The Working Man’s Bailout: Chapter Seven Bankruptcy

The Carroll Law Firm is not “a Bankruptcy Law Firm”, and it never was our intention or expectation that we would be filing as many Bankruptcy Petitions on behalf of so many individuals, families and businesses.  In fact, in 2007 when the Arizona office was first opened, if you needed representation in a Bankruptcy Proceeding, we would have referred you to another lawyer.  Needless to say, as our Arizona office started to grow, we received more and more calls and consultations where it became obvious that for many of our clients a Bankruptcy filing made a lot of sense.  So, we purchased the latest software, expanded the firm, and offered to represent people who needed to file Bankruptcy Proceedings.

Although most people have been able to survive the recession and still have their jobs and are able to pay their bills, many of their neighbors are not so fortunate.    Their homes are underwater, they can no longer keep up with the minimum payments on their credit cards, which are now “tapped out,” and their income is shrinking.  For years, most Americans lived “within their means” and many more lived beyond them.  Based on past performance of real estate, there was a realistic expectation that they would continue to build equity in their homes.  So what difference did it make if you ran up $10,000 in credit card debt if your home appreciated $20,000 last year.  And when you reached your credit card limit you merely took an equity line against your home to pay off your credit card, and then started the “cycle” of debt building all over again.  But then came the recession, and the cash cow that was our homes no longer had any equity, and when the borrowers reached their credit card limits they “hit the wall.” If they happened to be late on their credit card payments their minimum payments increased dramatically as the interest on the card adjusted to the “default rate”, which often was as much as 30%. They could no longer keep up with huge car payments and many had their vehicles repossessed resulting in thousands of dollars in deficiencies.  Ultimately, their creditors levy their bank accounts sweeping away their small remaining savings balances and they find their wages are being garnished.  What was once the American Dream has now become their worst nightmare, and they feel they are unable to control their lives.

In retrospect, it is easy to look at the financial behavior of most Americans, particularly over the past decade, and ask the question immortalized in a recent country hit song “What was I thinking?”  And yes, if we had the chance to do it all again, boy would we do things differently.  But hindsight is always better than foresight, and no one from Allan Greenspan on down saw this one coming!  So where does that leave us: hopeless, broke and feeling really stupid?  Well I guess that is true, for a while, but in the words of Scarlet O’Hara, “Tomorrow is another day,” and hopefully, in the words of Annie “The sun will come out tomorrow”, and it is time to forgive ourselves for the mistakes of the past, pick ourselves up, and get on with our futures. We all saw how when the Banks realized they were going down in this recession they were given the biggest bailout in world history.  It was like they played Monopoly, lost all their money, and were given a brand new bankroll midway through the game. The average American watched and waited patiently for the “bailout” to help them out, but the rescue ship never came.  The mortgage modification was never given, the creditors stepped up their collection efforts and people watched as Wall Street flourished while the shops on Main Street closed their shutters for good.

If you are still waiting for a bailout, it isn’t coming to you.  So, it is time to readjust and to retake  control of the reigns of your financial life.  And for those that qualify, there is no more effective and efficient means to regaining control than the filing of a Chapter Seven Bankruptcy proceeding.  For most lower to middle class Americans, filing for Bankruptcy is like hitting the restart button on a frozen computer.  You hit keystroke after keystroke and your monitor is still frozen until you turn the power off and on again, and now you have a fresh start.

Bankruptcy is not for everyone, and probably not for most, but for people that have few, if any, significant assets, and lots of unsecured debt (such as credit cards, medical bills, etc…) a Chapter Seven may be just the chance you need to take control.  In a large majority of cases, those filing Bankruptcy get to keep whatever assets they have left, including cars, furnishings, personal belongings, and are able to discharge all of their unsecured debt.  The day you file ends creditor harassment since creditors are barred from contacting you as a matter of Federal Law.  Any garnishment of wages is instantly stopped.

If your financial setback is a temporary one, and you are able to repay your creditors in a reasonable time in the future, you should not file Bankruptcy.  But if you do a frank review of your present financial circumstances and do not see anyway you will be able to afford more than your minimum monthly payments, you need to consider filing for Bankruptcy.  We have handled hundreds of cases over the past few years, and the one comment we hear again and again from our Bankruptcy clients is “I wish we had done this sooner”.  Generally, it takes two three years after Bankruptcy to re-establish “good credit”, and the sooner you hit the “restart” button and get your Federally mandated relief, (i.e., a discharge in Bankruptcy,) the sooner you will be able to get your fresh financial start.

As a postscript, on a few occasions I have heard comments from our “non-bankruptcy’ clients criticizing those that choose to file for this relief.  I remind them that more than half of the signers of the Declaration of Independence ended up broke or in Debtor’s Prison, and as a result it was determined early in the formation of our government that those that ran into trouble financially would be given the opportunity to have a fresh start.  Almost without exception, our clients filing for Bankruptcy are not people that lived extravagant lifestyles or were foolish with their spending habits.  In almost every case they were people who truly believed life in America was good and was only going to get better!  The events that have led to their financial demise were truly beyond their control.  So for those of you that have fared better than those many others, be thankful that you have not been drowned by this financial tsunami and say a prayer for the many that were not so fortunate.

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