John Oliver has a heck of a research team and no doubt some hefty legal muscles ready to lift on command. What he didn’t have was a bankruptcy attorney who is in the trenches all day and every day. He missed a few things that I’d like to discuss here and correct some misperceptions. Since you can’t show your sources in a video too well, I’ve provided mine below.
[Part 1 can be viewed here]
Wrong: Are Bankruptcies Increasing?
According to the US Courts, the answer to that is no – source is the US Courts.
You can see a steep drop from 2016 to 2020 in personal bankruptcies – Chapter 7 and 11, but an increase in Chapter 11s for business. Part of this is rules recently put in place to allow more companies access to Chapter 11 services instead of being jammed into liquidation. Part of this is the unprecedented impact of the COVID pandemic on daily life. It remains to be seen how many small businesses will need bankruptcy protection over the next year or after COVID restrictions are lifted.
Wrong: You’re On Your Own
Picking the right bankruptcy lawyer is as important as figuring out which filing is suitable for you. Bankruptcy attorneys with your best interests at heart often have payment plans available for Chapter 7 and 13 filings, making it easier to get the relief that’s right for you. Van Horn Law Group offers both free initial consultations and payment plans to give you our best legal advice for your situation and make sure that you can afford to get it.
Also, understanding implicit bias is important, study after study has shown minority and working poor seeking bankruptcy are steered to Chapter 13 even if Chapter 7 would help to preserve assets such as homes and cars. If you think an attorney is pushing you into a Chapter 13 even if a Chapter 7 suits your needs, then getting a second or even a third opinion is the best thing you can do for yourself.
Wrong: Chapter 7 Sucks
The bankruptcy system does need reform, everyone agrees on that, but when Chapter 7 needs to work, it does work. Properly applied, it’s one of the best ways to file. Chapter 7 and 13 are meant for two very different situations, and while Chapter 13 filings are more expensive if you fit the criteria they are worth every penny.
You are the best fit for Chapter 7 if:
- You do not have much non-exempt personal property
- Your debts are credit cards, medical bills, or unsecured personal loans
- Your income is not over the median for your family size
If you make over the median income, you may be required to file for Chapter 13, and chapter 13 can preserve assets and property, but it’s also more challenging to complete than a Chapter 7. Chapter 7 is generally discharged in a matter of months, and you can walk away with never needing to make another payment. Chapter 13 has some conditions that make it more difficult and more challenging.
- All of your disposable income must go into repaying your creditors for the next three to five years unless the courts grant a hardship exemption. Your necessary expenses might not meet the court’s definition of necessary expenses, and that can include things like going out to dinner at expensive restaurants or an expensive car payment.
- Missing a payment can get your chapter 13 dismissed, unless the Court grants a modification to the plan.
- If you are in arrears on spousal or child support, taxes, house or car payments, you’ll have to clear up arrearages while still making regular payments on your balances.
- Many people can’t keep up with payments over three to five years, and thus do not successfully discharge their debts.
So for some, Chapter 7 is simply the more doable filing; knowing your situation three to five years from now is a crapshoot. For instance, if you filed Chapter 13 in 2019, then lost your job due to COVID, you’d be in a jam, possibly unable to meet or complete your obligations.
Wrong: There’s Never Going to be Reform
There’s something in there about because Joe Biden was from Delaware that people do not believe there will be bankruptcy reform. There are reforms on the table, but as is typical, dark money groups are getting in there to tilt things from Main Street to Wall Street. Admittedly, it’s going to be a tight squeak in the senate with some senators waiting for the bipartisan fairy to show up. Let’s look at what’s on the table so far:
- Senate Bill 146 creates a category of ‘medically distressed debtor‘ who will be eligible for special protections in bankruptcy that include the ability to discharge student loans, protect residential equity, and avoid the counseling that is mandatory for other debtors.
- Elizabeth Warren is working – meaning she’s got an uphill push against the banks – to get real reform into the bankruptcy system that will help working families and close off the myriad loopholes for the wealthy and corporations. Her legislation has been endorsed by President Biden and contains items such as the ability to set aside wealth in trusts, debt collection reform, and having child care and child needs expenses set aside from being defined as disposable income in Chapter 13.
But You Need Help Now
We get it. Van Horn Law Group is heading into our second decade of helping people handle debt in a way that benefits them. We’re fighting for the rights of our clients and working hard for the best possible outcome. We want reform, too, because we often see people beaten down by the system that’s supposed to be helping them. Call us for a free consultation, and we’ll get you started on the road to life after debt.