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How do I know if I need a fresh start through bankruptcy?

"I was in a bad place in my life. Being a single mom trying to raise children was hard on the budget. I got behind. But thanks to you all at Gandy Law Offices, I have a new start." - R.W.

Having called us is a good sign that some part of you knows you're in trouble; that your financial problems have gotten, or are getting, out of control. One very reliable objective indicator used to determine if debt has gotten out of control is whether your monthly expenses are usually more than your monthly income.

If you have back due bills (taxes, child support, small debts to a number of creditors) that you have been unable to take care of, then the odds are that your finances are strained to the point where bankruptcy may make sense. Another rule of thumb is that if 25%-30% of your take-home pay is going for debts other than house payments, then your debt is probably in the unmanageable realm.

Another indicator may be if there is tension in your personal relationships regarding money issues. It is usually better to swallow your pride, put aside your vanity, and get rid of money worries rather than jeopardize your most important relationships with something that can be so easily taken care of by the simple act of getting a fresh start through bankruptcy. According to Congress, one of bankruptcy's primary goals is to try and save marriages and preserve families where money tension is straining the relationship. In addition, if you are depressed about money issues then it may be time to remove this cloud of despair from your life by the simple act of erasing your debts out of existence through this process.

Other indicators may be specific to the type of debt: for instance, if the thought of destroying all of your credit cards is unthinkable, or if you have taken cash advances on one credit card to make payments on other credit cards, or if you are routinely able to make only minimum payments on your credit cards, then you pretty well know your credit card debt is unmanageable. If you have recently been denied credit then you know that your creditors probably consider you to be insolvent. If one or more of your creditors has referred you to "Consumer Credit Counseling Service" (CCCS), or a similar debt consolidation service, then you can conclude that your creditors have determined that you are essentially bankrupt and that they hope to string you along for a while making payments to CCCS (CCCS was created by, and is solely funded by, the major credit card companies; a notation on your credit report that you have used CCCS may cause future creditors to deny you credit since generally only people with serious financial troubles get directed to CCCS).

Other signs can become such a part of your life and so routine that you cannot even recognize the signals. For instance, if you have to work overtime just to keep up with your bills then you are probably in need of some financial help. If coming up with the monthly car or house payment is always a stressful challenge, then your budget is probably stretched to the breaking point. Or, if you have taken more than one major cash advance on your credit cards within the last year, you probably do not have enough cash coming in to meet bills and expenses.

How do I know if I am eligible for a fresh start through bankruptcy?

“You guys rock.” - L.K.

As a general rule, by the time folks finally call us to ask questions about a bankruptcy they are usually in relatively serious financial trouble and have no problem at all qualifying for fresh start bankruptcy protection. Generally speaking, if you feel you can't make ends meet and need bankruptcy relief no one will argue with you. At the same time, determining eligibility for bankruptcy relief is a big part of what we do when we initially review your paperwork. Most people who file Chapter 7 have more in monthly bills and expenses than they have income to cover those bills. Please call us to discuss your situation in greater detail. You may very well qualify, even if you have an income that is enough to meet your monthly bills and expenses. It just depends on your total situation.

Common events that may cause money problems include: retirement, loss of a job, too much credit, gambling losses, tax underpayment, death of a spouse, failure of a business, a recent, pending or planned divorce or separation (please immediately call us about the issues that can arise from this), loss of overtime hours, adverse civil court judgments, excessive monthly car payments, illness or mounting medical bills, injury at work or in a car, uninsured accidents, excessive credit card interest payments, impoverishment following lengthy schooling, loss of cash flow due to attempts to start a new business, or simply an inability to keep up with monthly bills.

This is a really hard decision for me. Any help with perspective?

“You guys done one he** of a job and I appreciate it. THANK YOU!!!!” - Anonymous

The conclusion that it makes sense to get a fresh start through bankruptcy is primarily an economic decision. Major businesses such as United Airlines, Montgomery Ward, TWA, Texaco, Rockefeller Center, Macy’s, Dow-Corning, Greyhound Bus Lines, and Western Union have all taken advantage of the economic protection afforded by bankruptcy.

What do you think of when you hear these names?

Walt Disney?

Thomas Jefferson?

Abraham Lincoln?

Harry Truman?

What does the father of Mickey Mouse have in common with the drafter of the Declaration of Independence, the signer of the Emancipation Proclamation and the author of the Truman Doctrine? They all at one point or another in their lives sought financial protection through bankruptcy. Honest Abe may have even filed twice. But who knows or remembers or cares? And a hundred years from now, or even ten years, who is going to care that you filed for bankruptcy?

Individuals, including such modern mega-wage earners as Donald Trump, Wayne Newton, Tom Petty, Burt Reynolds, MC Hammer, and Kim Basinger -- even actress Debbie Reynolds, who once owned her own casino in Las Vegas (which is practically the equivalent of owning a money printing machine) -- have all sought bankruptcy's peace of mind.

If Honest Abe had not had the common sense to walk away from his debts and wipe the slate clean he likely would never have been freed up to have gone on to be elected President. Then what would the world look like today?

And what will your world look like in 10 years if you don't deal with your debt now and give yourself your own fresh start?

If you are unwilling to deal with your money problems head-on, then what kind of a life are you condemning your children to as they grow up? What kind of life are you creating for your spouse as you grow old together, or for yourself as you try to attain your goals? No one cares about your financial situation or your family more than you. We are on this earth for but a short time. No one will eulogize you for having paid all your debts on time when you finally depart this world. Who among your creditors truly cares about you, rather than the stream of payments that you represent? The only ones who will remember you for very long once you pass away will be your close friends and family. And, what kind of memories will you have left them if you do not take responsibility for dealing with your debt?

Bankruptcy has been around as long as civilization itself. The Old Testament refers to the practice of forgiving unpaid obligations in the seventh year. In fact, for large periods of time in the history of Western Civilization it was actually illegal for anyone to lend money and charge interest. This was because the effects of credit and never ending interest on society are so destructive. With proper representation, bankruptcy isn’t as big a legal ordeal as you might think. In fact, usually the only time you have to go to anything like a courtroom (and the judge is not present) is for a required 5 to 10 minute hearing at your designated hearing location.

Getting a fresh start through the bankruptcy process is a business and personal financial decision that is simply a fact of life. More bankruptcies are filed in federal court each year than all other types of federal cases combined.

Read this statistic and think about it for a moment: Approximately 1 in every 25 adults that you pass on the street has filed a bankruptcy within the last 10 years, seeking to provide themselves and their families a better economic future. Then they go on to live completely normal, healthy lives. Every weekday thousands of people file bankruptcy seeking finally to provide a decent standard of living with some peace of mind for themselves, their children, and their spouse. In recent times, the yearly total has been over a million bankruptcies each and every year, so one more bankruptcy filing isn't going to matter too much in the grand scheme of things. But, it may transform your life for the better.

The ability to provide for bankruptcy legislation was explicitly included by the framers of the United States Constitution -- men such as George Washington, Benjamin Franklin, James Madison and Alexander Hamilton. Debt and the anxiety that debt causes can destroy family relationships, physical health, and psychological happiness.

This country was founded and settled by people who knew the value of a fresh start. Historically, before everyone was tracked in nationwide computers as a number, most bankruptcies were informal "geographic" bankruptcies: when debts became too much to handle, folks simply moved away and started over in a new town or state, out of sight of their old creditors. In this day and age of technology, that just doesn't work any more.

The minimum wage remains at a level that will barely support, an individual, much less a family. Here in Iowa tens of thousands of families are locked in a wage-scale that has long since lost pace with the cost of living or the nation-wide average wage scale. A huge number of Iowa families are living hand-to-mouth, paycheck-to-paycheck, just one payday away from financial ruin.

A recent Harvard study shows that wage earners now log an average of an extra month of time per year on the job compared with workers two decades ago. People are working harder just to make ends meet. Much of American business, from manufacturing to banking and insurance, is moving toward the 24-hour office, to increase efficiency. About half of all people say that they would gladly work for less pay in exchange for more free time. Whenever you hear someone say that America has become “more competitive”, what they often mean is that wages and benefits have been lowered and hours increased. In most of the developed “first” world, such as Europe, workers are required to take four to six weeks of vacation each year. Other than school teachers, how many people in this country do you know who actually get to take six weeks of vacation a year?

Thus, many Americans are working much harder simply to service their interest debt and to pay people in a daycare to raise their children while they work. But who among us will sit around in old age and look back on our life and regret that we didn't spend more time at work and less with our family?

Nationwide, many people are simply overloaded with consumer debts. In the 1940's and 1950's the only type of debt nearly anyone had, or could even get, was a home loan or a car loan. The only credit card in existence was a Diner's Club card. Today, people are wallowing in debt, cash advances, credit and interest. And, these interest rates remain at a staggering 15% to 20% and more a year despite the fact that the rate of inflation hovers at around 2% to 4% - with average wage increases failing to keep up with even this modest rate of inflation.

Traditionally, workers salaries “grew” them out of debt: as inflation went up by 8% a year or so their debt became a smaller portion of their disposable income as that income increased. The Federal Reserve has managed to control inflation, keeping it low for many years (at 2% to 4% or so). We all know this. But interest rates on typical credit cards (after teaser rate periods) remain in the double digits. (A relatively new kind of loan mass marketed loan – short term payday loans – have interest rates that can calculate out on an annual basis to triple digits!)

It is this disparity between high interest charges and a low rate of inflation that causes the credit card industry to record profits year after year. We are talking about profits of half a TRILLION dollars or more. These companies have multi-million dollar advertising budgets to persuade you to use their high interest rate credit. Thus, for many of our clients, by the time they seek a fresh start through the bankruptcy process they have long since paid the principal off on their credit cards two or three times over, as a result of unending interest charges and interest payments. So, guess where that half-trillion dollars or so of profit came from?

The chief executive of one of the biggest and most aggressive credit card lenders, MBNA, a few years ago paid over a half billion dollars for the new Cleveland Browns football franchise. In 2005, the reported income for the CEO of Capital One Holdings, a huge issuer of credit cards, was over $200 million dollars! That's $200,000,000.00+! Believe me, these companies have money to spare. The real question is: do you?

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