Bankruptcy Questions Answered

Many Thriving after Bankruptcy

A recent article in the Wall Street Journal offers an interesting look at how a variety of American bankruptcy filers are doing in their post-bankruptcy lives. The findings are interesting and informative – and, if you’re among those who have filed for bankruptcy protection in recent years, they may save you some time and worry.

Here’s a look at some of the highlights of life after bankruptcy these days.

• Credit checks & the job hunt: It seems that some people recovering from bankruptcy are finding that the job application process has an added difficulty: the credit check. While some states have made pre-employment credit checks illegal and the government prohibits public-sector employers from denying jobs on the basis of a bankruptcy filing, many private-sector companies are still running credit checks on applicants – and many apparently frown at bankruptcy filings.
• Finding new housing after bankruptcy and foreclosure: Another hurdle many bankruptcy filers and foreclosure http://www.totalbankruptcy.com/chapter-13/stop-mortgage-foreclosure.aspx victims are reportedly facing is finding a place to live after their finances fall apart. While sources note that most people with bankruptcy and/or foreclosure in their past will have to work harder to find housing than someone with cleaner credit, it seems that many landlords are willing to take into account the circumstances surrounding a bankruptcy filing or foreclosure. In other words, if you were a victim of unexpected illness, injury or job loss (like so many bankruptcy filers), you stand a better chance of securing a new lease.
• High auto loan interest rates: Many people have reportedly had great difficulty getting an affordable auto loan after a bankruptcy filing, especially in the current economy. Some people apparently choose to find housing close to their children’s schools and near public transportation; others managed to get high-interest loans on used vehicles and stay current.

General Tips for Life after Bankruptcy

The good news about recovering from bankruptcy in the current economy is that you are by no means alone, which means that more people are beginning to understand that bankruptcy provides, in some cases, the only viable option for people in financial distress.

Here are some general post-bankruptcy tips:

• Make & keep a budget: Mindfulness is perhaps the most important part of staying within your means – it’s far too easy to overspend if you don’t know how much money you’ve got at your disposal.
• Change your habits: Falling into your pre-bankruptcy financial habits will probably lead you back down the road to bankruptcy. So avoid payday lenders, pay off your credit cards each month and use cash if you can’t resist the urge to splurge on credit.
• Make a cushion: Saving money is key to making sure another financial catastrophe doesn’t undo you again. Even a small emergency fund can mean the difference between disaster and stability.

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Bankruptcy Filings at Post-2005 High

Bankruptcy filings among American individuals and businesses rose to record levels in March of this year, according to a report by Reuters. Here’s a look at the numbers and what they mean for bankruptcy in the U.S.

• 158,141 bankruptcy petitions were filed in the U.S. during March, 2010, according to numbers released by Automated Access to Court Electronic Records (AACER).
• This number represents a 35 percent increase from February, 2010, and a 20 percent increase from March, 2009.
• Prior to March, the most filings during a single month since the implementation of the new bankruptcy law in 2005 occurred in October 2009, when 133,393 cases were filed.
• Of the total cases filed, 149,979 bankruptcy petitions were from individuals and 8,162 petitions were from businesses.
• Nearly three-quarters of all petitions filed were under Chapter 7 of the U.S. Bankruptcy code; the remainder were mostly Chapter 13 cases, with a few Chapter 11 cases as well.

These numbers are significant for a number of reasons.

BAPCPA and Filing for Bankruptcy

The nation’s bankruptcy laws were overhauled in 2005 with the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). Because the law was expected to make bankruptcy protection more difficult to get, filings soared just before the law passed as people sought protection under the old law.

In 2005, a record year for bankruptcy filings, 2.08 million cases were filed, with both individuals and businesses filing at higher rates than usual.

After the late-2005 rush to file, there was a lull, but in the years following, filings have increased steadily. Last year, 1.47 million bankruptcy cases were filed in the States, the highest since the law’s passage, and March’s numbers suggest that this year could have an even higher number.

Morals of the Story

The lessons here are important:

• You’re not alone: Many people delay filing for bankruptcy because of the stigma associated with it. These figures clearly show that significant numbers of Americans are struggling with debt.
• Bankruptcy isn’t out of reach: Many people feared that, with the BAPCPA laws in place, qualifying for bankruptcy protection would be almost impossible. Again, millions of Americans have been helped since the new law took effect, showing that much of the fear was unfounded.

Additional Resources

Bankruptcy Abuse Prevention and Consumer Protection Act (PDF)

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Bankruptcy Judge Identifies Triggers for Filers

What leads people to file bankruptcy? A recent article from the Idaho State Journal offers an interesting peek into the mind of a U.S. bankruptcy judge and a refreshing reminder about the causes of bankruptcy.

Why Americans File for Bankruptcy

U.S. Bankruptcy Court Judge Jim Pappas explained how bankruptcy protection is one of pillars of the U.S. economic system: the promise of a fresh financial start for those who get into more debt than they can handle encourages the sort of entrepreneurship that makes America what it is.

Pappas went on to identify three factors that he has reportedly found contribute to the majority of bankruptcy cases he sees in his court:

• Medical bills: Medical catastrophes can bankrupt even those who have medical insurance—having too little insurance can be just as problematic as having none at all when astronomical medical expenses enter the picture. Plus, lost work hours and/or the lost ability to perform many jobs leaves some people without a chance to recover from a financial setback.
• Job loss: As millions of Americans have learned in the last year, getting laid off or having your hours or pay cut can seriously strain your finances. For people who don’t have a tidy emergency fund in place, job loss often throws finances into turmoil—without steady income, people risk defaulting on credit cards, home loans, car payments and student loans. This can lead to stress, foreclosure and repossession—for many, bankruptcy is the only available remedy.
• Family problems: Divorce can be expensive, and single parenting isn’t much easier. Apparently, the majority of single filers Judge Pappas sees are women, often strained financially by their obligation as the primary caretaker for their children.

Why the Bankruptcy System Works

One point mentioned in the article bears repeating: the judge mentions that bankruptcy still has a bad reputation in this country as being for “deadbeats” and people who are interested in “gaming the system.”

But, according to anecdotal evidence and statistics from the U.S. government, nothing could be further from the truth. In fact, only an estimated one to three percent of bankruptcy filings are fraudulent—meaning that between 97 and 99 percent of bankruptcy filers are truly in need of financial protection.

If you’re struggling financially—whether because of one of the factors mentioned above of for another reason—you may want to consider whether filing bankruptcy is the right choice for you. Often, taking action earlier rather than later gives filers the most options for financial recovery.

Additional Resources

Medical Debts and Bankruptcy Filings (PDF)

The Rise in Personal Bankruptcy (PDF)

Find a Bankruptcy Lawyer Near You

Posted in Filing Bankruptcy, Setting the Record Straight about Bankruptcy, bankruptcy judge, bankruptcy trends, causes of bankruptcy | Comments Off