By: Jeena Cho
When I tell someone I’m a bankruptcy attorney, a frequent reaction I get is something like “oh, you work with those people.” The implication being that there is a certain category of those people that file for bankruptcy and that he could never become one.
One of the most common thing a client says to me at the initial meeting is “I can’t believe I’m here” or “I never thought I’d be sitting here.” Bankruptcy isn’t something that you plan for. It’s a Plan B.
A typical client ends up in my office like this.
You’re going through life, always paying your bills on time but having little or no cash reserve. And you use your credit card to buy stuff. Then one month you spend a little too much or maybe there is an unexpected expense. Which means you carry over a balance.
No problem, you think to yourself. I’ll pay it off next month. But something else happens - maybe an unplanned visit to the doctor or some other life event. Soon, you are always carrying a balance month to month and that balance starts to grow. But it doesn’t grow over night. It happens slowly.
Then one day, you hit a big bump such as loss of a job, reduction in pay, increase in mortgage, illness, divorce, etc. The decrease in income leads to making up the difference by more credit card spending.
Soon that once sort of manageable credit card debt feels like Mount Everest. Especially when you miss one payment and all the credit card spikes up to the default rate of 35%. So, you start borrowing from Peter to pay Paul, juggling all of your credit cards in the air, going faster and faster to keep them from falling.
Another common situation is business owners or investors that took a risk, borrowed money and couldn’t repay the business debt.
Lastly, clients frequently end up in my office for mortgage debt. Home equity lines of credit, negative amortization mortgages, balloon payments, upside homes are all common problems for clients.
The way I see it, unless you have stockpiled savings and/or have no debt, don’t be so certain you’ll never one of those people that I help. Bankruptcy doesn’t discriminate based on age, sex, or socioeconomic status. You can earn $40,000 or $400,000. Neither group is immune from the problems of too much debt.
