Musings about Chapter 7

Recently, I have been working on more Chapter 7 Bankruptcy filings than just about anything else in my practice.   It is an interesting area of practice, as the people that come to see me are suffering such extreme emotions as a result of their inability to pay their bills.   I find it interesting that almost everyone’s story is vastly different.   Job loss or reduction of available work; medical bills with little or no insurance; retirement investments which have been lost by poor money managers; divorce; death — everyone has a story.   And all the stories tug at my sympathetic heart.  

I find it interesting, too, that most of the time, they have waited far longer than they should have to take such a measure.  It is a terrible cycle — credit card accounts, sometimes the same company funding five or six cards to the same people; personal loans when the credit cards are not enough; and interest rates that are unbelievable — 25 to 30%.   No wonder it is impossible to ever finish paying off the debt.   And lawsuits are so numerous.  Sometimes I am in time to file an answer suggesting bankruptcy, but many, many times, there is at least one judgment in place.   How many times can one law firm sue the same people for the same creditor?   Well, typically, one suit per account.

What is really hard to fathom, although, I do understand it, is the folks who literally put their head in the sand and ostrich their way into months of ignoring their obligations.  They wait until it is just one big terrible black hole of debt that they cannot face.   Sometimes, they are facing repossession of their vehicle or foreclosure of their home.

There is such a misconception about bankruptcy.   I saw a description posted on Facebook, under a bankruptcy group site, that stated Chapter 7 is a liquidation bankruptcy because property of the debtor is taken and sold to pay their creditors.   This would be laughable if it were not so frightening; maybe other states are different.  Texas does have great exemptions for debtors which protects their property, but the federal property exemptions offer protection as well. 

Chapter 7 is geared to help people with overwhelming unsecured debt, obtain a discharge of that debt, provided they meet certain requirements under the bankruptcy code.   A person can keep their house and their vehicle and any other items securing a debt (provided they are current), if they continue with their payments.  Debts like credit cards, medical bills and personal loan, are wiped out and the person is given a fresh start. Under Chapter 13, there is a 5 year repayment plan that helps with secured debt that is not current and entities like the IRS and student loans.  Even in a Chapter 13, most unsecured debt is not repaid.

There is a lot of shame wrapped up in filing for bankruptcy.   I wish I could tell my clients they will leave that sense of shame behind them when the case is over.   I wish I could make them understand that the stress and anxiety of being faced with the inability to repay their creditors is not worth the relief they will feel when the case is over.   I do tell them that, but it is just words until they experience it themselves.