What Types Of People File For Bankruptcy?
People from every profession come to us to file for bankruptcy, including doctors, lawyers, steelworkers, policemen, firemen; people from every walk of life. And they all file for largely the same reason; they’re falling behind on their bills due to divorce, job loss or illness.
A job loss, divorce or illness can happen to anyone; the things that happen in life that cause you to fall behind in your bills can happen to anybody. That means there’s no one type of person filing bankruptcy; it can happen to anyone.
Is there a Common Scenario for Filing For Bankruptcy?
The one thing I see all the time is people who paid into debt consolidation, which is one of the worst things you can do. In debt consolidation, you set up a payment plan to try to pay down some of your debts; that’s what they tell you will happen, although in reality it doesn’t. If you’re current on your credit cards and you go into debt consolidation, it will trash your credit score because they’ll start to report those debts as not being paid.
Another problem with debt consolidation is that most of the money you pay for the first few months goes to the debt consolidation company, not to pay down your debts. In most cases, you’re better off if you save some money yourself and negotiate a settlement with your creditors yourself, rather than hire a debt consolidation company because the same people pay $500-$700 a month for 6 to 7 months, all of it going to the debt consolidation company before they settle a single debt.
Debt consolidation also doesn’t stop garnishments and lawsuits, so they could be paying off one credit card while being sued by another. Then the credit card that’s suing gets a judgment against you and start garnishing your paycheck and debt consolidation can do nothing to stop it. On the other hand, if you just file bankruptcy, all of those credit cards would be part of the bankruptcy and they wouldn’t have to worry about any of them. Debt consolidation is a bad choice in almost every situation.
Why Does Bankruptcy Get a Bad Reputation?
Obviously all the lenders who make money lending money had a vested interest in not having you file bankruptcy because that’s the only way they don’t get paid. The perfect example of that is the private student loan industry; it used to be that only government-insured student loans couldn’t be wiped out in bankruptcy.
However, in 2005 the private student loan industry went to Congress and lobbied to get the law changed, so that private student loan debt also can’t be wiped out in bankruptcy any longer, so they don’t have to bother telling you bankruptcy is a bad thing because they got Congress to protect them. Other creditors, like car loans and credit cards, can still be wiped out in a bankruptcy so they basically spread the message that bankruptcy is a bad thing and will ruin your life, which is just not true.
How Public Is a Bankruptcy Filing?
With Google and the internet, you can find out just about anything about anybody, but generally it won’t be a public matter. In a Chapter 7, unless your employer asks you about it, there’s no reason they would ever find out about it. In Chapter 13, the payment plans are often set up by wage order, so your payroll department will know.
If you work for giant company, I can guarantee dozens of people are already on Chapter 13 wage payment plans, but no one will ever know because the payroll department has to keep such information confidential, but if you work with a company of four people, anything can happen.