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Very small number of debtors are misusing the system, says attorney

Filing for bankruptcy a question of simple math

Simply the word “bankruptcy” seems to have a negative connotation in the minds of the public.

There is a feeling that many debtors abuse bankruptcy.

But, said attorney John M. Stevens, “I think a very small number of debtors are misusing the system. I think the vast majority are caught in life. It could be anything. I

see it all.”

Whether or not one should decide to file for bankruptcy is a question of simple math, Stevens said.

Chapter 7 bankruptcy is a liquidation and is designed to eliminate honestly incurred unsecured debt. If the debtor had been in an automobile accident and was being

sued by different medical providers, Chapter 7 would likely be appropriate, Stevens explained.

Chapter 13 bankruptcy is an individual reorganization where a plan is submitted to the court in order to repay debt. Any source of income is sufficient to fund a plan.

The repayment averages 36 months; the maximum time span is 60 months.

Chapter 11 is a highly complex business-type reorganization, although individuals can file under this chapter as well.

With Chapters 11 and 13 bankruptcy, not all debt is necessarily repaid.

When deciding to file bankruptcy, one should go to an attorney so that their needs may be assessed, suggested Stevens.

“The overall financial situation needs to be analyzed,” he said. “It’s a balancing process. A lawyer needs to make sure the good resulting from filing cancels out the

harm it causes. I’d look at the type of debt. I look at the amount of income coming in, the family’s needs, the number of children. Is there a potential for medical

problems down the road that would cause more financial problems?”

A typical attorney presents options for the client and the client ultimately makes the decisions.

“Analyzation is very important,” Stevens said. “Often that’s the toughest part of my job. Filing the bankruptcy can be simple compared with the analysis process of

getting here.”

To avoid having to file for bankruptcy, Stevens suggested that people be very careful with purchases of automobiles as well as with the use of credit cards.

“Think about it very carefully before you sign and purchase something like that,” Stevens warned.

Often though, people have very little or no control over what debts they incur.

“I’ve seen individuals with huge amounts of medical debt even though they have insurance,” he said. “It doesn’t take long to have a $25,000 medical bill if you’re in the

hospital. It just doesn’t take any time.”

In the May 15 issue of TIME, a special investigation, titled “Soaked by Congress,” the second in a series of Investigative Reports on campaign finance, reported that

Congress is being lobbied by credit-card companies, debt consolidators, banks and other financial-services businesses to make it more difficult for families to file for

bankruptcy.

Stevens called the pending legislation “scary.”

“If you have obvious needs that have to be met, it comes down to simple math. What’s left over? I think people are better off paying debt back if they can pay it

back,” he said. “But does an elderly couple pay off debt instead of buying medication? No.”

Contact MBJ staff writer Elizabeth Kirkland at ekirkland@msbusiness.com or (601) 364-1042.

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