United States, such as debt management, credit counseling, debt settlement, etc. are all voluntary efforts that creditors may or may not participate in.
You could make payments for years in a credit counseling program only to have creditor change the terms, sell you account to another creditor, or whatever the creditor wants to do. These approaches are not a legally binding plans and creditors can change their minds, rates and terms before the total debt is repaid.
In fact years of payment today into a credit counseling program are only robbing you of needed retirement savings you could have invested. Pay it now or pay for it later. The choice is yours.
If other solutions existed in America, like they do in say the United Kingdom, such as the Individual Voluntary Arrangement (IVA) where a repayment plan can be forced on all creditors when at least 75% by value, agree, I’d suggest that more often.
For years in the U.S. I attempted to do the same thing like the IVA. My team and I worked hard to put together a comprehensive bankruptcy alternative repayment plan based on what the consumer could realistically afford, not what the creditor wanted. These plans had the best chance of a successful outcome instead of bankruptcy, but without the power of law behind them, like in the UK, all it took was one creditor to change their mind or terms and the whole plan was scuttled.
That problem of one creditor sinking a great plan happens in America today when the best debt settlement strategy falls to pieces when one or more creditors fail to participate and you can’t make them participate, even if it is in their best interest.
Creditors are selfish beasts. They are not concerned about what works best for the consumer in trouble, they only care about getting the biggest slice of the pie, available or not. As it stands now in the U.S. a voluntary only approach means that we are trusting that creditors will act collectively in the mutual best interest of the debtor and other creditors as a whole.
Years of experience have taught me that creditors won’t do that voluntarily and even if they do, an economic change or regime change at the bank will end the program. Just look at what creditors are doing right now to their customer by lowering limits and jacking up interest rates. Whose best interest is that for?
So even I have noticed that I have been suggesting bankruptcy at a faster pace. But that is also a byproduct of uncertain economic times. In a down economy I hate to see people launch into a period of forced poverty just to enter a credit counseling repayment plan that is too expensive for them, only to not be able to make five years worth of payments and watch the plan fail and creditors come charging again. If the debtor is in a situation that is marginally sustainable or emotionally destructive, I will suggest that they look at bankruptcy and I won’t feel guilty about it at all, and neither should you.
It is an age old question but is it better to make three years of payments and fail in a credit counseling plan or go bankrupt now and spend three years rebuilding your life. If the debt management plan fails in three years and you wind up going bankrupt, has that three years been wasted? Is it better to force someone to remain in a financial situation that is amplifying their depression, bad relationship, and/or emotional downfall or to help them find a better way to move forward?
You have to ask yourself if debtors need to be punished more than helped. Some will say that bankruptcy is an easy way out and the debtor should be FORCED to repay their debt no matter how many decades it takes, like in Ireland or the UAE. Others may feel that the debtor deserves a more reasonable solution to get out of debt, like in the UK or maybe bankruptcy in the U.S.
There have been plenty of times when people have said to me that they did not want to go bankrupt and so I suggested that they go try a debt management program knowing that they might not be able to sustain it. But in those times I recognized their denial, they needed to prove that it would not work to themselves, and it would not take long to fail and then they went bankrupt anyway.
If people do decide to go bankrupt, I never want them to look back latter and say they had other options and then feel bad about their bankruptcy choice. I want them to be able to investigate bankruptcy and in those situations, know that it was the most appropriate choice for them, available in the United States, at the time they were suffering.
You can click here to find a local bankruptcy attorney and talk to them for free about your specific situation. Get the facts and then you can make an informed and educated decision if bankruptcy is right for you.
You are not alone. I'm here to help. There is no need to suffer in silence. We can get through this. Tomorrow can be better than today. Don't give up.
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Original: April 1, 2009
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Dear Steve- I am so glad I came across your response on “I suggest Bankruptcy too Often”. Everything you said is exactly how I feel. I have never filed for bankruptcy, I feel sick to my stomach to think that it is what I will have to do now. I feel horrible and like a failure for not being able to pay my creditors back; however, after many phone calls in trying to get them to work with me so that I can pay them back, especially after the fact that I have always paid on time and seeing how none of them will work with me, I find myself with my hands tied behind my back and with no more options. Creditors are unrealistic savages. There has to come a change in the way this country runs their credit companies. It is just like you said, they want the biggest piece of the pie weather we can afford it or not. I was very motivated in paying all my debt. I would get so happy to see my debt go down little by little. It gave a positive sense of responsibility about myself. With the economic downturn, chase decided to raise my APR to %28.9 from %7.9 Steve I had NEVER EVER paid late on that card; moreover, on two different occasions, I paid off the card in full. My minimum payment went from $70 per month to $200 per month. Hence My Personal Economic Downturn; I cannot get ahead. Thanks to Chase I have had to start buying my groceries and gas on other credit cards; now those card are starting to hit their limit. I contacted Bank of America and ask them if they could lower my monthly payment by either lowering my APR which is %18 or increasing the amount of years of repayment. Their answer was, “contact a consolidation company”. What is a person supposed to do? It is not my fault that we have gone through a recession. Before all this happened, I was paying everyone on time, never late, had a good credit score. Then out of the blue, Chase raises my APR and no one will work with me. I don’t understand; it is absurd.
I was in the same situation about 2 years ago, due to family illness my wife couldnt work so I went through my savings I never paid late either and I would call everymonth and kept telling all my lenders how much longer I can pay. when the savings was gone I called them againg and got nowhere.
Nowis is a year from my discharge I am debt free my credit is improving and was able to get a car loan..it will get better for you to.
They actually told you to contact a consolidation company instead of trying to work with you. 🙁
For anyone who considers bankruptcy unethical, or avoiding responsibility, consider stories like Valeria’s. When does personal responsibility cross into just plain financial slavery considering that the banks can pretty much change their terms on a whim, but we are expected to pay on time every time no matter what. This is entirely different from how debts were handled in “biblical” times from whence the personal responsibility serms originate. In ancient Greece, if you could not pay a debt, you had to repay with physical labor for up to 5 years. In the old testment, ALL debts were mandated to be forgiven every 7 years no matter what.
On the other hand, in the 1500’s, declaring bankruptcy 3 times in China was met with the death penalty!!
No matter how you slice it, the perception and stigma of bankruptcy is entirely political. We live in a nation where the dollar is king, and those who have the money have the power. If you don’t have it, you are a slave in one way or another to those who do have it.
As another person mentioned in one of these articles, the strictness of bankruptcy laws in a country at a given time has an effect on economic prosperity. In the US Bankruptcy laws were made more strict in 2005 making it more difficult to obtain a chapter 7, and guess what came next. Coincidence? Maybe. Maybe not.
Full disclosure: I’m been a bankruptcy attorney for over 20 years. I’ll do it until I retire, because it gives people their lives back.
No one WANTS to take bankruptcy, and every one of my clients have done their damndest to avoid it. They come in shaking, stressed out and in tears. Sometimes they are suicidal. Many times they have trouble believing that it really does give them a fresh start.
When it’s over, I get hugs and thank you notes. It’s the most rewarding area of law I’ve ever practiced.
Jan,
I know exactly what you are talking about and I’ve heard the same thing from other bankruptcy attorneys. I think that you and I both realize that what we wake up to achieve each day are the best solutions for people in trouble. Obviously you care.
Steve
I Suggest Bankruptcy Too Often, So Say Some ( https://getoutofdebt.org/5810/i-suggest-bankruptcy-too-often-so-say-some )