By Ryan C. Wood
The “who” files bankruptcy is easy. Anyone from every different walk of life files for bankruptcy protection. You just never really understand until you find yourself thinking about what can help your financial situation? You never thought it would be true, but bankruptcy became a viable option for you. You never know what the future holds and bad things happen every single day. A lost job, depression, decrease in property value, failed marriage or an illness that does not allow you to work can happen to anyone. Whether these bad things results in filing bankruptcy is the question and usually depends upon how much debt a person has when the bad thing happens.
The “why” is a little more difficult to answer. In the last five or six years the mortgage meltdown was driving the increase in bankruptcy filings. Interest only mortgages and adjustable rate mortgages along with decreasing home prices was a recipe for disaster. A bankruptcy attorney could expect a mortgage issues or housing problem to part of the potential clients financial problems.
Credit Card Interest Rates Are the Number One Problem
In my opinion the real number one reason why the vast majority of people seek bankruptcy protection is because of out of control credit card debts. It is not medical debts. It is not car loans. It is not unaffordable mortgages and decreased housing values. These things do not help, but by far credit cards and their high interest rates are the problem. It is high interest rates that make paying back even reasonable amounts of credit card debt take years if ever. Most people have some credit card debt and are able to make the payments. The problem is when the bad thing happens it is not possible to make the minimum payments any longer and something has to give. Each state has or had usury laws to protect us consumers. The Supreme Court of the United States found a way around that for credit card companies. They held that a credit card issuer could charge the amount of interest allowed by state law in the state the credit card issuer resides, not the interest rate your state law allows. So what happened? A couple of states rescinded their usury laws and credit card companies set up shop in those states and the 28% interest rate became legally possible on a credit card. The rest is history. If credit card companies actually made a good faith effort to negotiate reductions in accrued interest and interest rates the number of people that could pay back the original amount they charged would be huge. Bankruptcy lawyers everywhere would see a decrease in bankruptcy filings.
Tax Debts are Becoming More of a Problem
Another major cause of bankruptcy filings is tax debt. Unfortunately taxes are only increasing and it appears will have to continue to increase as our federal, state and local governments struggle to keep up with employee benefits and retirement for retirees with generous retirement and pay packages. I believe we will see more and more potential clients with dischargeable taxes choosing to file for bankruptcy to discharge their taxes or pay a portion of the taxes back in a Chapter 13 bankruptcy.