Practicing as an attorney means that you often meet people at a time when things aren't going so well. Yet, over the years, I have become convinced of the innate goodness of humanity. The scoundrels that abuse the legal system are rarely individuals or families.
When the United States was founded, the drafters of the Constitution knew that the inability of individual citizens to escape debt would cripple the budding economy. In Article 1, Section 8, Congress was granted the authority to enact "uniform Laws on the subject of Bankruptcies throughout the United States."
The stated purpose of the Bankruptcy Code is to give individuals who have fallen on hard times, a fresh start. There are three main reasons people need to file bankruptcy.
Lost job or income
Nothing can be more devastating to your financial future than losing your employment or your business. Why this leads to bankruptcy is easy to see. What isn't easy to see is just how long people suffer after they lose their jobs or businesses. About two years after the headline "Big company lays off workers," the people affected will start to trickle in to bankruptcy court.
The unseen killer in the "lost job or income" category is a loss in hours or overtime. Regular overtime is a little like heroin -- easy to get addicted to -- and if your monthly budget gets hooked, withdrawal is often slow and painful. Yet, people tend to suffer too long after a job or income loss before they even seek legal advice.
Divorce or domestic problems
Divorce misery is a lot like grieving the death of a spouse, except that the spouse is now a zombie and you can't really grieve for fear of being bitten.
From the bankruptcy point of view, divorce proves the cliche "Two can live more cheaply than one." Double your rent/house payment and utilities and throw in divorce attorney fees and almost no one can come out of divorce unscathed.
Trying to navigate between Divorce Law and Bankruptcy Law is a little like trying to ride a kayak down Class 6 whitewater rapids, incredibly dangerous and not something you want to do without a guide. Consult with a bankruptcy attorney prior to finalizing a divorce decree if it looks like financial trouble is looming.
One often forgotten aspect of the domestic realm is the havoc that can be created by co-signing with relatives or friends. An important rule: Don't co-sign on any loan for your kids, friends or family that you aren't able and willing to pay yourself.
If you want to co-sign with your kids or mother-in-law for a car purchase, great, help them out. But be ready to pay when they don't, because before the ink is dry on the contract, you are fully responsible.
Health or medical issues
Medical and health issues account for over half of all bankruptcies. I had clients participate in a 2007 nationwide study on the causes of bankruptcy. The results showed that 62.1 percent of all bankruptcies had a medical cause.
Filing for bankruptcy for medical reasons isn't any different from filing because of job loss or domestic problems.
No one wants to file bankruptcy, but life happens -- jobs are lost, marriages end and illnesses invade. When that happens, the bankruptcy laws are there to provide a fresh start. Don't suffer too long. Even Congress doesn't expect you to do that.
E. Kent Winward is an Ogden attorney. He can be reached at 801-392-8200 or creditcorrection@gmail.com.
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