Fri 13 Jan 2006
Bankruptcy 2006: Business as Usual?
Posted by coglethorpe under Bankruptcy
I last wrote predicting that personal bankrtupcies would drop dramatically in 2006. Now an article in MSN Money makes me think I might be wrong. The dramatic dip in bankrtupcy filings after October 17th, 2005 has reportedly picked back up. If the trend continues–and it isn’t like the entire nation collectively cut up their credit cards–it will mean that 2006 will be business as usual for bankruptcy attorneys and a boon for credit counselors.
Credit counselors are in the position of having a mandated workload due to the new bankruptcy laws. The new law requires those filing to get credit counseling. If caseloads return to only 2004 levels, it could be a feeding frenzy for counseling agencies.
Of course, what worries me is the simple idea that where there’s money, there’s usually marketing. I wonder how many people will end up persuaded into bankruptcy rather than forced into it. Many won’t pass a means test, which means that they will end up on a payment plan and in credit couseling classes, when what they wanted was forgiveness for loans.
I’m not trying to cheat lenders out of their money by saying that. But the Chapter 13 payment plan–that can last years–sounds just like what someone might do if they went to a credit agency without filing, or if they just paid off their debt on their own, and got some (or all) lenders to consider accounts paid in full for a settlement amount. Only if someone goes with a reputable credit agency, or can go it alone properly, they won’t have the ugly word bankruptcy on their credit report for the next decade.
Of course what spurred this law is the fact that bankruptcy isn’t so ugly anymore and hasn’t been for some time. When I was younger–not all that long ago–I recall bankruptcy being a deep personal shame. Over the last decade or so, it has gone from being a shame to an understandable difficulty to a financial planning tool.
The new law and the less-recent rule to keep bankruptcies on a credit report for 10 years instead of 7 have tried to use legal means to enforce something where societal shame seemed to have worked better.
But what caused the shame to disappear? Was it the status that came with holding a golden plastic card in the 1980’s? The endless stream of easy credit terms and store cards that let one buy everything from a stove to socks on debt? I can’t pin the blame on anyone with certainty, but as I said before, where there’s money, there’s marketing. And there’s money in plastic.
June 18th, 2006 at 12:33 am
Sorry to be so negative here, but this post shows that you don’t really understand the bankruptcy process and you are only repeating the falsehoods that circulate in the mainstream media (I realize that sounds bad, and I appologize).
Financial Reflections replies: So educate.
Yes bankruptcy is still negative - both financially and emotionally. The difference between the shame that was once felt is the change in the economic circumstances. We now live in a society where one cannot expect Social Security (even though they have paid in to the system), one cannot rely on receiving their pension (if they have one, there is a strong likelihood that it will be written off), one cannot afford the standard of living that our predecessors had (due to increased foreign competition and rising national debt), and one cannot even afford basic health insurance (in a time when health care has dramatically outpaced inflation). So the stigma attaching to bankruptcy hasn’t changed, everything else has.
Financial Reflections replies: Times are tough, but the problems we face are compounded, in my opinion, by the ever-growing culture of debt we live in. If Social Security and pensions aren’t going to be around, I’d think that saving money would be more in style than ever. It’s not. Sub-prime lending is out there in a big way, and people are taking the bait and end up in big trouble.
Second, bankruptcy attorneys are of the lowest paid group of attorneys out there. By commenting that they may profit from the new (now old) legislation, you are perpetuating the false belief that attorneys are money grubbing scoundrels. Check out salary.com to see what the average attorney in your area makes — based on your comment I bet you will be shocked (as most school teachers make nearly the same amount that bankruptcy attorneys make).
Financial Reflections replies: I am in no way implying that attorneys are money grubbing scoundrels. I actually work for attorneys and they are people just like you and me. But more bankruptcies means more money. I see the ads for bankruptcy out there. They are meeting a demand.
If you read the new law, you would see that it is now slanted towards not encouraging bankruptcy — that is what the new act is all about (flawed as it may be). Did you read it or did you just rely on gossip, as this is patently apparent from the act itself (e.g., it is now illegal for an attorney to advise a client to take out more debt and file bankruptcy if they have mostly consumer debt).
Financial Reflections replies: I know that the new law is designed to slow bankruptcies. The point is that it isn’t working. I recently read that rates that people were filing fell sharply in the months after October 17th (when the new law kicked in) but are rising once again. To my own credit, I have worked for a major credit reporting company and lawyers more than once.
There are so many issues here and, unfortunately, you apparently don’t know enough about the issue to properly write about them. I apologize if this comes off as being a negative comment, but you really are spreading rumors about an issue that you apparently haven’t thought through or have the experience and knowledge to comment about in an educated fashion.
I do encourage you to find out more and report about it, but if you don’t have the basics down you can’t present a true picture. You become just one of those “reporters” who spread financial pornography and, ultimately, harm consumers.
Financial Reflections replies: As chilidsh as those two paragraphs are, I’ll dignify them with a comment. What appears on this web site is only my opinion. Sorry if you don’t like it. Anyone facing bankruptcy knows enough to find a qualified financial advisor or attorney and find the best solution, which may or may not include filing.
As far as “pornography” is concerned, I notice that you are a financial pro of some sort yourself. I hope what you are doing isn’t similar to “drug dealing” or “pimping.” On that note, I noticed that you left multiple links to your blog in multiple posts - a form of comment spam. I’ve deleted those.
Gary