“Life in the Sweatbox,” Personal Bankruptcy, and the Narrative of Utilitarian Calculus

“Really, if the lower orders don’t set us a good example, what on earth is the use of them? They seem, as a class, to have absolutely no sense of moral responsibility.” –Oscar Wilde, The Importance of Being Earnest

By Lambert Strether of Corrente.

Credit Slips informs us of an important new study, “Life in the Sweatbox,” by Pamela Foohey, Robert M. Lawless, Katherine M. Porter, and Deborah Thorne, forthcoming from the Notre Dame Law Review, and available for download now at SSRN. Foohey summarizes the article:

“Sweatbox” refers to the financial sweatbox—the time before people file bankruptcy, which is when they often are on the brink of defaulting on their debts and lenders can charge high interest and fees. In the article, we focus on debtors’ descriptions of their time in the sweatbox.

Based on CBP data, we find that people are living longer in the sweatbox before filing bankruptcy than they have in the past. Two-thirds of people who file bankruptcy reported struggling with their debts for two or more years before filing. One-third of people reported struggling for more than five years, double the frequency from the CBP’s survey of people who filed bankruptcy in 2007. For those people who struggle for more than two years before filing—the “long strugglers”—we find that their time in the sweatbox is marked by persistent debt collection calls, the loss of homes and other property, and going without healthcare, food, and utilities. And although long strugglers do not file bankruptcy until long after the benefits outweigh the costs, they still report being ashamed of needing to file.

Foohey concludes:

Our results suggest that the bankruptcy system, at present, cannot deliver its promised “fresh start” to many of the families that seek its protection.

In this brief post, I’ll look at one aspect of how the bankruptcy system came to be as it is: The narrative that debtors perform a “utilitarian calculus” in deciding whether or not to seek bankruptcy. This narrative is false, based the results of “Life in the Sweatbox.” Since it will crop up again if bankruptcy reform efforts gain traction — as they should — it’s important to debunk it now. This subject matter is new to me, so I will primarily quote from and contextualize Foohey, Lawless, Porter, and Thorne.

First, let’s define the “sweatbox.’ Foohey et al., page 1:

The time before a person files bankruptcy is sometimes called the financial “sweatbox.” People in the financial sweatbox are on the brink of defaulting on their debts, which is when their lenders can charge high interest rates and fees and otherwise profit from their customers’ financial misery.


Although the term “sweatbox” often is connected with bankruptcy, how long people spend in the sweatbox before filing and what it means to live in the sweatbox has yet to be carefully examined. Understanding what people endure while in the sweatbox is crucial to evaluating the longstanding belief that people decide to file bankruptcy based on a strategic, financial calculation.

Second, current personal bankruptcy law is premised on the narrative that people seek personal bankruptcy out of self-interest (the “utilitarian calculus”). Foohey et al., page 2:

The term “financial sweatbox” came out of the debates leading to the 2005 passage of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), a major amendment to the Bankruptcy Code designed to decrease consumer bankruptcy filings by making filing more difficult, expensive, and timeconsuming. The consumer credit industry insisted that changes to bankruptcy were needed because bankruptcy courts were full of deadbeat, “can-pay” debtors who filed “bankruptcies of convenience” to try to escape their rightful obligations and who felt no shame in “abusing” the system. This story contradicted the overwhelming expert consensus that the bankruptcy system functioned well, abuse was rare, and there was no need for drastic overhaul.

And from page 12:

To make its case for restricting access to bankruptcy and thus extend the time consumers spend in the sweatbox, the consumer credit industry painted a picture of profligate spending and uninhibited use of bankruptcy. This picture was not new. Rather, it was updated and embellished for more than a decade. Proponents of this picture argued that reforms were necessary because the “rising tide of bankruptcy filings” cost every moral, bill-paying family $400 a year, a figure that made for “the best sound-bite in the debate.” Proponents further linked people’s supposed propensity to file at the first sign of financial trouble to a purported drastic decline in bankruptcy’s stigma.

None of proponents’ claims were supported by evidence. Proponents never substantiated the often-cited “fact” that bankruptcy was costing every American family $400 a year. The claim that bankruptcy courts were filled with “can-pay” debtors was contradicted by decades of robust empirical evidence that people file bankruptcy after experiencing exogenous shocks, such as decline in income, increased expenses, job loss, divorce, and medical problems. Based on this evidence, the related claim that bankruptcy’s stigma had disappeared became suspect. If anything, comparing levels of consumer debt and the number of bankruptcy filings, the stigma of filing may have increased over past decades.

Nonetheless, lured by tales of a $400 bankruptcy “tax,” Congress embraced the consumer credit industry’s assertion that restricting eligibility to and otherwise making it harder to file bankruptcy was the best policy.

(The politics of bankruptcy legislation, it seems, make the politics of health care law look like deliberations at Aristotle’s Lyceum.) So now you have been inocculated against the talking points from the credit “industry” (so-called), especially that virulent “$400 a year” one. I’m about to give the article’s internal logic on why these talking points are false, but the article is lavishly footnoted and you can run down plenty of additional material for yourself.

Third, the struggle to avoid bankruptcy involves immense suffering. Page 39:

To squeeze a few more dollars out of their lives, people work overtime, forego basic necessities, face serious health consequences, deal with persistent debt collection calls, end up in court, lose homes, and sell what little they own….

Financial misery hurts families. For couples, financial distress is “complicated by the internal dynamic of the household.” Struggling with unmanageable debts can strain marriages and relationships. Fights over how to make ends meet, shifting of responsibilities for dealing with ever-worsening finances, and watching loved ones deal with the emotional distress that comes with money troubles may lead to separation and divorce. Splitting one household into two only worsens the financial problems….

For parents, financial troubles are compounded with worries over how the kids cope with the hardships. If homes are foreclosed, children are displaced along with their parents, and may switch schools, possibly more than once as their parents find a workable living situation. Home loss is linked with educational regression. Even if children are not displaced, they notice their parents’ financial distress. Schedules change, diets change, and activities are scaled back as parents cut spending. Such changes can confuse children, resulting in behavioral and emotional problems. The effects of prolonged financial problems extend beyond families to workplaces and communities. Existing in a state of money scarcity damages people’s ability to lead productive lives. Merely determining how one will survive day to day depletes people’s mental resources. This leaves little energy for attending to anything else, including one’s job, threatening people’s livelihoods and leading to further economic drain. People withdraw from society, adding to their isolation. And the costs of life in the sweatbox are magnified by people’s reported underutilization of health-related services and insurance, which can permanently harm people’s health.

(The article does not mention Case-Deaton’s “deaths of despair,” but I’m sure all these hellish stressors have measurable health effects; see NC’s discussion of “embodiment.”)

Fourth, many prolong the struggle to avoid bankrupcty long after it’s in their interest to do so. Page 3:

[T]wo-thirds of people who file bankruptcy report that they seriously struggled with their debts for more than two years prior to bankruptcy. Almost one-third report that they seriously struggled for more than five years, double the frequency from the CBP’s survey of people who filed bankruptcy in 2007. For those people who struggle for more than two years before filing bankruptcy—the “long strugglers”—their time in the sweatbox is particularly damaging, distinguishing them from other debtors. They lose their homes to foreclosure, sell other property, report going without food and other necessities, all while employing multiple tactics to try to make ends meet and dealing with persistent debt collection calls and lawsuits. When long strugglers finally file, they enter bankruptcy with fewer assets than other debtors and overwhelming unsecured debts. Long strugglers would have benefitted financially from filing months or years before they did. Yet seven out of ten long strugglers say they felt shame upon filing bankruptcy. These debtors’ reports about their prebankruptcy lives suggest a model of deciding to file based on something beyond just dollars and cents.

Finally and finally, QED. Debtors, especially long strugglers, cannnot be presumed to perfom a “utilitarian calculus.” Page 42:

Debtors’ presumed utilitarian calculation that underlies debates about access to bankruptcy supposes more knowledge about law and shrewdness about timing than our data suggest people have. People’s willingness to file is diminished further by feelings of shame about using bankruptcy even when filing is clearly financially beneficial. Combined, the bankruptcy system is severely hampered in delivering the fresh start it is assumed to bestow on struggling families.

And from page 38:

Far from being a first resort, bankruptcy is the last refuge for struggling families, and their decisions to file do not reflect the utilitarianism bankruptcy law.

At this point, I’m thinking that the situation in bankruptcy is so hellish that that loveable goof, Joe Biden, actually did student debtors a favor by not allowing them to file for it [hollow laughter].

It also occurs to me that since it’s not obvious that our elites are likely to feel shame, and it’s quite obvious that they’re adept at utilitarian calculus (ka-ching), perhaps they’re projecting their own values and behavior onto the rest of us?

This is an excellent article, far richer in data, ideas, and policy concepts than I’ve sought to convey here. Recommended reading. Grab a cup of coffee!

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This entry was posted in Banking industry, Credit markets, Guest Post, Income disparity, Moral hazard, Regulations and regulators, Student loans on by .

About Lambert Strether

Readers, I have had a correspondent characterize my views as realistic cynical. Let me briefly explain them. I believe in universal programs that provide concrete material benefits, especially to the working class. Medicare for All is the prime example, but tuition-free college and a Post Office Bank also fall under this heading. So do a Jobs Guarantee and a Debt Jubilee. Clearly, neither liberal Democrats nor conservative Republicans can deliver on such programs, because the two are different flavors of neoliberalism (“Because markets”). I don’t much care about the “ism” that delivers the benefits, although whichever one does have to put common humanity first, as opposed to markets. Could be a second FDR saving capitalism, democratic socialism leashing and collaring it, or communism razing it. I don’t much care, as long as the benefits are delivered. To me, the key issue — and this is why Medicare for All is always first with me — is the tens of thousands of excess “deaths from despair,” as described by the Case-Deaton study, and other recent studies. That enormous body count makes Medicare for All, at the very least, a moral and strategic imperative. And that level of suffering and organic damage makes the concerns of identity politics — even the worthy fight to help the refugees Bush, Obama, and Clinton’s wars created — bright shiny objects by comparison. Hence my frustration with the news flow — currently in my view the swirling intersection of two, separate Shock Doctrine campaigns, one by the Administration, and the other by out-of-power liberals and their allies in the State and in the press — a news flow that constantly forces me to focus on matters that I regard as of secondary importance to the excess deaths. What kind of political economy is it that halts or even reverses the increases in life expectancy that civilized societies have achieved? I am also very hopeful that the continuing destruction of both party establishments will open the space for voices supporting programs similar to those I have listed; let’s call such voices “the left.” Volatility creates opportunity, especially if the Democrat establishment, which puts markets first and opposes all such programs, isn’t allowed to get back into the saddle. Eyes on the prize! I love the tactical level, and secretly love even the horse race, since I’ve been blogging about it daily for fourteen years, but everything I write has this perspective at the back of it.


  1. Greg Taylor

    Last fall’s “The Bootstrap Trap” by Sara Greene is a nice companion to this article. She finds evidence that those who adopt a “self-sufficiency” sociological narrative tend to do far worse when confronted with financial distress than those with a “deserving beneficiary” narrative.

    As bankruptcy and welfare policies have encouraged personal responsibility and “self-sufficiency” fewer seek society’s help, even when it is available. Greene demonstrates those who seek help end up far better off.

    1. PKMKII

      She finds evidence that those who adopt a “self-sufficiency” sociological narrative tend to do far worse when confronted with financial distress than those with a “deserving beneficiary” narrative.

      Feature, not bug. Recently on Chapo Trap House, they were discussing how the bootstrapping narrative ends up being a damned if you do, damned if you don’t for the impoverished; either you fail to keep yourself out of debt due to your poverty, in which case they will say, “Well you didn’t bootstrap hard enough, stop being so entitled,” or you do manage to scrimp and save and lower your standard of existence so you can eek out avoiding bankruptcy, in which case they say “See? You had enough all along, so we don’t need to pay you or give you any more.” To accept the bootstrapping narrative is to accept that TPTB will never give you more than you already have.

  2. flora

    Everyone seems to understand the compliment of ‘industrial capitalism’ is ‘labor’.
    What is the compliment of ‘financial capitalism’?

    Serious question.

    1. Grebo

      I would say ‘leisure’ but you want a serious answer.

      Industrial Capitalism uses land, labour and capital to make wealth.
      Financial Capitalism uses money to make more money. Not the same kind of thing at all.

      1. J Sterling

        Capitalism uses labor to make capital assets out of materials.
        Industry uses labor and capital assets to make goods.
        Finance uses liabilities (“debts”) to make financial assets out of nothing.

      1. flora

        I was trying to think of a word to complete a dyad; as “industrial capitalism and labor” is one dyad, what would be the dyad for financial capitalism? “financial capitalism and debtors” ? (Even hidden forced placed debt like fake bank accounts and hidden car insurance charges and fees.) I don’t really like the word “debtors” because it carries a negative moral implication. (whether it should or not is another question.)

          1. flora

            “Consumer” is good. It doesn’t quite get at what I think is happening in financial capitalism as currently constituted.

            An example: I open an account at a bank and take out a very small loan. I have freely taken up a debt with the promise to pay. So far, so good. Now, however, the bank forges my signatures on additional false loan papers, or a new high fee account, or auto insurance I do not need, and claims I owe on all these accounts. Am I still a “consumer”? Or am I more properly referred to as a “mark” (as in ‘con men and their crime targets, aka ‘marks’. Hmmm. Financial capitalism and marks? (bad pun) ) The transaction that I thought I was entering into freely the bank secretly changes into something I never agreed to but which I’m expected to pay. And perhaps I make all the payments but the bank refuses to credit them in a timely manner, allowing piling on of even more fees, or even a fraudulent foreclosure.

            Or say I am a recent high school graduate. I’m told by everyone I must get a college degree to stand any chance in the modern economy. Therefore, I ‘must’ take out a huge, nondischargable loan/debt. Have I freely entered this transaction or have I been coerced into this debt ?

            The words ‘debtor’ and ‘consumer’ are close to the right word but do reflect the documented malfeasance of many of the lenders to these transactions.

          2. flora

            Skynet has gobbled up a longer reply.
            Shorter: the term ‘debtor’ and ‘consumer’ put the “moral obligations” of debt entirely on the borrowers’ side, when in fact there’s a lot of documentation that “moral obligations” of debt should be put equally on the lenders’ side. Think of the TBTF bank malfeasance and fraudulent foreclosures still in the news, for example.

    2. Lambert Strether Post author

      The reproduction of labor power, I would urge, is the compliment of finance capitalism. (Lenin was wrong, in other words :-)

      All of this stuff — how’s that for precision wordsmithing! — happens to bodies (“embodiment“) outside the workplace, not in it. Because these effects cross generations, I’ve thought of labeling them “caste” instead of “class.”

      1. Steve H.

        Follow-up report: van der Kolk’s book is a step forward for experimental psychology, but inherently using creativity as it does introduces self-fulfilling dimensions beyond order-4 and thus unanalyzable. Works for their purposes, as their ends are individual health and thus unique. The main delve into the How supports the notion of overstimulation of fight/flight neuroendocrine pathways and underdeveloped parasympathetic tonus. In other words, the modern world is very exciting but there are health effects from the lack of chill time. That ties in with Schrecker and Bambra speaking of stress as one of four neoliberal epidemics.

        The researching stone skipped from this Atlantic article, to “Clark himself responds to critics in an essay that uses the movie Memento’s amnesia-aiding notes and tattoos to illustrate the workings of the extended mind.” *DING* Memento is an important movie, implicitly ripping the self-delusions we use in service of philosophical imperatives. “We all lie to ourselves to be happy.”

        The ‘caste/class’ link may be best embodied in newer research on the inheritability of epigenetic responses to environment. The neoliberal epidemics operate on a quicker selection time than generational, in that you can get obese in a year. While capital can skip town as soon as it finds a labor force with a better eroei, it leaves behind the effects which can become multigenerational through the epigenetics.

  3. Synoia

    The US really appears to favor the aphorism:

    The Whipping will stop after Morale Improves.

    What’s actually required is

    The Whipping will stop after the Country’s morals improve


    There was posted a link to a tribe of hunter gatherers, the Ik? who had zero or negative community spirit. I perceive the neo -liberal order appears to have either learned much from the Ik’s behavior, or their time machine has imported the Aristocracy’s morals from the 18th century or before.

    I would refer the burgeoning aristocracy to, not the French revolution, but the Russian.

  4. shinola

    “…since it’s not obvious that our elites are likely to feel shame, and it’s quite obvious that they’re adept at utilitarian calculus (ka-ching), perhaps they’re projecting their own values and behavior onto the rest of us?”

    Well, you have to ask yourself “What would Donald Trump do?”

  5. Duck1

    My own experience was prior to the changes to the law. Got underwater with CC debt and spent a few years juggling credit accounts, luckily running up more unsecured debt. It was very difficult to face the “humiliating” fact of BK, but at least then, once you faced the need to file, it was like a breath of fresh air. Went to a credit counselor prior to BK, which I think is mandatory now, and it was a complete waste of time. The “payment plan” was unaffordable and nobody was forgiving debt or even lowering rates much, just a consolidation. Making the process more onerous, as pointed out, doesn’t help the debtor. Making the students an indentured class of debtor is wretched.

    1. Yves Smith

      Trump never went bankrupt personally. 6 of the hundreds of corporate entities that he owns declared bankruptcy, a lower level than pretty much any PE investor.

      There are lots of bad things you can say about Trump, but making a big deal about this (as opposed to, say, him using illegal immigrants paid less than minimum wage on one of his major developments) is misguided.

      1. Yadot

        True. Trump dismissed many debts by simply refusing to confirm to contract, and out lawyering his vendors, customer, etc. There in is the lesson.

        1. sd

          That’s the game of real estate developers. All real estate developers, including whoever is building that big something in your own immediate hood.

  6. Jim Haygood

    Key passages from the paper (pp 9-10):

    All debtors must now submit extensive documentation and complete credit counseling and financial management courses. Every debtor who files must complete the means test, though few are barred from filing Chapter 7 based on it.

    These burdens increase how much bankruptcy attorneys charge their clients. Attorneys now charge an average of $1,224 to file chapter 7 and $3,442 in chapter 13. Filing pro se is difficult and jeopardizes a debtor’s ability to receive a discharge.

    A penniless young couple I know has $40,000 in unpaid medical bills. Unable to afford even groceries, there’s no way they can muster a $1,224 retainer to file for the chapter 7 discharge which would give them instant relief.

    Soon a subprime auto lender is going to be after them too, after they handed in the keys (on my advice) on a gas guzzler truck which was eating their budget alive. So they ignore the debt collectors, prolonging the time they’ll be stuck with bad credit.

    In my opinion the means test which bars those with higher incomes from filing chapter 7 even if their debts dwarf their assets is unconstitutional. But that [the ‘constitution’] was suspended four years earlier.

    Enterprising debtors are left with the option of approaching JP Morgan’s new building at 270 Park Avenue when it’s completed five years hence and taking a steaming dump at the front door. Though the august Jamie Dimon presumably will arrive via the rooftop helicopter pad or the private elevator from the underground parking garage …

    1. Rates

      It’s nice to know that Dimon is confident enough to start building a new HQ now. That means 5 years from now, the US will still look like what it is today.

    2. Jack

      Filing for a BK isn’t really that difficult. I have helped friends do it numerous times. The only time you would need a lawyer is if you were trying to preserve some asset or had complicated financial assets. And if you need a lawyer then you can probably afford one. Also, the filing fee can be waived or paid in installments. I would also say that in the hearings I have attended the Bankruptcy judge and master are usually more than sympathetic to the filer as long as that individual(s) is not trying to conceal assets or lie. Most legal aid organizations can help with a BK as well as the bar. Even in safety net starved SC where I live you can get free help.

  7. Laughingsong

    “It also occurs to me that since it’s not obvious that our elites are likely to feel shame, and it’s quite obvious that they’re adept at utilitarian calculus (ka-ching), perhaps they’re projecting their own values and behavior onto the rest of us?”

    The first one who smelt it dealt it.

  8. Anonymous

    Here’s one story I’m kinda proud of, and it may not have been ethical on my part, but it was legal. Around six years ago I was looking at around 60K in credit card debt over 12 cards. Was paying the min each month. Lost my job, and just stopped paying on all of them. Statute of limitations to sue for collection is 4 years in my state.

    Long story short, I ended up paying a little less than 10K on all of it. The cards all charged off the debt within 3-4 months. Sold it to junk collectors… who sold it, to others and so on during the first few years. I never answered the collection calls and trashed the letters. About 3 years after, only 2 of the 12 sued within the SOL. Retained a lawyer for $500 when I was served (each time). Lawyer had one case dismissed because they didn’t have paperwork to prove ownership of debt, the other he settled for a 1/3 of the amount owed – 2K. In years 4 and 5 – the rest of what I owed (minus fees and late charges from the credit cards) eventually hit my taxes and was counted as ‘income’ and the tax amount (for all the rest of the cards by that point) came to around $6,500, after deductions and whatnot.

    Within 2 years of that happening (me not paying), I started receiving numerous credit offers, some with no fees and no money to put down, and I applied for the 2 best offers and between them both I had a 5K credit limit. Super high interest rates of course, but I only used them for small purchases and built my credit score back up – FICO is 670 now. All negative stuff will drop off the report next year, and I’m guessing I’ll have excellent credit again. One last thing, I had one card set on auto-pay for $25 min that whole time and I had forgotten about it, and that actually helped a little bit in that my FICO score at the lowest point was around 560. Which sucks but it could have been even worse.

    And while I do have some qualms about the unethical way I handled it, I do laugh sometimes about socking it to the big credit card companies and debt collection firms. I was very fortunate that I kept my job and didn’t need to buy a new car during that 4 year period when my credit score was pretty bad, and also that only 2 of the credit collection firms actually filed suit.

    For what it’s worth I will never get myself into that situation again. I learned without access to credit, how to manage money much better and no longer put any expensive things like appliance purchases, or trips on credit. I wait until I have the cash on hand. Honestly, it was pretty stressful in that I was worried a lot about it and it hung over my head like a big cloud, especially during the 4 years I was waiting for the SOL to come. Still glad though to have given the middle finger to the banks though! :)

    1. Also Anonymous

      I did something similar, on a smaller scale after losing a job. My total debt was less but the damage to my credit was an equivalent time frame. After several years of delinquency I broke radio silence and negotiated a written settlement at maybe 50 cents on the dollar – of the original debt, not considering fees.

      I’m not bragging about what I did. It wasn’t the greatest settlement and I did not know enough to get the pejorative stuff wiped from my record when I did it. My credit was wrecked for a couple of years, but it suprisingly did not feel like very long. By the time I did the settlement I was well used to living without credit and haven’t really touched it since, even though my employment is now stable.

      Now that I’ve done a sort of “mini-BK”, I always tell my friends with stacks of compounding credit card debt what I did. But nobody takes me seriously when I tell them to just stop paying – they think I’m nuts.

      As for immorality: the credit card companies took a risk about my ability to repay and they lost.

      1. Lambert Strether Post author

        > As for immorality: the credit card companies took a risk about my ability to repay and they lost.

        Some people who took out student loans made bad business decisions. If you make a bad business decision and you’re venture capital-funded, they tell you to embrace failure and sometimes they give you more money. If you’re small fry, it’s into the sweatbox for you!

    2. Anonymous

      Thanks for sharing Also Anonymous. You too Lambert!

      Just wanted to add a word of caution, what I did was a little easier at the time, it was just on the cusp of some of the larger junk debt collectors like Midland Financial and Portfolio Recovery now are pretty good at securing the correct documentation (evidence) that the debt is valid. If you’re in a bind and are considering stopping payments, I want to share this also.

      Do your research online. Find out what the Statute of Limitations is in your state for the time they can take you to court for the debt. The SOL usually starts from the date of last payment made.

      I also continued to check – every week – the court docket for the Civil court of the Justice of the Peace for my district in case one of the agencies ‘failed’ to notify me that they were serving. That didn’t happen, but it could of. I lived at the same address (house) for 10 years prior (and I’m still here now) to the time I stopped payments. Once a debt agency serves, there is only about 10 days to respond and the court date is usually pretty quick, if you miss it and don’t do anything (which is how a lot of people handle) the court will automatically rule for the debt collector and you’re in for a world of hurt after that, I think even wages can be garnished.

      When I looked at the court docket cases those years – the docket was FULL of debt collection cases and you’ll learn who the main ones are that file suits to collect. I mentioned the main two, but Target and Citibank and AmEx are also frequent law suit filers.

      Most important, if you are even thinking about trying this, please find a local lawyer that is an expert at fighting them, there are some good ones out there , I found mine online. Most will have a free initial consultation. I choose him because he seemed really passionate about ‘fighting’ the junk collection agencies. Also, at the time (around 2-3 yrs ago) He did relay indicate that things were changing back then and it wasn’t as easy to ‘win’ or have cases dismissed, so I can’t imagine how it is now. He knew all about the Justice of the Peace in my district and gave me advice above and beyond how to handle it all best. He was also able to quickly get whatever ‘evidence’ they had of the old debt and ascertain whether it was worth going to court or settling. He advised if we were going to settle, we’d get the lowest amount to settle at if I could pay that amount all at once, instead of agreeing to a payment plan.

  9. Knute Rife

    Pam hits the nail on the head here. First, people routinely come to me to file after they’ve already been dragged through it and after they’ve already lost much that could have been saved. Why do they wait? Because they don’t want to file. They don’t want to have their private information made public and have a trustee rake through it all. They know there is no clean slate at the end (whether de jure as in the exception for student loans or de facto as in your doctor not wanting to see you any more because he just had to charge off your account). They don’t WANT to file, but they HAVE to file because the system has left them no alternative. Endless phone calls, a new collection lawsuit every month, their employer hacked off because complaints and writs of garnishment being served at work, 25% of their pathetic pay check disappearing to creditors, not being able to use a bank because any account is routinely drained by garnishments, etc. Second, people are accusing these folks of being immoral for seeking bankruptcy protection, but no one is taking the lenders to task for making these loans in the first place. No due diligence worthy of the title, just a race to the signature lines so the deal can close, the front-end fees and commissions can get collected, and the loan can be packaged and securitized so more fees and commissions can be collected. And don’t forget the CDS chains. Maybe the debtor will make a few payments. Gravy. Maybe not. Oh well, the Tax Code takes care of the lenders there. But the debtors are immoral moochers, while the lenders are just good, scrappy capitalists. Welcome to the desert of the real world.

  10. cripes

    Everyone knows but not mentioned here, is the penalty paid for bankruptcy today is greater than ever in the past. Not only is credit ruined for a period of years, and the so-called “stigma” serve to discourage filing, but the real punishment of being frozen out of rental housing, employment, auto loans etc., is a major impediment to availing themselves of bankruptcy “protection.”

    What good is eventual restoration of credit rating and absolving debt if the penalty now could be joblessness and homelessness? Abstaining from incurring new debt will not cure these threats.

    People with greater income may have resources to survive it, but what chance do people on minimum wage have?

    1. Anonny Moose

      This! I don’t know how or where people with bad credit live these days. All of the landlords I am familiar with run credit scores before they will rent housing, and they often have credit score cutoffs around 650 or even 700. So how do you rent a house when you have bad credit?

      1. sd

        Eventually end up in a shared or sublet housing situation where someone else secured the lease on good credit. Friend of mine shuffled among shares for several years. Finally found an apartment in a small 2-unit building owned by an family. They were willing to rent it to her just because they liked her.

  11. RWood

    No way to delay/that trouble comin’ every day:

    The ACLU examined over 1,000 cases in 26 states where judges dutifully issued the arrest warrants for failure to appear. In four states where they could receive full data (Maryland, Massachusetts, Nebraska, and Utah), the ACLU found 8,500 arrest warrants in debt-collection cases. The warrants cover every kind of debt: medical bills, student loans, rent payments, homeowners’ association fees, utility bills, repairs, payday loans, gym fees, you name it. The amounts involved in the warrants were as low as $28.

    The report even found examples of people jailed for debts extinguished in bankruptcy, debts they didn’t owe, or debts they’d already paid off.


    1. JBird

      There is an entire industry for the buying and selling of debts usually without any paperwork except the debts. Also the status of the debt can be unimportant as one is buying for a few pennies on the dollar as a means to siphon money out of their victims. The true bottom feeders have been known to not serve notice and say that they did. The con can run for years before the authorities shuts it down. Even if they lose their law license, they can just create a different corporation/collections agency and hire a replacement shyster. True, some have gone to prison but the risk of that is not much.

  12. Rory

    FWIW, I have had a solo general law practice for 45 years, and I handled scores of consumer bankruptcies (Chapter 7’s and Chapter 13’s) up until the 2005 amendments to the Bankruptcy Code. I haven’t done any since then.

    In hardly any of the cases I handled did the debtors rush to file. Almost all had struggled months, if not years, to manage an overwhelming debt load. General law practice can have many gratifying moments, but for me none were more gratifying than seeing, over and over, the realization dawn on the clients I was counseling that they did not have to endure their unmanageable misery any more and that they were not bad people for having to file. Their sense of relief was so palpable I could almost see the weight lifting off their shoulders.

    Paul Wellstone, God bless his memory, singlehandedly while he was alive delayed implementation of the bankruptcy changes enacted in 2005.

    1. Al Swearengen

      Rory, this could have been written more or less by me about my own experiences at roughly the same time. I was struck often at how I had to actually “sell” the client on $750 to me paid once (for a 7) versus $2k each month forever and ever.

      I used to love “steering” them through the process of filling out the schedules so as to ensure they kept all their possessions and dispensed with all the debt,

      Hated being an attorney, generally, but quite enjoyed that part of it.

  13. jerry

    Agree with above posters.. BK isn’t a big deal and the best option for many. Also, from a MMT (reality) perspective, consumers borrowing large amounts of money and not paying it back is the closest thing we are likely to get resembling fiscal stimulus anytime soon.


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