Bankruptcy: Are You High risk?

Leon Bayer
December 22, 2008 — 1,457 views  
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There are three drastic, life altering events that seem to put people at a higher risk of bankruptcy than anything else. These factors are unemployment, serious illness, and divorce. If you suffer just one of these events, there is a higher than normal likihood that you will file bankruptcy.

Was there ever a time when you were late on a bill because you just didn’t have the money? Most people can turn to family, friends or other resources to solve a temporary cash shortfall.

What would happen to you if a personal money problem grew into something so big that no one else can help you solve it? When things get that bad, bankruptcy becomes a rational choice to solve a problem that has no other solution.

Most of the people who can’t pay their debts aren’t flakey. Most can trace their problem to a divorce, the loss of a job, or a serious illness that caused them to stop working. These people didn’t choose that fate, and almost all of them incurred their debts during a time when they had the money to repay what they had borrowed. As we all find out, things in life can change. Very few of us are blessed with a secure lifetime job, perpetually good health, and a perfectly happy marriage. The loss of just one of these pillars frequently brings down the whole roof, financially speaking, and it leads many people down a path that eventually results in filing bankruptcy.

Filing bankruptcy usually brings people automatic relief. The pressure from bill collectors comes to an immediate stop, and in most cases, (called Chapter 7 bankruptcy) the court will actually order the elimination of most debts. In recent times, something like 1.5 to 2 million people each year have filed for bankruptcy protection. Read on, and you will see why most of them did so.

In the early stage of a debt crisis, people are usually in denial that they have any problem. They may buy themselves some time by borrowing from “Peter to pay Paul,” often transferring debt balances from one credit card to pay off another, because that keeps them “current” without actually making a payment that month. The problem with that strategy is that the debt never gets paid off; it just gets shifted to a different lender, often causing the debt balances to inch up ever higher with fees and transfer costs. In the later stage of a debt crisis, a person’s available credit may be all used up, they have no credit left for making further balance transfers, and the game becomes a miserable struggle of juggling overdue payments and dodging the phone calls from creditors.

Observing this end game is like watching the death struggle of a bunny being crushed by a python. Bill collectors can sense when a debtor is sinking fast, and they also sense that they are competing against each other to squeeze out whatever limited money a debtor has left before some other creditor can take it. The strong arm tactics exerted by many bill collectors often become downright vicious at this stage of the collection process.

Despite some weak laws banning hard ball collection tactics, the final collection assault is often a forceful combination punch that threatens the debtor with immediate fearsome legal consequences, (threats to garnish wages, seize bank accounts, car and other assets) combined with heaps of degrading personal abuse. There are very few people that can stand up to such pressure without an emotional meltdown, especially when the collector has you thoroughly frightened, you want to pay it back, but you just haven’t got the money. You feel helpless. You feel humiliated. This stage of the collection process leaves many a borrower holding their phone and weeping in tears of shame, fear and frustration.

That is the exact point when many debtors have simply had enough; they want the protection of personal bankruptcy, even if they don’t exactly know how it works or what it does. They just know that they need it.

Bankruptcy laws in the U.S. have evolved over time to provide a safe harbor where the “honest but unfortunate” debtor may be allowed to discharge most kinds of debts. The actual process entails a fairly complex legal inquiry that is conducted in a United States Bankruptcy Court. To describe this in very simple terms, the process takes place by demonstrating that one’s debts were incurred under honest good faith circumstances and that one is truly unable to pay back any of the money.

Debts that are owed for family support, taxes, and educational loans are generally not discharged and will usually remain owing. There is also a bankruptcy remedy, (called Chapter 13) that may allow someone to restructure most debts on new, better terms and often with no interest.

A practicing attorney since 1979, Mr. Bayer is a founding partner in the law firm of Bayer, Wishman & Leotta (1989) and is a Certified Specialist in Bankruptcy Law by the State Bar of California Board of Legal Specialization.

He has served as President, 1995-1996 of the Los Angeles Bankruptcy Forum; Member - Los Angeles County Bar Association Committee on Commercial Law & Bankruptcy, 1988; Law Advisory Commission-Personal & Small Business Bankruptcy Law of the State Bar of California, 1996-2000.

His publications include “The Essentials Of Chapter 13,” Daily Journal Report, December 18, 1987; Contributing Editor, Basic Bankruptcy, California Practice Handbook, Matthew Bender 1992, 1993; and as Reviewer and Contributing Author for the new CEB bankruptcy practice guide, Personal and Small Business Practice in California, 2003.

Mr. Bayer has been a frequent law lecturer for numerous programs, including the semi-annual Bridging the Gap programs for the Los Angles Lawyer’s Club and the Los Angeles Daily Journal, 1999 thru 2007, State Bar of California Annual Meetings, 1984, 1986, 1987, 1988, 1989; California Bankruptcy Forum, and numerous educational programs presented by the United States Trustee and other organizations.

Media presentations include TV: KCAL9-Various interviews as Bankruptcy expert for 2 part series with Reporter Alan Mendelson, How to Survive the Recession, 3/02; Unmasking a Debt Negotiation Scam, 5/02; 11/03, EXTRA - various interviews as legal expert regarding celebrity bankruptcy cases including Burt Reynolds, Anna Nicole Smith; RADIO: Frequent guest-bankruptcy expert on the Benjamin Dover Show, KFI; SundayEdition, public affairs program-1/03, 97.1 FM, and Your Legal Rights (2/04, 07/04) on KALW-FM Public Radio (91.7), San Francisco, California; Morning Edition KGIL AM Radio.
Email him at
[email protected] and visit his web site at www.debt-relief-bankruptcy.com

Leon Bayer

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A practicing attorney since 1979, Mr. Bayer is a founding partner in the law firm of Bayer, Wishman & Leotta (1989) and is a Certified Specialist, Consumer & Small Business Bankruptcy Law, by the State Bar of California Board of Legal Specialization. He has served as President, 1995-1996 of the Los Angeles Bankruptcy Forum; Member - Los Angeles County Bar Association Committee on Commercial Law & Bankruptcy, 1988; Law Advisory Commission-Personal & Small Business Bankruptcy Law of the State Bar of California, 1996-2000.