Consumer Bankruptcies Get Bad Rap, Do More Good Than Harm - Money Wise Women - - Forbes

When I read this headline that recently appeared on a Forbes blog post, Consumer Bankruptcies Do More Harm Than Good, my first reaction was to assume that the piece was written by someone in the credit industry, which has never been particularly enamored with the idea of giving debtors a fresh start.  (That assumption was not correct.)

My second reaction was to groan, wondering how many struggling debtors will read that piece and add it to the pile of misinformation they have gathered online about how consumer bankruptcy works. (“You can’t file if you make too much money,” or “Bankruptcy should always be your last resort,” etc.)

Now I don’t know Mr. Dunn, and I suspect his piece was written as a reaction to the extraordinary case in which his son was involved. But to use that unusual example to paint consumer bankruptcies as generally more harmful than helpful is, well, harmful itself.

So my third reaction was to invite the bankruptcy attorney whose own blog post drew my attention to Mr. Dunn’s, to respond. Bankruptcy attorney Jonathan Ginsburg rounded up comments from his colleagues to write this guest post:

Consumer Bankruptcies Offer Hope to Honest but Unfortunate Debtors

Stephen J. Dunn, a tax lawyer from Troy, Michigan contends in his recent Lex Fidelis editorial that “consumer bankruptcies do more harm than good.”  While Mr. Dunn is no doubt sincere in his opinion, his reasoning is hopelessly naive and flawed, and paints a wholly inaccurate picture of the debt collection process in the United States and the consumer bankruptcy remedies available to hard working men and women seeking to deal with unmanageable debt.

As a contributing editor of BankruptcyLawNetwork.com, a multi-lawyer blog penned by 35 of the nation’s most experienced consumer bankruptcy lawyers, I not only practice consumer bankruptcy law in Atlanta representing real clients, but I engage regularly with my co-editors of the blog.  Needless to say, Mr. Dunn’s column has been a hot topic on our internal listserv and the opinions of my colleagues likely reflects the experiences of personal bankruptcy lawyers who see clients daily.  Here is a sampling of what practicing bankruptcy lawyers have to say:

Dunn has obviously never seen the civil filing desk of most state court clerk’s office, notes Susanne Robicsek, a bankruptcy lawyer from Charlotte.  Last year in North Carolina, over one-third of the civil cases were collection actions.  To assert that “creditors rarely sue consumer over debts” is outrageous and factually wrong.

As far as Dunn’s statements about protections against harassment offered by the Fair Debt Collection Practices Act, these limitations on creditor conduct only apply to collection agents, but not to the actual creditor, says Illinois contributor Andy Miofsky.  If a department store or credit card company wants to call you 50 times a day at all hours and berate you mercilessly, the FDCPA will not protect you.

Contrary to what Dunn says, creditors rarely “back off” if a consumer asserts a defense to a lawsuit – so says Jill Michaux a bankruptcy lawyer in Topeka, Kansas.  Indebted individuals don’t know how to answer collection lawsuits and they can’t afford an attorney even if there was a valid defense.  In fact, most collection lawsuits result in default judgments.

“I don’t understand why Mr. Dunn assumes that debtors will lie on their petitions or that trustees have the time or desire to seize property,” contends Karen Oakes from the Oakes Law Office in Klamath Falls, Oregon.  “As attorneys we have an obligation to the court to evaluate the veracity of the information included in every bankruptcy petition.  Most debtors don’t have enough in the way of non-sheltered assets to interest any Chapter 7 trustee.”

Mr. Dunn’s thoughts about the risk of creditor lawsuits within a bankruptcy – creditor challenges to a bankruptcy called “adversary proceedings” – drew scrutiny from several BLN contributors on the listserv.  Detroit bankruptcy attorney Kurt O’Keefe and Spartanburg bankruptcy lawyer Däna Wilkinson both noted that creditor litigation against bankruptcy debtors is exceedingly rare and that the anecdote Dunn relates about his son suing a business owner on a personal guarantee represents the exception and not the rule.

Even tax lawyer Dunn’s thoughts about using bankruptcy to discharge stale tax debt rang hollow.  Notes Kent Anderson, a tax and bankruptcy lawyer from Oregon who teaches bankruptcy tactics to tax practitioners notes that experienced bankruptcy lawyers regularly employ the Bankruptcy Code’s clear and consistent rules about dischargeability of tax debt in Chapter 7 filings.

California’s Cathy Moran who practices near San Francisco sums up the concerns of consumer bankruptcy attorneys about Dunn’s editorial: “too much of Dunn’s diatribe is taken up with a parade of horribles based on the tiny percentage of debtors who don’t play by the rules.  95% of Chapter 7 cases filed are no asset cases in which a debtor loses no property and discharges all of his debt.”

Stephen Dunn’s analysis of consumer bankruptcy law and practice reflects the ivory tower attitudes of academia who read appellate cases, law review articles and attend conferences with corporate bankruptcy lawyers.  Those of us in the trenches recognize that Chapter 7 and Chapter 13 relief, while flawed, usually do provide needed relief to beleaguered debtors who literally have no other options.  Pointless and harmful? Hardly.

A practicing bankruptcy lawyer in the Atlanta, Georgia metro area, Jonathan Ginsberg has represented clients in Chapter 7 and Chapter 13 cases since 1988.  He is the editor and publisher of the Atlanta bankruptcy attorney web site and the Disability Answer Guide, now in its 3rd edition.

Co-author of Reduce Debt, Reduce Stress: Real Life Solutions For Solving Your Credit Crisis and Debt Collection Answers: How to Use Debt Collection Laws to Protect Your Rights.