Bankruptcy is a topic that comes up occasionally with my clients, so I went to an expert, New York bankruptcy attorney, Bruce Weiner, with my questions.
1. How much debt does someone need to have for bankruptcy to make sense? Is there a rule of thumb or ratio of income to debt?
It really varies from person to person. Ten thousand – and I am talking about unsecured debt, usually credit card debt – may be a lot for one person, and nothing for another. When the amount of unsecured debt approaches the amount of annual gross income: that is a danger zone. Realistically, they are reaching the point where they will not be able to pay it back.
2. I work with people going through divorce and debt is often a big issue. Do you have any tips relating to divorce and bankruptcy?
Divorce and bankruptcy is a complicated issue, and also a major cause of bankruptcy. After divorce, couples are often going from two incomes to one supporting their household. Sometimes one party will use credit cards to maintain their lifestyle. Two or three years later, they realize they are unable to pay that debt back.
Bankruptcy can also complicate divorce proceedings. A bankruptcy may affect decisions relating to property and assets in a matrimonial case.
Married couples do not have to file for bankruptcy together. However, if they are planning to divorce and they are still legally married, it may make sense to do it together as there will be only one set of legal expenses and filing fees.
On the other hand, it may make sense to wait until after the divorce is final. If the property settlement in the divorce includes transfer of the house, it may be advantageous to wait until after divorce is final and the title is transferred to file for bankruptcy.
3. Do you ever tell someone to just negotiate with their creditors? Who might especially regret filing for bankruptcy?
It’s a catch 22. Default on debt will hurt your credit score, but creditors don’t want to negotiate with you until you have defaulted. Someone with the ability to make a larger lump sum payment is in a good position to negotiate, but that is often not the case.
Bankruptcy is a big concern in certain industries. People with jobs in the financial industry or which require security clearance may be negatively affected by bankruptcy on their record.
4. Do you think there is a stigma in society against people who have declared bankruptcy?
There is much less stigma than there used to be. Someone may have one hundred thousand in debt, but the principal (original debt outside of fees, interest and charges) is only thirty thousand. They have actually paid their debt back many times. These days, many people can relate to that.
The bankruptcy system in this country was specifically designed to be different than other countries, to give people “freedom to fail”. Many famous people and successful entrepreneurs have filed for bankruptcy and gone on to be very successful. The American system is designed to encourage risk taking, and I think that’s a good thing.
Thanks for your thoughtful answers, Bruce!
Bruce Weiner has been practicing bankruptcy law since he was admitted to the bar in 1978. In addition to his 30 years experience representing debtors, creditors and those being sued by bankruptcy trustees, Mr. Weiner has been involved in hundreds of trustee litigation cases since he joined Rosenberg Musso & Weiner in 1994.
Questions about bankruptcy? Rosenberg, Musso & Weiner, L.L.P. has offices in Brooklyn and Melville, Long Island. They also offer a free 30-minute phone consultation. Contact them at (718) 855-6840 or (800) 297-6840, or find out more at www.nybankruptcy.net.
The opinions and services of Bruce Weiner and Rosenberg, Musso & Weiner, L.L.P. are not affiliated with Raymond James Financial Services.
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