Karma in Bankruptcy, or the Lack Thereof

This week, I was working on a Reaffirmation Agreement. A Reaffirmation Agreement basically extends a contract through a bankruptcy. In Chapter 7, the bankruptcy discharge is very broad, and it will sever almost all obligations, include auto loans. In order to keep a car that one is making payments on in Chapter 7, a debtor has to Reaffirm the debt. By Reaffirming, the debtor is taking on all the obligations and risks of the contract, including liability if the vehicle is repossessed.

The Reaffirmation Agreement in question was with Chrysler Financial. The interest rate was a usury-level 23%, so I contacted the creditor to attempt to negotiate a lower rate. After all, if the debtor doesn't reaffirm, the creditor will just take the car back and notch a big fat loss in their ledger. The response: "Chrysler Financial does not negotiate on reaffirmation agreements."

F*ck you Chrysler. (I do realize that Chrysler Financial and Chrysler the auto company are different, but *vent rage*).

Bailout funds + Chapter 11 and you won't negotiate? I wish your bond holders had liquidated you. I wish they had said "We don't negotiate" and drove you to Chapter 7. Their stance only makes sense if they presume a debtor needs/wants the car. At 23% interest, my recommendation was to dump it; a Buy Here/Pay Here place would charge them the same, or perhaps even less in interest. Sadly, the debtor wants to keep it. Personally, I would have told Chrysler where to stick it.

I hate creditors, especially when they are simply patently unreasonable.

More Foreclosure Fun!

Today the Washington Post has an article that I find interesting. The article discusses th eMaking Home Affordable program, i.e., the "massive financial incentives to do loan modifications" program. In sum, it's working as well as a screen door on a submarine:

So far, more than 650,000 borrowers have been enrolled into the initial, or "trial," phase of the program and have seen their payments lowered by an average of $640 a month, or 40 percent. But a recent survey of large mortgage servicers published by the Treasury Department found that that more than 25 percent of borrowers in the program were not current on their trial payments.

The failure rate is no surprise. There's a very good reason why most of these mortgage borrowers are behind - they either cannot afford any payment, or they are so financially irresponsible that it doesn't matter what their budget it - they are going to screw it up.

As a bankruptcy attorney, I see new potential clients daily who are substantially behind on their mortgages; it is not uncommon for me to meet folks who are 6 to 10 months behind in their mortgages, with nothing to show for it. Where, oh where, did that $6,000 to $20,000 go? The answer, sadly, is that the money is up in smoke.

As a bankruptcy attorney, I enjoy my job - I can do a lot for people, saving homes and absolving folks of sometimes ludicrous amounts of debt - but at some point folks need to think for themselves.

While I am on an anti-debtor rant, I'll throw in two more for fun:

Defective Paperwork Strips Mortgage Holder of Foreclosure Rights!

Judge Cancel's $525,000 mortgage as sanctions!

At least there may be some relief in foreclosure defense.

Foreclosures and Bankruptcy

Lately (and I will not support that statement with links or evidence), there seems to be much ado about homeowners, foreclosures, and what we can do to prevent these two things from coming together. From Obama's loan modification plan to Chapter 13 bankruptcies, there seems to be a glut of people trying to save their homes.

From my position, I can't help but wonder why. During the last ten years or so, with the real estate and lending markets going completely bonkers, there have been literally millions of bad loans written - loans were there was insufficient equity in the property to secure the loan, where the debtors had insufficient income to support the loan, and loans were every bit of information on the loan was false, fraudulent, or misrepresented. The real estate agents, brokers, lenders, and everyone in between was complacent if not fully complicit in writing and securing these "toxic" mortgages. (Update: 1 in 4 mortgages are underwater!)

And now those seeds have come to bear fruit. Almost every mortgage and almost all the real property I see coming through my office is a negative equity situation. Basically, any property purchased in the last 5 years is going to be underwater - that is, the balanced owed is more than the sale value of the property today.

The issue is simple - people are chasing smoke, in situations where they will not have home equity for a decade or longer. A decade of interest payments, and of principal payments that aren't building equity.

The solution is even simpler - foreclosure. Oh, but what a bitter pill! Let it go to foreclosure, then on the oft and rare chance the bank decides to bring a deficiency action, obtain good legal counsel or file for bankruptcy. Dump the McMansion with the negative amortization loan and rent a nice apartment for half or two-thirds the cost. Save that money - the money that would go to rent for the twelve months or longer that it would take to foreclose, and the difference of your eventual rent cost against your previous mortgage - save that money, and in a few years, you'll have $25k to $50k for a nice, safe, traditional mortgage.

The plus side - and there is one - is that you'll get to stick it to the man. I'm a fan of capitalism; I find no evil in making money. However, our current hybrid capitalism/socialism system, where profits are privatized and losses are subsidized, serves to line the pockets of those who don't deserve it while penalizing everyone else. For capitalism to work, there needs to be consequences. You write a bad loan, you take the loss - the necessary corollary to the idea that if you write a good loan, you take the profits. Instead, our current state lets the government (i.e., the taxpayer) take the loss instead. Heads they win, tails we lose.

The reality of this situation is that, if you are going through foreclosure, you cannot afford your home. Your $2,000 mortgage payment on your $3,000 monthly take-home income is unfeasible and unsustainable, and will continue to be for the foreseeable future. It is time to stop subsidizing these bad loans and losses, and let these folks reap what they have sown.

Bankrupt means having insufficient funds to pay your creditors - being insolvent. The number of people who file bankruptcy is but a small portion of the people who are actually bankruptcy. What we, as a society and as an economic system, need is more bankruptcies. More bankruptcies equal more losses and a greater deterrent to writing bad loans. Nobody - and I don't care if you're Bill Gates - needs a $50,000 credit limit.

The credit system - from mortgages to car loans to credit cards - is fundamentally flawed; the foundation is rotten. Financially, the system needs to be leveled to the bedrock and rebuilt, into a system that rewards those who manage their money wisely and punishes those who wield it recklessly.

The Hard Way . . .

I caught this article the other day, and I'm still amazed at how hard-headed and, well, dumb these people are.

Quick summary: four person household, $106,000 in GUC (general unsecured debt), no major assets. They spent five years funneling $2,000 a month through CCCS to pay off their debt.

Several family friends recommended that they file for bankruptcy. That was out
of the question, Russell says. "We were committed to paying off our debts."
They also resolved to continue to tithe and home-school their daughters.

Now, without knowing the exact details, I can't be sure of where they would fall on the bankruptcy continuum, but I image it would either be (a) a Chapter 7, or (b) a low-payment Chapter 13. Under federal law, they would be able to continue their tithing, and the extra educational expenses from home-schooling can be included, to a limited extent, under the Form 22 means test.

So, this couple spends five years scrimping and saving, working two jobs, the husband rarely seeing his family, just so they can get out of debt. While admirable, it is also silly and ignores the point and policy of bankruptcy law. It would be the equivalent of cutting down a redwood with a handsaw, or tunneling through a mountain with claw hammer. Sure, it is possible, and it is one hell of an achivement, but why would you do it?

I get really tired of people who look down on bankruptcy. It isn't theft and it isn't a moral failing. In life, things happen that you can't control. For that family, medical bills and indiscretions killed them financially. So, Congress, in its infinite wisdom, has provided a way out of debt, for a fresh financial start. They then chose to ignore that start and go the hard way.

There's a term for that: pride. Also, masochism.

Now, as a bankruptcy attorney, I have a somewhat cavalier attitude toward the entire process. However, I can't help but wonder what the family could have accomplished had they filed bankruptcy, then put for that same effort toward rebuilding their credit and for the health and welfare of their family.

For starts, the could have likely paid off at least half their mortgage. Or, the could have greatly improved the quality of life for their friends and family.

Bankruptcy is designed to help people. It really bothers me when people look down on the helping hand and benefits of bankruptcy. In my own experience, I've done more good for more people in bankruptcy than I ever did volunteering in college or working in family law in the Domestic Violence clinic in law school.

Nonsense and Bankruptcy Exemptions

I've come to realize that my posts are lacking a certain amount of polish and coherence, so I have decided to make an effort to post more often and to make my posts more pithy and generally more intelligent. After all, I can write very well when I put for the effort.

Now, some more on bankruptcy exemptions.

The Illinois Homestead Exemption, or . . .
punishing those who actually try to pay for their homes.

I touched on this topic with my last post. Bankruptcy clients in the current real estate market (read: down the drain and minced in the garbage disposal) either have (a) zero equity or negative equity, or (b) a ton of equity.

Rarely is there a situation, in my experience, were a debtor has, say, $50k in equity. Most often, in those situations, the debtor would have already tapped that with a HELOC or other form of second mortgage. While practical in theory, these "debt consolidation" 2nd mortgages are just a way to eat into home equity while preserving the unsecured lines of credit that debtors horribly mismanaged in the first place and will quickly resume to horribly mismanage.

In Illinois, the homestead exemption is $15,000 for an individual, and $30,000 for a married couple. Federal exemptions are worth $20,200 , and the rest very by state. Some are as high as $100k or even unlimited (Arizona and Texas, respectively).

So, in general, Illinois has dinky exemptions.

As a policy standpoint, these exemptions do not encourage people to build equity in property, since it it easy to lose your home in the event of misfortune. I had a client who had over $100k in equity, but minimal income sufficient only to pay the small mortgage on the property. The debt level was median, between $40k and $75k, with a judicial lien.

If she had been mortgaged to the hilt, we could have filed ch. 7, avoided the judicial lien, and made her life easy as pie. Instead, she's looking at a 100% repayment ch. 13 at over a $1,000 a month (unfeasible and unaffordable). Or she can sell the house and loose that which she struggled long and hard for.

The results are simply not fair and, more importantly, do not serve the purpose of bankruptcy. One's home is one's castle, and, unfortunately in Illinois, your gate is down if you have equity.

The Lameness of Exemptions in Illinois

In bankruptcy, certain property is exempt from a trustee's taking. Under the Illinois code, 735 ILCS 5/12, certain things of value are exempt. The most typical examples are as follows:

• Homestead Exemption, 735 ILCS 5/12-901: $15,000 of equity for your residence ($30,000 for married couples)
• Wearing apparel, school books, Bible, and family pictures. (735 ILCS 5/12-1001)
  
• Motor vehicle equity: $2,400 (735 ILCS 5/12-1001)
• Trade tools and implements: $1,500 (735 ILCS 5/12-1001)
• Personal Property (divisible): $4,000 (735 ILCS 5/12-1001)

It is time to revisit these exemptions. They have been revised in 2006 and 2008, but they are still too low from a policy standpoint.

For exampe, as a bankruptcy matter, the homestead exemption is either irrelevant or not nearly enough. Debtor generally can't manage their finances at all (i.e., underwater on their 12% adjustable 10 year balloon mortgage) or have some recent disaster (medical illness or job loss) that causes bankruptcy. So when the homestead exemption actually is useful, it isn't enough.

A good example is someone I met with a few weeks ago. Age 62, married, not eligible for medicare or medicaid, no health insurance, pre-existing medical conditions, etc. House is worth $200k (typical for the Chicago suburbs) and is paid off. He keeps food on his table and the lights on because his mortgage is paid off. His $60k in medical bills is either (a) a Chapter 13 payment that is way too high for him to afford at 100% repayment, or (b) requires him to sell his home to pay off, or (c) requires him to take out a HELOC, with payments he can't afford and a credit history that means most banks won't lend to him, despite a 100% security interest.

A chapter 7 would help him out tremendously - except the trustee would sell his house. The solution is simple: let's thriple the homestead. Going to $50k/$100k would help families protect hard-won equity and still give them major protections in bankruptcy.

Another good example of how the exemptions are terrible is blue-collor industry - truckers, landscapers, and the like. These folks are selling their skills, essentially. To use their skills though, they need certain expensive equipment. That equipment makes Ch. 7 generally a bad idea. If your truck is worth $40k, or your landscaper is worth $25k, then it is going to be vulnerable to seizure. Generally, these are the things that those in those industries pay off first, to save on expenses. Paid-off equipment is another $1,000 a month or more in the bank.

Their white-collar conterparts (real estate brokers, attorneys, computers, accountants) who are also in the business of selling their skills, can file ch. 7 much easier, then restart their businesses with even less of an issue.

The solution: make the trade tools exemption unlimited, or nearly so. If you need something to secure your livelihood, exempt it permanently. Don't take someone's fishing rod when they need it to eat.

Irony and Reality at Whole Foods

From John Mackey's Op-ed in the WSJ:

The combination of high-deductible health insurance and HSAs is one solution that could solve many of our health-care problems. For example, Whole Foods Market pays 100% of the premiums for all our team members who work 30 hours or more per week (about 89% of all team members) for our high-deductible health-insurance plan. We also provide up to $1,800 per year in additional health-care dollars through deposits into employees' Personal Wellness Accounts to spend as they choose on their own health and wellness

And the fallout.

Reading both articles is rather poignant for me. One of my most recent cases is for a client employed, full-time, at, you guessed it, Whole Foods, for the past several years. Her primary reason for bankruptcy is medical bills. HSA sucks when the deductibles run in excess of $40,000. That "up to" $1,800 a year won't even put a significant dent in those debts.

Student Loan Changes

From: http://articles.moneycentral.msn.com/CollegeAndFamily/SavingForCollege/big-changes-ahead-for-student-loans.aspx

On July 21, the House Committee on Education and Labor began marking up a bill, introduced by Rep. George Miller, D-Calif., that seeks to eliminate government-subsidized private student lending and replace it with direct loans to students through the Department of Education.

"This is the biggest change in federal loans for higher education since 1965, when the original program was created," says Terry Hartle, senior vice president at the American Council on Education.

About damn time. Private-lender student loans are one of the worst deals one can get into when paying for education. I had to take out just one private loan - to cover BARBRI and summer school. The interest rate is 3% points higher than my federal loans. When I was unemployed for 6 months following graduation, all it took was a a short form and a signature to get my federal loans deferred. For my private loans, the best Sallie Mae could offer was a 3 month forebearance for a $50 fee.

I had better help from my credit card companies during my unemployment period. The private loan provides, like Sallie Mae and NelNet, use the student loan protections (non-dischargeability in bankruptcy, ease to obtain, and relatively low interest rates) to hook students, who in a lot of cases have the choice of an a private loan or no education, if they don't satisfy the FAFSA requirements. Then, they can use their own policies to fiddle with the interest rates, charge late fees, and have tough deferment/forbearance/forgiveness policies. They aren't even eligible for the Income Contingent Repayment options or the federal loan forgiveness programs for public service. And you can't consolidate them through the federal loan consolidation programs.

So, to recap - all the drawbacks for the borrower, and none of the risks for the creditor.

Letting the Fed handle student loans just makes sense - their Direct Loan program is great ($93,000 @ $370 a month @ 4.75% fixed, thanks to consolidation) for students, generates a minimal but still positive return for the government (i.e., it more or less pays for itself eventually), and can provide huge benefits by encouraging public service through forgiveness programs. And it lets students pick occupations that require major education but have minimal income, with ICR options that forgive the loans after 20 years of repayment.

In conclusion, here's to Sallie Mae - and to the hope that you die unloved, unmourned, and soon to be forgotten. And keep cashing my $200 a month checks.

Quasi-Obligatory Commentary

From http://www.bloomberg.com/apps/news?pid=20601087&sid=acQvgRoLQmXQ:

"More than 126,000 consumers filed for bankruptcy in the U.S. last month, 34 percent more than in July 2008, the ABI said in its latest report on Aug. 4. The increase came after a 36.5 percent rise in personal bankruptcies nationwide in the first six months, to 675,351, according to the ABI research group, which interprets data collected by the National Bankruptcy Research Center."

and:

"Credit Card Losses

JPMorgan said losses in its Chase credit-card portfolio may be 10 percent next quarter and will be “highly dependent” on unemployment after that. Losses for cards issued by Washington Mutual, which the bank acquired in September, may reach 24 percent by the end of the year, the company said.

JPMorgan’s credit cards lost $672 million, compared with income of $250 million in the second quarter last year. Home- equity charge-offs climbed to $1.3 billion, or 4.61 percent. Prime mortgage defaults rose to $481 million, or 3.07 percent, from $104 million, or 1.08 percent a year earlier."

Too bad the article failes to mention how Chase and most of the other lenders are at least partially, and often majorly, responsible for the bankruptcies themselves. Time and again I get client whose almost sole reason for filing bankruptcy is their credit card rates getting jack to 30%. I have seen debtors who have struggled along for years, through unemployment and famine, after tapping their 401(k)'s and IRA's dry, just to make their minimum payments. Then they watch their minimum payments triple and their interest rates quadruple.

Chase could very well be posting profits, or at least much smaller losses, if it had left the interest rates and minimum payments where they were. Instead, the screw around and drop some more straw on the camel's back, and the next step is a visit to my office.

Thank you Chase; you are one of the best feeders for my services. I love nothing better than adding you to Schedule F with a big fat 5 or 6 figure number in the amount column. You bring it down upon yourself by biting too hard on the teat of the honest but unfortunate debtor.

They even cut my limit and boosted my rate, after I paid off my balance from college. I was using the card for gasoline and whatnot, paying it off every month, and they cut my limit, 6 months after I paid off my $2,000 college indiscretion balance. I was only using it to keep it active and boost my credit score. Their reason: "Not paying bankcards as agreed," despite the fact that my balances are minimal and my monthly payments are quadruple the minimums.

Now? I'll just let it languish with a zero balance until they close it. I'll stick with my Sears Mastercard (they keep bumping my limit) and my credit union credit card (I love my credit union too) - the folks that actually treat me right.

The horrible downside is that, in the next few years, we'll see another bankruptcy reform act, which will further tighten the screws on the already completely-screwed, force more people into nearly impossible Ch. 13 repayment plans (100% of my disposable income for five years? God forbid I need a new alternator), all on the justification that too many debtors are filing bankruptcy after Chase (and others) gave them too much credit, and then turned around and screwed them by jacking the rates and payments.

An Apt Summary of Contested Divorce Cases

From the Onion: http://www.theonion.com/content/opinion/the_divorce_was_unfortunate_but

"There's no reason divorce has to be a terrible experience. What's important is that we both know in our heart of hearts that our divorce was as bad as it could be. It's a comfort to think that the utter dissolution of our marriage was as ugly as humanly possible, without resorting to actual, physical violence. After all, we're adults, right? There's no reason we shouldn't handle this matter with the maturity of two screaming, biting five-year-olds.

If not for us, then for our children. Or should I say your child and my child, now that the custody battles are finally settled?

Well, my darling ex-husband, it has certainly been memorable being your wife, your lover, and the counterclaimant in several vicious lawsuits. Even though our marriage has come to an end in the most spiteful manner possible, I hope that when you think of me, your once-wife, and the life we shared together, some part of you will always know that you can suck my dick, you two-faced, no-good fuckhead. I hope you burn in hell."

Automatic Stay Violations and Sanctions

Alternative title: Stupid Creditors

Today I started work on yet another motion for sanctions for violations of the automatic stay. For those unfamiliar with the intimacies of bankruptcy law, the primary protection that bankruptcy provides is the Automatic Stay, 11 U.S.C. 362. Under Section 362, once a debtor files for bankruptcy, creditors are prohibited from taking basically any collection action against them. That code section triggers automatically - and it is powerful. It will stop foreclosures, repossession, creditor calls, lawsuits, garnishments . . . basically every sort of collection activity.

Violation of the stay is pretty egregious. One case involved a car dealer who repossessed a vehicle despite having sufficient notice of the bankruptcy. Others involve creditors continuing to place collection calls and so forth.

As an attorney, I understand that things can slip through the cracks. The first step is almost always a letter, fax, or phone call to let the creditor know that is going on. In most cases, they are quick to acknowledge the issue and cease their actions.

My favorites are the ones that don't. Sanction awards for continuing violation of the stay can be pretty harsh. Awards of attorney's fees and even punitive damages are common. I am definitely looking forward to the results of these motions. Most of the time debtors are on the losing side - so payback can be a b!tch.

The Transient Nature of Bankruptcy

My last post was a bit of a client-rant; I should clarify a little. Not all clients are unpleasant. Some are very understanding, very helpful, and generally on top of things. Consumer bankruptcy requires very little on the part of the debtors - some pay stubs, some tax returns, a couple of credit counseling classes, and occasionally a market analysis or appraisal.

Some clients come prepared - printouts, spreadsheets, credit reports, paystubs, taxes, and tons of other information. These are my favorite clients. Their efforts make my life easier and makes their bankruptcy run all the smoother.

Others have no idea what their financial situation is, and more often than not they blame us for that lack of knowledge.

Some clients understand that I have 10 files on my desk, all of which need attention, and that they are #11. Others expect to be dealt with immediately, even for small things of little or no consequence.

Today, I sent out the discharge papers for one of my favorite clients, one of the early good ones. It makes me a little sad, in a way: no more patient explanations of the mysteries of the bankruptcy code, no more thoughtful questions, and nothing further with a good guy who ran into some terrible financial difficulties.

Bankruptcy is ultimately a transient operation; almost no repeat business, and a constant need for new clients. Each month we open 60 to 100 new files, and close almost as many. Sixty new people, starting their short transition though my sphere of responsibility, and 60 more passing on into the wild green yonder of post-bankruptcy life.

Psycho Clients

For some clients, no matter how well you treat them, or how honest you are with them, they still do nothing but complain and moan and whine throughout the entire process. I have had days when I have been both complemented on the ease of access to attorneys - it is relatively easy to speak directly to an attorney at our firm - and lambasted for not working quick enough.

The bottom line is that there are simply a lot of very, very stupid people out there, who expect an attorney to magically wave his wand and fix it all. The reality though is that it takes time and money - this is a business for us, after all.

So here, in my quasi-anonymity, I will rant regarding the general state of my client base. At the end of the day, no matter how you slice it, almost everyone who comes to see me is a debtor who can't manage money, who can't manage credit, and who really can't manage their own impulsive habits. As much as I love working with people directly (and I truly do), there are days when some or all of my clients go die in a fire and I would calmly mark the file "closed."

So, to all those potential clients out there - remember, attorneys are people, we do this for a living, and we deserve some f*cking respect.

Not Forgotten . . .

My life has been very busy lately - I have recently moved, and work has been picking up, so I have not had a lot of time to post, despite a lot of great topics coming to mind. I am going to make an effort to start posting more, with a focus on bankruptcy topics, hopefully towards making this blog a half-way decent place to post my thoughts and insights into consumer bankruptcy.

Stay tuned for more information.

On Elizabeth Warren

http://www.thebigmoney.com/articles/judgments/2009/04/23/elizabeth-warren-my-hero?page=0,0

School Searches and the Supreme Court

http://www.slate.com/id/2216608/

I posted on this topic back in January. Now the Supreme Court has heard oral argument, and things don't look so good for the right to privacy in the school system. We'll see what the Court actually decides when the opinion is published.

I will return to these topics . . .shortly

Two articles have caught my attentions:

(1) This article makes what is probably the most important point of this year. It discusses the rising cost of health care v. wages and some changes.

(2) Judge Posner's opinion on mutual funds / CEO compensation and evidence on breach of fiduciary duty.

I'm packing for vacation tomorrow, and leaving soon, so I should get back to this the end of next week. Ta ta for now.

The Cost of College v. Payout

I saw this article on Slate, and it resonated with me. As a lawyer, my college loan debt level is approximately $100k. Fortunately, I have a job I like and I make decent (but by no means the mega-bucks Big Law pays) money. Right now, I am looking at paying about $800 a month for the next 10 or 15 years. I had some scholarships, but largely my family simply could not afford to pay for college, so my education was financed by government loans.

One part of the article I noted is the part that discusses the sociology degree and its comparative worth. There are a lot of degress that aren't worth the paper they are printed on in the open market. I remember back to the meetings with my academic advisor - one of the rarest topics was whether the major I picked had any significant employment prospects. The ivory tower academics can provide some very expense and ultiamtely worthless pieces of paper, and even that degress that have value do little to prepare students for their future.

I went through three years of law school, a largely practical education, full of discussions on case law, precedent, argument, and so forth - and my on-the-job training still continues. For degrees like psychology and sociology, at least a Master's level degree is basically required in order to participate fully in the job market - and for jobs that pay $30k to start.

So I add my voice to the chorus - we need to seriously consider revising the seconday education system. The liberal arts education has become a joke. Certainly there are necessary areas that need to be taught - writing, literature, math - but there is an awful lot of fluff in the cirriculum. For example: two credits of physical education - in my case, archery and golf. What a waste of $1,000 (I went to a private undergrad @ $500 a credit hour). Put a joke in here, but my ethics class was a joke too - I learned nothing in it.

There is another aspect too - many of these degrees are basically "toxic" debt - they aren't worth it. Why are we, the taxpayers and goverment, investing in the education of individuals, sometimes to the tune of $200,000 plus, when their chances of paying it off in any reasonable amount of time are zero?

Past, Present, Future

Some days just are not nearly as fulfilling as others.

Today I was tasked with 341 Meetings of Creditors, which is a highly routine event in which the clients meet with the trustee in bankruptcy. For chapter 7 bankruptcies, the ideal outcome is one involving a finding of no assets. There's lots of jargon and etc., but generally most cases are straightforward.

One gets me is how, well, care-worn most of the trustees are. I have met only one trustee who I would classify as even remotely personable. Put it this way: if I was at a bar, sitting at the bar enjoying my drink and watching a game, and any one of most of the trustees I encounter would sit down next to me and order a beer, I would probably get up and move.

Most of them I have met (one exception) just seem, well, sad - careworn, unhappy, and overall miserable.

It worries me, a little bit - what is my future going to be like? Here I am, 25, finally starting my career; where am I going to be, who am I going to be, in ten or fifteen years? If I met the future me know, would I even like me?

I look back at the younger "me's," and I can still see the seeds of the current "me." I might try to talk some sense into my past self, but other than that, I probably wouldn't change a lot.

But if I were to wind up like some of the trustees I meet . . . well, I really don't like that thought.

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.