Bankruptcy as a Step to Solvency

[Joanne98]

By M. P. DUNLEAVEY
THE idea of declaring bankruptcy may be unpleasant, even abhorrent, but for many people right now it could be the best option.

The question is: How do you make that choice? How bad do things need to get before you throw in the towel, and most of your debts, and petition the courts for a fresh start?

More than a million people filed for personal bankruptcy in the 12 months that ended last September, a staggering 30 percent increase over the period a year earlier, according to the Administrative Office of the U.S. Courts. And thousands more “are unofficially bankrupt” and reluctant to file, said Justin Harelik, a lawyer with Price Law Group in Los Angeles.

“I’m aware that the word itself carries so much shame and stigma,” said Mr. Harelik. “But it’s right for so many people.”

The sting of failure and the dread of ruined credit are, understandably, deterrents to a bankruptcy filing. But those fears can prevent people from taking advantage of the financial protection offered by bankruptcy, which may allow you to erase most of your consumer debt while preserving assets like your retirement accounts and sometimes even your home and car. Instead, many people delay filling until they are truly desperate.

“When we surveyed people about how long they seriously struggled, over 40 percent said more than two years,” said Katherine M. Porter, associate professor at the University of Iowa law school and a researcher with the Consumer Bankruptcy Project, a continuing study of consumer bankruptcy filings. “A lot of attorneys say they wish people would come earlier, before they emptied their retirement accounts or lost their car to repossession,” she said.

Because bankruptcy is so complex, and because bankruptcy laws underwent a major overhaul in 2005, many people are not only wary of filing, but also confused about their options and what the possible outcomes are.

http://www.nytimes.com/2009/01/24/your-money/24cost.html?_r=1&partner=permalink&exprod=permalink

[fasttense]

1. I don't think bankruptcy has the stigma it use to have.

What with all the ponzi schemes, I mean banks, going belly up and major corporations filing every day, it makes it seem no big deal.

Of course real people have a different type of bankruptcy then monstrous corporations but still, the failures of industry gives it the sheen of acceptability.

[dkf]

2. There was a piece saying that the bankruptcy bill is partly responsible

for the collapse in housing. Prior to the bill, people would declare bankruptcy, get their credit cards wiped off and keep paying their mortgage.

After the bankruptcy bill, they decided it made more sense to keep their credit cards going and get the house foreclosed on.

Oh the irony.

[Riley18]

3. Bankruptcy laws should be changed back to the way they were before 2005.