BANKRUPTCY IS NOT A FOUR-LETTER WORD
By Allen A. Kolber, Esq.
I usually try to write articles that are substantive and informative, but this week I need to rage against the machine a little bit.
I am a bankruptcy attorney. My business card and the sign in my office prominently display the fact that I am a corporate and consumer bankruptcy attorney.
All of my corporate clients understand exactly what they need from me and what I can do for them. A businessperson will tell me, “My business is successful. I want to remain successful. Therefore, I need to reduce the amount of business loans that I owe my banks. I need to re-negotiate with my creditors, have them lower their invoices so that I can stay in business and trade with them in the future. I need to re-negotiate the mortgage on my commercial building now that interest rates have dropped and real estate values have plummeted.”
However, when an individual or family comes to see me about bankruptcy protection, they feel that they have failed, that they are not only financially bankrupt, but morally bankrupt. They feel that they have hit rock bottom.
Sometimes I have to fight with them to convince them that filing for bankruptcy protection is the first responsible financial decision they have made in a long time. They are exercising their Constitutional right, reaffirmed by Congress each year, to utilize the Bankruptcy Code and the Tax Code to eliminate debt and restructure their financial situation.
A client has never told me that she feels like a deadbeat for not paying a higher tax rate or taking each tax exemption offered by the Internal Revenue Code. Why should she feel guilty about using those same laws to eliminate her debt or mortgage?
Alternatively, many of my individual and family clients believe that they must be “bankrupt” in order to file a bankruptcy case; that they must be in danger of losing everything, their cars, their furniture or their home. To these individuals, filing bankruptcy means declaring to the world that they have lost everything.
…if GM and Trump can do it, why can’t I?
In 2012, nearly 1.1 million families filed for bankruptcy protection. That is nearly 80 times greater than the number of individuals who filed for bankruptcy during the Great Depression. In the past 25 years, personal bankruptcy filings have climbed nearly 350%.
The American middle class is waking up to the fact that they, too, are entitled to Bankruptcy Protection, just as General Motors, Ford and Chrysler (Congress injected $25 billion to restructure their debt) and Donald Trump (corporations bearing his name have filed for bankruptcy protection 4 times and Trump is still valued at approximately $2.7 billion). Forbes Magazine quoted Trump as saying that “great entrepreneurs” have used bankruptcy to restructure debt, free up capital, and improve their businesses. “Basically I have used the laws of the country to my advantage … just as many, many others on top of the business world have.”
Other millionaires who have filed for Bankruptcy protection? Henry Heinz (ketchup magnate), Milton Hershey (chocolate magnate), Henry Ford, Charles Goodyear (rubber magnate), PT Barnum, Michael Jackson, Mike Tyson….and Walt Disney.
…our clients are middle class
Most of my bankruptcy clients are middle class families with both spouses working, they own a home or condo, one or both spouses has a college or Masters Degree, they have paid for their children’s college educations, or are currently paying their children’s student loans due to the fact that their children cannot find jobs after graduating college.
A recent poll describes the typical bankruptcy filer in America as follows:
- a middle class head of household with children and a full-time job.
- better educated than the general population.
- almost all bankruptcy filers suffered a catastrophic personal event such as loss of employment, divorce
or serious medical issues.
- homeowners who were defrauded into obtaining first and second subprime mortgages.
- seniors on a limited income with extraordinary medical expenses.
- unemployed or underemployed college graduates with student debt reaching $100,000.
By now we all understand why the American middle class has been hit so hard by the recent financial crunch. Housing and mortgage debt (first and second mortgages) is at an all time high. Rising health care costs, heating fuel and gasoline costs further eat into the middle class budget. A college education costs more than $100,000. Most of my middle class clients are already living on the edge and are barely making ends meet, or are supplementing their income with credit cards or loans against their 401(k)’s.
A recent poll found that America is now saving at a negative rate (individuals living off of their savings or, worse, borrowing against their 401(k) or pension plan).
A middle class family that is hit by loss of a job, divorce or illness tips straight into the abyss of debt.
…but isn’t it immoral to file Bankruptcy?
There are no moral or ethical issues in filing a Bankruptcy case, just as there were no moral or ethical issues contained in the contract you entered into with your credit card company or mortgage lender.
Both Federal & State laws allow credit card companies and mortgage lenders to adjust their interest rates, charge you late fees, over the limit fees and other penalties. If you are late in making a payment, US law allows your creditor to use a collection agency to collect its money, or sue you in court. If the creditor obtains a judgment against you, the law allows the creditor to freeze your bank account, garnish your wages, repossess your car or sell your home in foreclosure.
The Federal government also enacted the U.S. Bankruptcy Code, which allows all eligible debtors (GM, Trump or you) to eliminate or restructure their debt, stop lawsuits, wage garnishments, bank restraints, foreclosures or repossessions.
The same U.S. Bankruptcy Code will protect up to $1 million of your retirement funds, $300,000 equity in your home, two cars and $10,000 in the bank. In fact, Congress has always referred to the Bankruptcy Code as “The Fresh Start” policy.
It is a shame that an American middle class family feels that it must ride out the financial crisis by itself while the largest corporations and wealthiest individuals in America utilize the government laws to their advantage.
Even the European Union and Japan are enacting broad bankruptcy laws in order to generate more business and entrepreneurship. The new bankruptcy laws allow businesses to take more risks, and receive government protection if those risks fail.
It is time that we begin to understand that filing for bankruptcy protection is not dishonorable. Sometimes circumstances in life and business lead to serious financial situations. The Government, understanding that individuals need help to get back on the path of financial stability, has created “The Fresh Start”. They understand that often bankruptcy is the best, and in many cases, the only way that people will be able to get back on their feet.
As always, please feel free to contact me for a free consultation regarding your specific financial circumstances.
For more Foreclosure and Bankruptcy FAQ’s and articles, please see my website at www.allenkolber.com. I have been practicing Foreclosure Defense, Bankruptcy Law and Business Law and Litigation for over 25 years.