Musings on Bankruptcy

I was reviewing the number of bankruptcy filings so far this year, and to my surprise there really hasn't been any noticeable increase in them. That mirrors my own observations in the course of my employment, that we haven't had any spike in business. When clients ask about whether we have seen any major spike in business, I do not have any good answer for them.

After thinking on it, I have some thoughts. First, due to the state of the economy, the layoffs, impending foreclosures, and all the other horrible consequences are "long-tail" events. Folks struggle on for a good long time before consulting bankruptcy attorneys. It might be a year or more after someone loses his or her job that she finally thinks of the "b-word." In the mean time, they get harrassed by creditors, struggle to make payments, and generally live in a state of wretched existance.

Why does the "b-word" have such a horrid connotation? In the Northern District of Illinois, we are already on case number 12,000. Twelve Thousand(!) cases filed so far this year, in an area of perhaps 6 million people. That means 0.2% (two-tenths of one percent) of the people have filed for some form of bankruptcy - or 1 in 500. The occurrence is not that uncommon.

Secondly, the damage to one's credit isn't that bad, in the grand scheme of things. Certainly it will be on your credit report for a decade, but if you are at the point where you are considering bankruptcy already, your credit is probably already thoroughly screwed over anyway.

Basically, if someone makes less than the median income for their family size, has no assets with any equity, and can't pay off their debts in the next 2 years, they should be meeting with a bankruptcy attorney now.

Instead, people struggle with the decision, and the terrible connotation of bankruptcy, for months and years, through all the harrassment, aggravation, and the general unpleasantness, for no good reason at all.