Raise your hand if your first experience with bankruptcy came from playing Monopoly as a kid. Bankruptcy = you lose, game over. You've got nada. Nothing. Zilch. You sell off your property, hand over your money and that's that. You're outta the game.
In reality, bankruptcy as a legal process is a wonderful thing-a gift, if you will, from lawmakers bestowed on those of us who might fall on hard times or go a little nutty with the credit card. Filing for bankruptcy allows one to discharge their debts, turn over a new financial leaf and begin again with a-hopefully-renewed sense of fiscal responsibility. And, for a nominal fee, around $1,000 for a Chapter 7 filing, for example, a well-chosen lawyer will hold your hand through the process.
It wasn't always so easy. In 1705, British Parliament passed what might be considered the first “humane” bankruptcy law, abolishing the debtor's prison as well as a previous law that allowed a debtor's ear to be cut off. By parliamentary decree, a penitent debtor's financial slate was wiped clean. He was even permitted to keep some of his property. A foolish debtor who was found to take advantage of the process risked execution.
The United States bounced around a bit with its version of bankruptcy law, passing and repealing various sorts of debtor protection until the Bankruptcy Act of 1898, marking a new era in debt relief-a virtual debtor “jubilee” as one critic put it. Things have tightened up over the years-for example, there are some debts you can't escape, and you're only allowed to file once-but unless Congress tries to reign in consumer culture's endemic overspending, bankruptcy is our safety net.
Once a month, bankruptcy attorney Mark Miller holds a free hour-long seminar at the downtown library. Miller, a natural public speaker, has no problem telling his audience that he'd love to have them as potential clients. Each seminar, he said, generates three or four people who come in for a free consultation-which sometimes does the trick in itself-and usually one seminar attendee each month signs on as a client. His overall goal is to dispel the myth that bankruptcy is a stain to one's character; he's seen some people go to bizarre lengths to pay back loans: selling blood plasma, getting a job in the lucrative porn industry or taking on more jobs than humanly possible. He said he's had three clients in the past three years who've attempted suicide before coming to him for help.
This past Wednesday evening, Miller opened his talk with a bit of Debt 101. Practically all of us are in debt, he reminded the dozen or so attendees, whether it's student loans, car payments, mortgage credit cards. The average person, Miller pointed out, has 14 percent more debt than income. Bankruptcy, he said, is at an all-time high nationwide. Though so far San Diego has been spared. As Miller put it, “We're a nation drowning in debt.”
What's saved San Diegans from joining the rest of the country is the area's skyrocketing home prices, which has allowed those fortunate enough to own a home to borrow against the equity to pay off other debts. This has prompted people to take out second and third mortgages. Miller said that we'll see just how many people are taking this to the limit-he predicts that in four years, home foreclosures in San Diego could become epidemic.
“If you can't afford it when it's called a credit card,” he said, “how can you afford it when it's called a second mortgage?” Mortgages, he added, are one of the things, along with student loans, court-imposed fines, child support and alimony that you can't wipe out in bankruptcy.
As for bankruptcy's perceived social stigma, a court filing will stay on your credit record for 7 to 10 years. Employers, however, can't discriminate against you, banks can't close your account-and credit card companies will love you. As soon as a person files for bankruptcy, that information becomes public record, and credit card apps come pouring in. After all, a person with no debt clearly needs some help re-building that debt, right?
“If you can think of it, they will offer it to you,” Miller said-40 billion credit card applications go out each year, he added.
“Yeah, all to my house,” snorted one woman.
Miller told the audience he recommends debit cards for his clients and if a credit card is absolutely necessary, “get one with a $500 limit [and] keep it in a sock drawer.”
Filing for bankruptcy not only gets unyielding creditors off one's back, but also wipes out any personal debts.
“Like if you borrowed $5,000 from Aunt Annie?” asked another woman.
Miller confirmed that personal loans do indeed get wiped out as well, but that doesn't necessarily mean you shouldn't re-pay that person. “Makes for an awkward Thanksgiving,” he said.