3 Reasons For Filing Bankruptcy
I'm a psychic. Not really, but seeing the same thing over and over again makes it an easy guess that anyone sitting across from me in the client chair has had at least one of three things happen to them.
1. Lost Job or Income
2. Divorce or Domestic Problems
3. Health or Medical Issues
1. 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 -- usually about two years in my experience. I'll see the headlines about the big layoff at Laz-Boy or Rite-Aid or Thiokol or 'Insert Big Company screwing the work force here' and in about two years, the people affected will start to trickle into my office. I hate to see people suffer, so I would have loved it if they had come in earlier when they had more options and could have avoided a lot of unnecessary suffering, but everyone has their own threshold of pain before they seek help.
The unseen killer in the "lost job or income" category is a loss in hours or overtime. Regular overtime is a little bit like heroin -- easy to get addicted to -- and if your monthly budget gets hooked on regular overtime, withdrawal is often a slow and painful process. Again, people tend to suffer too long before they come in and get help.
The current influx of construction workers and real estate agents (and a previous influx of truck drivers) shows that the lost income can be an industry wide phenomenon.
Bottom line. The sooner you see me after you lose your income or job, the more options we have available to avoid bankruptcy or to get the most benefit from bankruptcy.
2. Divorce or Domestic Problems
There is a reason I am not a divorce attorney. Divorce is a miserable time and usually nothing the divorce attorney can do can stop the misery -- 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 the loss 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 no one can come out of divorce unscathed. I mused on this on an old blog post about Tiger Woods needing to file after his divorce, just to show that no matter how much money you make -- divorce can financially kill.
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. Consulting with a bankruptcy attorney prior to the finalization of a Divorce Decree can have long term financial impact.
Another aspect of the domestic realm is one that is often overlooked is the havoc that can be created by co-signing with relatives or friends. Here is an important rule: DON'T CO-SIGN ON ANY LOAN YOU AREN'T READY TO PAY FOR 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, your relative could lose their job, get divorced or become ill and then you will need to pay.
Oh, and kids are great, but be careful not to be too financially 'nice' to them or you could end up talking to me.
3. Health or Medical Issues
The final reason that people file accounts for over half of all bankruptcy filings: medical and health issues. I actually had clients participate in a 2007 study that was an inquiry into the reasons that people file bankruptcy. The study was conducted by Elizabeth Warren, a former professor at Harvard and a current United States Senator. You can find the entire study here in The American Journal of Medicine. Here are the highlights from the study:
I'm often asked if our office does a "Medical Bankruptcy", the answer is yes -- 62% of all our cases are medical bankruptcies in one way or another. Filing for medical reasons isn't any different from filing because of job loss or domestic problems.
No one wants to file bankruptcy. No one really wants to come into my office, but life happens -- jobs are lost, marriages end and illness invades. When that happens, the bankruptcy laws are there to give the opportunity to get a fresh start. Don't suffer too long. Come in and we can talk about what options make the most sense for you and your situation.
