Bankruptcy Questions Answered

Has “Financial Repression” Stopped You from Filing Bankruptcy?

Editors note:  In this compelling guest post, Charleston bankruptcy lawyer Russ DeMott describes what he calls "financial repression" – the tendency of honest, hardworking men and women to delay or forego bankruptcy protection because of the administrative and expense burdens added to the bankruptcy filing process by the 2005 BAPCPA changes to the bankruptcy laws.

When you meet with your bankruptcy lawyer, you’ll be given a lot of information.  You’ll also be given many tasks to complete before you file your bankruptcy case.

Our new bankruptcy law, BAPCPA (Bankruptcy Abuse Prevention and Consumer Protection Act), created a tremendous amount of busy work for debtors.  You must complete a credit counseling session prior to filing your case, you must provide the trustee with the last tax return you filed, and you must give your bankruptcy lawyer six months’ worth of pay stubs, just to get started.  There’s lots of work to be done.

Debtors are already stressed out when they come to their lawyer’s office.  The law is often confusing.  There are many new terms thrown around: CMI, DMI, discharge, First Meeting of Creditors, 341, 362, median income, means test, trustee, and on and on.  Even if they have a lawyer who explains things well, there’s a large amount of new information to absorb.

On top of all this, they must provide their lawyer with numerous documents.  Some of these are easily accessible; some are not.

In my Charleston, South Carolina bankruptcy practice, I have noticed that many clients seem worn down by this process.  We regularly check on open files to notify the clients of the information we need to file their cases.  Sometimes they respond, but sometimes they don’t.  It’s as if they believe that if they ignore the financial mess they are in, the problems will magically disappear.  They won’t, of course.  In fact, they’ll continue to get worse.

I call this financial repression.  Like any other repression, it delays a resolution.  Whatever the problem is, it doesn’t get solved.

I know financial problems are stressful.  And I also know clients feel overwhelmed and beaten down.  To be honest, I hate asking my clients for many of the documents I have to request.  Much of the information is, as my high school history teacher would say, merely academic.  I need the information to fill in a spot on a form, even though it’s really not relevant to their financial situation.

But I didn’t make these rules.  And your bankruptcy lawyer didn’t, either.  Think of the process as just a bunch of hoops you must jump through.  The Credit Industrial Complex, as one of my colleagues calls it, wrote much of our bankruptcy law.  The goal of the new law—or at least one of its primary consequences— was to make the process expensive and miserably labor-intensive.  But if you allow yourself to repress your financial problems, you will be letting your creditors win.

Roll up your sleeves, start digging for those documents, and give your lawyer what he or she asks for.  The sooner you do that, the closer you are to getting the fresh start you need and deserve.

About Russ DeMott:  Russell A. DeMott is a bankruptcy lawyer representing clients in Chapter 7 and Chapter 13 bankruptcy cases.  He practices in Charleston, South Carolina.

Posted in BAPCPA, General consumer bankruptcy info, Pre-bankruptcy credit briefing, Russell DeMott, bankruptcy procedures | Comments Off

BAPCPA at 4 Years – Has It Solved Anything?

I have been representing debtors in bankruptcy cases filed in the Northern District of Georgia for over 20 years. Until the law changed in 2005, filing bankruptcy was a fairly straightforward process – often I would meet with a client, decide whether to file and select Chapter 7 or Chapter 13, collect information about creditors, develop a budget, then file that day.

Attorney's fees and filing fees in those days were relatively low and relatively hassle free. Most Chapter 7 cases processed through to discharge, and Chapter 13 cases worked as long as the debtor remained employed and committed to making his case work.

Fast forward to October, 2005 – the time that the BAPCPA amendment to the Bankruptcy Code went into effect. The system became significantly more complicated. Clients were expected to gather page after page of documents, lawyers were charged with performing extensive budget calculations (the median income and means test).

Fees went up because both the attorney's liability and the amount of work required increased greatly. And what is the end result? Many people with limited income and no hope of paying it back are filing Chapter 7. Others who would have fit into Chapter 7 sometimes do not qualify immediately and end up having to delay their filing for a few months. Folks with some capacity to pay end up in Chapter 13, but trustees are more demanding and Chapter 13 plans that would have worked under the old law do not always work now.

Honest, hardworking men and women have to jump through hoops and pay a lot more money. In my career I can count on the fingers of one hand the number of clients or potential clients who I felt were dishonest. Those with the goal of gaming the system are not deterred. If the purpose of the BAPCPA amendments were to ferret out fraudsters, it has been a complete waste of time.

Another unintended consequence of the BAPCPA laws – deserving debtors do not seek the relief to which they are entitled because they get frustrated with all the paperwork required. Many of these folks remain in financial limbo – unable to save or psychologically move forward because of crushing debt. In a macro-economic sense I wonder if the country is better off with these folks living in financial purgatory rather than moving on with a fresh start.

My colleague, South Carolina bankruptcy lawyer Russ DeMott, and I were chatting about this tendency of deserving debtors to give up or delay filing because of the burden that the Bankruptcy Code places on debtors in terms of document production, costly credit counseling that offers marginal benefit and record keeping. Russ calls this syndrome "financial repression" and he has written a compelling and thoughful article about this problem.  Russ has given me permission to republish his article on this blog, which will be the next post published here.  You should also check out Russ' Charleston bankruptcy blog. Your feedback is welcomed.

Posted in BAPCPA, Chapter 13, Chapter 7, Credit Counseling, General consumer bankruptcy info, Georgia Bankruptcy, New Bankruptcy Law | Comments Off