Bankruptcy: Myths and Facts

In our last article, we discussed the methods by which you might save your hard-earned assets from creditors. However, things don’t always work out. Either you did not have an asset-protection plan in place or the one you did have just was not put together well and now your creditors are breaking down your door en masse. Now would be a good time to consult an attorney or an accountant. Better yet, go see both. Both will most likely have one chief suggestion: Bankruptcy.

Many hear that word with loathing and feel ashamed to even consider the option. Bear in mind, however, that declaring bankruptcy is solely an economic decision. Not a moral one. The entire purpose of the Bankruptcy Code is to give a second chance to honest people who find themselves in financial trouble.

That said, we?d like you to consider some of the myths and facts about bankruptcy:

• Bankruptcy takes money out of the pockets of honest, hard-working people. Creditors may claim that every unpaid debt they are forced to write off is passed onto everyone else in the form of higher interest rates. Here is the fact: Whether there was a bankruptcy law or not, creditors would still be passing on their losses to you. Why? Bankruptcy is declared by those who have no money. With or without a Bankruptcy Code, creditors know that you cannot squeeze water from a rock no matter how many judgment liens they acquire against debtors.
• Permitting debtors to declare bankruptcy is eroding the ethics of our entire society. Credit card companies routinely extend credit to those who do not completely comprehend the responsibility or are unable to afford the interest afford it, which is, more often than not, evidenced by their own credit histories or credit applications. Allowing debtors to learn from their mistake and move on through bankruptcy is more positive than letting their debt smother and prevent them from supporting themselves or their families.
• Those who file for bankruptcy are deadbeats. Creditors approve anyone under the sun for some card they have to offer. They offer credit cards to people with little income. For example, JC Penny once approved me a credit card with a substantial limit. This was when I was 15-years-old and declared with all honesty on the application that I possessed no income whatsoever. I just wanted the free two-liter of Pepsi they were giving away. Credit card companies make the most money from people who (a) use their cards often; and (b) cannot pay said cards off quickly. A member of that class of debtor is not the credit-responsible, high-income earner, but instead is the person with a ignorance of credit cards or possessing middle to low income. Some may be your neighbors, friends and coworkers. Many do make their monthly payments and honestly try to pay their bills. Those people are not evil. Most have found themselves in a situation where they have been blind-sided. They have lost their jobs; been hit with a hospital bill that their insurance will not cover; or suffered some other unexpected loss or change in their life.
• Bankruptcies are at critical levels and must be curbed. Bankruptcy is not the cause of debt, but the result of it.

If the creditors are calling you constantly, threatening you with lawsuits, and you are honestly unable to afford the debt they claim you owe them, bankruptcy is an option to explore. It will stop all of the harassment, and even put a stay on most legal cases (with the exception of criminal cases and the possible exception child support or alimony actions).

DISCLAIMER: This column is a service providing only general legal advice. The information is not meant to be acted upon without proper legal assistance. As with all such matters of the law, anyone requiring legal help is strongly encouraged to seek the aid of an attorney.