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Bankruptcy Lawyers Jacksonville
CHAPTER 1
THE CAUSES OF BANKRUPTCY FILINGS
DON’T BE SO HARD ON YOURSELF, YOU'RE NOT ALONE
Whether the economy is riding the crest of a bull market or whether it is struggling through a major recession, personal bankruptcy remains a constant event. From the decade of the nineties through the present, personal bankruptcies have soared like in no other time frame. According to the Administrative Office of the U.S. Courts, bankruptcy filings rose by 10% in fiscal year 2005. During the twelve month period ending September 30, 2005, 1,782,643 bankruptcy cases had been filed. This drastic increase was due in part to those who filed in anticipation of the bankruptcy reform law which became generally effective October 17, 2005. The fiscal year listed above is the twelve month period between October 1, 2004 and September 30, 2005. The above statistic does not include the massive filings that occurred during the month of October, leading up to the new law date of October 17, 2005.
In the Northern District of Illinois, which encompasses Chicago and its surrounding suburbs, filings skyrocketed just prior to the new law date. For the first three quarters of calendar year 2005, the Clerk’s Office accepted 42,550 bankruptcy cases. In the final sixteen days leading up to the law change (10/1/05 – 10/16/05), the Clerk’s Office received 20,540 bankruptcy filings. That is almost half the number of yearly filings in sixteen days. At the time of this writing, the U.S. Bankruptcy Clerk’s Office, bankruptcy trustees, debtors’ counsel and creditors’ counsel are still working on files that were received during the huge rush to file prior to October 17, 2005.
TERMINOLOGY
Throughout this book I may use the word debtor or debtors to refer to the individual or individuals who are filing bankruptcy. I may use the word creditor or creditors to refer to those who have extended credit or to those who are owed a debt. For the definition of other words used throughout this writing, please reference the attached Lexicon.
WHAT IS CAUSING ALL OF THESE BANKRUPTCY FILINGS?
There are several common causes which lead to filing for bankruptcy. These include, but are not limited to the following:
1. Lawsuits/Garnishments
Nobody wants to be sued and brought to judgment. Nobody wants to have 10%-15% of their hard earned wages deducted from their pay. In many cases, the taking of 10%-15% of one's wages leads to the inability of that person to pay his rent, utilities or auto payment. Just the thought of the employer potentially having to garnish wages leads many to panic. Debtors do not want their employers or co-workers knowing of their financial troubles.
2. Auto Repossessions
Imagine waking one morning, heading out the door to work, only to find that your car is not where you parked it. Sure you were a little late on your auto payment, but you thought the finance company would wait for you to get up to date on your own. Auto lenders will do whatever it takes to get you financed, regardless of whether you are actually capable of affording the car. They realize that if you can't pay the installment, they can take back their vehicle and re-sell it before it fully depreciates. They do this through the use of auto auctions where the vehicle often sells for substantially less than what is owed. This leads to a deficiency amount which the lender seeks to recover from the debtor. Talk about insult to injury, the debtor first loses possession of the vehicle and then gets sued for the outstanding deficiency balance. Who wants to pay for something that they no longer have?
3. Unpaid Medical Bills
With more and more Americans going without medical insurance (45.8 million, per the U.S. Census Bureau press release dated 8/30/05), they risk losing whatever they have earned throughout their lifetime should a major medical problem occur. Most claim that they can't afford to carry medical insurance. In reality, they can't afford not to. The rising cost of health care could significantly deplete one's savings should a serious illness or injury occur. Even those with co-payment coverage are having a difficult time meeting their burden of the bill.
4. High Interest Loans
There have always been high interest personal loans from many sources. In recent times, the advent of the payday loan has surfaced. These loans have exorbitant interest, which is often carried over and extended further by way of additional loans. People who cannot survive until their next payday are giving up a huge portion of their paycheck to get the money in advance. This dangerous cycle leads to further borrowing with less and less money actually going into the individual’s pocket.
5. Driver's License Suspensions
Many states have begun to suspend the licenses of drivers who have been involved in auto accidents without insurance. These drivers are typically given three options: Pay the actual damages to the person(s) involved in the accident; work out an installment payment plan to pay the damages to the person(s) involved in the accident; or file bankruptcy and send proof thereof to the motor vehicle licensing department. If the person continues to drive without rectifying the situation, they risk arrest and/or imprisonment for driving on a suspended license.
6. Foreclosures
The pride and joy of being a homeowner can be easily tempered by the hard work and cost of maintaining the home. Calling the landlord to make repairs is not an option; you are your own landlord. When the water is not flowing to the main sewer, you have no option, but to make the repairs. Additionally, the mortgage needs to be timely paid no matter what your special circumstance may be. Real estate taxes and homeowner's insurance are also required to be paid regularly or you face a foreclosure suit. Changes in employment, health, income and marital status can lead to one's failure to make timely payments. Many take second mortgages or lines of credit which simply create an additional, financial burden on the homeowner. When faced with the reality that they cannot afford the home, debtors can vacate the home and extinguish any mortgage liability through Chapter 7 bankruptcy.
7. Overzealous Lending
How many credit card applications have you received in the mail this year? If you are like many Americans, the applications continue to appear regularly. Have you received convenience checks or offers for additional lines of credit? If so, you may have taken advantage of the use of the credit without any feasible way of repaying the debt. Many people are receiving pre-approved credit applications when they are in fact, not credit worthy. The credit card lenders point fault at the debtors for accepting the credit without the means to repay it. It seems more logical to fault lenders who do not undertake to check the credit worthiness of particular debtors.
8. Consumer Overspending
Many people see what they want, acquire it, and decide later how they will pay for it. People want to possess the latest clothing, jewelry, electronics, etc. Most stores now offer the ability to take the product home through the use of store credit cards or outside financing. You may even get a modest percentage discount off the purchase price if you open or use the store charge card. Many people charge their groceries, restaurant and transportation expenses believing that if they just make the minimum payments everything will be alright. You will see later how unsound a practice that has become.
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