Bankruptcy Attorneys Speak Out

"However, I suggest that the numbers [of bankruptcy filings] also offer clues to other trends in our society that demand attention from our elected representatives, lawmakers and business leaders. "

"Insurance is required for motor vehicles and homes in order to protect the creditor. However, health insurance to protect the debtor is not mandated as part of the bankruptcy system. "

"In some ways, our divorce rate has parallels with the bankruptcy filing rate"

"And notwithstanding the howls of those wolves in sheep's clothing for bankruptcy reform of abuse, little of which actually exists in the perspective and 20 year practice of this debtor's attorney. What does exist is the widespread economic raping and fleecing of the masses."

Bankruptcy Court: An Unconventional Window on Society

FROM: Cracking: the Code: A Newsletter of Insolvency Professionals

Posted on the web site forum of the American Bankruptcy Institute.

Bankruptcy Court: An Unconventional Window on Society

by Stephen F. Greenberg on 28 Feb 2003

     This is an article written without the benefit of statistics, empirical data or surveys of any kind. It is an article written using two senses-hearing and seeing. It is subjective. But for all of those disclosures, it is nonetheless an article about a court that is probably the least understood of all of the courts in our federal and state judicial system. It is also a court that offers keen insights into some of the major financial and social issues that face our country today.

        To the untrained eye, the bankruptcy court is a place for those who simply have more debt than assets or income. It is a place that many people never envision themselves, but more and more people every year avail themselves of the remedies afforded by the Bankruptcy Code. It has been praised by some, damned by others, reformed at various times to achieve social policy goals and studied ad nauseam. It is the subject of a current proposed revision that has become mired in another social issue of the day.

     But who are the people that become debtors in this court? Why are they there, and what does it say about our larger society? The impressions in this article are based on more than 15 years of practice in the bankruptcy court and are filtered through the author's mind. Others may have different impressions. However, all should agree that this court is not just another judicial venue; it is the face of day-to-day reality in the lives of many citizens.

Age

     If you think bankruptcy is for the young and foolish, guess again. One of the byproducts of our increasing longevity is the fact that by living longer, some people find themselves in financial problems they never foresaw in their younger years. There is the widow or widower that is having trouble meeting expenses with one income when two was necessary.

     Some situations revolve around the fact that a debtor's sole income is Social Security. Other situations revolve around a parent who ends up absorbing a child's debt, prompting the bankruptcy. The commonly held belief is that in our "golden" years we are beyond the reach of financial problems. This is no longer true. Retirement may remain a goal much later in life than we normally think of it. As our population ages, and the baby-boomer population enters its 60s, this financial reality many become an increasing phenomena over the next several decades. That would be sad. It would also be a commentary on exactly what we should expect from our aging population and what our government is prepared and not prepared to do on their behalf. It also means that for a segment of our population, saving and financial planning are increasingly important matters.

Health Insurance

     One of the hallmarks of bankruptcy is choice. It is a constant balance, both before and after filing, of resources. It is not the scales of justice but the scales of income and expense. However, that contest goes on throughout the debtor's case. Bankruptcy may alleviate past debts, but the debtor still has to contend with the choices of the present.

        Trustee payments must be made. Post-petition home mortgage payments must be made in many cases. Normal household living expenses must be paid. This delicate balance can be upset by one primary item-illness, especially illness where there is no health insurance. Then, the debtor has to make a choice: pay the trustee, pay the mortgage company or pay the medical/hospital bill. Because of the urgency of the matter, in most cases the latter comes first.

Many debtors realize the problem but are faced with a Hobson's choice.  It is also a choice that some debtors find imperils either their case,  house or car. The question for our society is, how do we put people in that kind of situation? We want the debts to be paid, but in a race between debt and health, the latter will always win. Insurance is required for motor vehicles and homes in order to protect the creditor. However, health insurance to protect the debtor is not mandated as part of the bankruptcy system. Health insurance would really protect the case by taking away the one uncontrollable factor that jeopardizes the viability of the case. The further question is whether our society is ready to provide affordable health care not just for health reasons but also for economic reasons.

Discipline      

I submit that the reason many people end up in bankruptcy is an inability to curb an appetite fueled by credit. This is the true chicken and egg argument. Do people really lack discipline, or is it the easy and plentiful credit that causes the incurrence of excessive debt? Is it our powerful economy and marketing systems that continually produce new merchandise that people just must have-and will take on debt to obtain? The downfall, I feel, came with the advent of the microwave oven.  Suddenly, things could be made to happen instantly. There was no need to wait or be patient. You want a cooked dinner now? Bingo. Seriously, however, many of us have lost the ethic to save and then buy. We want to keep up with all of the Joneses of the world as well as all their friends. We live and buy for now, not for later.

The more ominous fact is that the younger generations have taken to this characteristic like flies to sugar. If there was any curriculum I would add to our schools, it would be the increasing emphasis on economic choices: how to manage what you want with what you can afford and how to avoid digging oneself into a hole from which the only escape is bankruptcy. That is what our young people must learn, or they will be the wave far offshore that in the forthcoming decades will keep our bankruptcy system filled with filers.

Domestic Relations

Any casual observer of society knows that this country's divorce rate grew significantly in the latter half of the twentieth century. Numerous articles have been written on the societal effect of a dissolved marriage-especially on the children. However, another victim of a failed marital union is the family finances. Suddenly, a household supported by two incomes only has one. Child support becomes anything but what its name implies. A dollar simply will not stretch that far, and credit card bills and house payments become monthly hurdles. Bankruptcy becomes the only option for some, but it is not necessarily the savior. A chapter 13 or 7 case may very well address what has accrued to that date, but the lack of income does not bode well for the future. In that case, the difficulties continue and the stress grows. The debtor looks at what might have been and realizes that he or she is in a situation that could have been avoided. While the vows might have been "for better or worse, for richer or poorer," the second half of the phrase often describes the bankruptcy result of a domestic-relations problem. When you lump together the stress of daily living with financial problems, it is more than some unions can absorb. However, the end of the marriage does not mean the end of the financial problems. In many cases, a new set of issues arises that appears in bankruptcy court. In some ways, our divorce rate has parallels with the bankruptcy filing rate. Many observers have written that couples are more prone to just give up on a marriage that hits a rocky time instead of working through the problem. The former is just "easier" than the latter. The social stigma of divorce also is not what it was 30, 40 or 50 years ago. Bankruptcy follows the same trend. In many segments of society, filing does not carry the "scarlet letter" that it did not too long ago. It is also "easier" to just file a petition than try and work and reorganize one's self out of a difficult financial situation.

Future Education of Young People

From a simple overview of articles on the education of our young people, it seems much of the emphasis is one or two ends of the spectrum. We either read about test scores and the necessity of students to achieve in basic skills, or we read about the technological strides being made in our schools. Both are important. However, there does need to be more emphasis on what some have referred to as "life skills." Our young people need to learn about savings, how to manage debt and how to simply control spending and make it match against income. Our young people need to learn how to ask for advice on finances and where to get help before a situation becomes too serious. They need to understand about life insurance, health insurance and other financial skills. They need to be informed consumers.

Their situation is really no different than the challenges facing our aging population described above. We need to help our young people not only have an education and be prepared for the job market, but we need to give them the skills to deal with an increasingly sophisticated and fast-paced world. Reading, writing and arithmetic can still be in style.

Bankruptcy Trends

The numbers tell the tale of the increased filings of all chapters of the Bankruptcy Code. The numbers are often related to currently perceived economic conditions, and there is nothing wrong with that analysis. However, I suggest that the numbers also offer clues to other trends in our society that demand attention from our elected representatives, lawmakers and business leaders. This country is fortunate to have an economy that despite the setbacks of the last few years is still the bellweather for the planet. But the bankruptcy court shows there are deep-seated economic problems for future generations, and the solutions to those problems are not going to arise without hard work from these sectors of our leadership. We do not have the luxury of taking the "easy" way out.

1. Response from Jim Smith, Esq. on 28 Feb 2003

At last, an article reflecting at least one who somewhat understands the human, little people side of 11 United States Code in which the "big boys" e.g., United Airlines, Enron, Worldcom, Dow Corning, K Mart, Adelphia, et. al.,so readily cloak themselves.

The locked courthouse doors -to-the serfs-and peasants, the "little people" -a function of the power elite has opened somewhat.  And those who deal in the chains of claims and legalized extortion--credit cards and such are fuming.  It seems axiomatic that every time the economy goes "south" -gets bad-muck-t-mucks scream for bankruptcy reform.

And not with standing the howls of those wolves in sheep's clothing for bankruptcy reform of abuse little of which actually exists in the perspective and 20 year practice of this debtor's attorney. What does exist is the widespread economic raping and fleecing of the masses.  The greedy offer credit sales of shoddy or planned obsolescent goods, enticements of credit cards with seemingly low interest rates-until the miniscule type on the back of the application shows the onerous interest, charges, one time origination and set up fees, et al. -for those that can read, and there are many who do not. Many more do not understand what they read. But as for bankruptcy reform functioning as a foil for social policy, this writer respectfully dissents.

It proves more a coach for absentee creditors, too lazy to file their own adversaries, motions, or contested matters, or claims.  By and large Chapter 7 appointed trustees, and the US Trustee for a region-in our humble opinion-- ostensibly act as the overseer role for Massa Creditor who appears all to often elsewhere, shearing additional sheep.

Contrary to the projections (psychology use) of member sin the Grand Old Party, just plain folks don't sit around attempting to find ways to thwart the Bankruptcy Code. (Oh, if common folks had the luxury of some use of time! But alas, they prove too busy trying to find ways just to eat and keep a roof over their heads).

        (But how much had companies paid for the last "go round" of Bankruptcy

        Reform in the 107th Congress, $50 million?)

Words like "captured agency" comes to mind, from this writer's '60s community organization past.

With the old (and the mass company rip- off of 401k and other pension funds), along with rampant age discrimination of dumping workers over 40, it is no wonder older filers now appear on the 341(a) calendars and dockets.  In our experience, the status of "retirement" is rapidly becoming a luxury of the European heritage-born with silver spoons in their mouths.  And even those utensils may not carry a sufficient exemption. So some of the formerly privileged are gonna soon find themselves in the hearing room chairs with those from the trailer parks, the barrio, and the ghetto. And sadly, we even see an increased presence of the oriental filer-unheard of several years ago.

Many of those folks served over the years by this writer have no health insurance. Affordable insurance has been collective bargained away for exorbitant co-pays and prescription rates the fixed income-- retired can no longer afford.  Other citizen don't know what health insurance is, have never, ever seen it, save for some meager handout of their tax dollars in the form of Medicaid (Medical in California). And even that is stingily given the quickly snatched away.

All too often filing is precipitated by a lost job. A repossessed vehicle, where the financial institution'' minions absolutely refuse to negotiate.

An illness, catastrophic or just a few weeks, can send a citizen spiraling into the abyss of inaction hopelessness, paralysis, and finally bankruptcy.

Now true, being a debtor's attorney, this writer has a bias (though I have represented creditors). True, in some sort of genetic memory, fondness, he wistfully sighs for guillotine justice for the aristocrat like creditors.  (No, we do not adhere to any German philosophies a la Marx. Rather, we hearken back 1900 years earlier to the sayings of Chairman Yeshua-they wrote a book about it in the late '60s, early '70s).

Lastly, one question remains overlooked by most pundits' analysis of bankruptcy.   For those of the "p" word- poor, poor in money, poor in spirit, poor in hope--all too often the court is shamefully turned to as a last resort.

        (This notwithstanding The Torah's and Old Testament's okay in Deuteronomy 15:1, and Leviticus)

But one has to have a job or income to even gain access to bankruptcy relief.

2. Response from Gary Jacobson on 4 Mar 2003

Mr. Greenberg's article is temperate and perceptive. One factor he may have overlooked is the effect of non-dischargeable educational loans on both the young graduate and the middle-aged parent, as a greater percentage of students pursue higher education, delay generating income, and inevitably must face a job market that does not offer a commensurate number of high-paying jobs.