Perhaps the second most frequent question would-be clients ask me is whether the fact that they filed bankruptcy will be 1) in the paper, 2) disclosed to their employer, or 3) discovered by their family or friends. Those who aren’t living the American dream of upward mobility and financial security seem to think that’s a matter for shame.

A couple of objective observations are in order: a university study of some years ago found that one in seven American families would be better off if they would file bankruptcy. Second, between 2001 and 2005, over 8 million American families filed bankruptcy. Chances are very good that serveral of the families around my petrified client have filed bankruptcy, unknownst to them.

The study about being “better off” resonates particularly with me, as I see individuals struggling to pay credit card debt, where the interest has tripled when a payment was late, while at the same time, they have no emergency cash reserves, no retirement savings, and no health insurance. While their choices are noble, they aren’t wise. These people live on the financial edge so that the credit card companies get their minimum payment.

I tell my questioner that bankruptcy is a matter of public record, so anyone who wants to find out who has filed can do so. But, I ask, have you recently read the news of individual bankruptcy filings? Such is not the fare of papers where I practice and they begin to realize how insignificant the fear of exposure is next to the finanical realities of their situation.

The human creature is pretty amazing that it will live with the constant stress of overwhelming indebtedness rather than risk that others learn of its pain.

Cathy Moran

I looked back to see how my advice to clients considering bankruptcy has changed since the amendments of 05 took effect. Deceptively dubbed bankruptcy reform, the changes were designed to narrow the door to the bankruptcy court and shackle debtor’s attorneys whom Congress blamed for inciting people to file bankruptcy.

Where I used to tell most clients who were unemployed that there was little point in spending precious cash on filing bankruptcy when they had nothing that creditors could take from them. Wait until things have improved and you have a salary to protect, then we’ll file your case.

Now, with the uncertainty about just what constitutes abuse in Chapter 7 and the varying judicial decisions about whether CURRENT MONTHLY INCOME, the backward looking six month average income or the actual income at filing control, I am far more inclined to say file now, when you have neither CMI nor actual excess income. Scrape up the money and file while there can be no doubt that you have no ability to pay existing debt. Funny that the new law has made me a far more vocal promoter of filing bankruptcy than before.

I am also much more likely to promote Chapter 13, not because the client must file a repayment plan, but because it allows a client to pay the increased cost of the bankruptcy over time. These plans usually pay little or nothing to creditors, but they do let the financially strapped buy my help on credit. Ah, the unintended consequences… Between increased attorneys fees, prebankruptcy counseling and post filing financial management classes, higher filing fees, and the production of all the required paper, it simply costs more to be broke.

The Congressional attempt to prohibit lawyers from advising clients to take perfectly lawful acts, such as buying a replacement vehicle or borrowing to file the bankruptcy, has been ruled unconstitutional by the trial courts who have considered the matter. We can hope that the new Congress may eliminate some of the worst of the other idiocies in the amended law.

Cathy Moran