Filing Bankruptcy: A Faux Pas or Legitimate Solution?

The question for many now is, live somewhat comfortably, or pay? When you’re having difficulty putting food on the table, keeping the air on, or keeping your kids and your self properly clothed, should you continue to take loans out or cash out your 401k (your future) and throw your money at the credit card companies who charge you egregious interest rates?

Continue to sling money from whatever source you can at astronomical interest rates, or continue to comfortably put overpriced gas in the car so that you can go looking for a job (which probably pays less than you’re used to), keep the lights on, and eat right? This, commonly referred to "robbing Peter to pay Paul," is what most of my clients have been faced with in the last year to year and a half.  The American Dream right?

Wrong. Heading into the last quarter of 2009, and perhaps well before that last in 2008, many tried to "weather the storm."  It seemed this economy had to be just that, a storm that would pass, like storms do.  Most of my clients have made an honest effort to repay the debt they accumulated when things looked liked they might turn around, but most people’s resources, and “robbing Peter to Pay Paul abilities, it seems have, or are just starting to run dry. Peter’s had enough.

This "storm" is starting to look more like an ice age.  Of course 99.9% feel responsible for the debt they accumulate and most feel a duty to do whatever they can to pay their creditors, but the fact remains that many have turned to "survival mode" after tapping into reserve savings, retirement, and barren credit.

Of course Washington isn’t ready to label the state of our economy a "depression." Political leaders, perhaps nervous about perception are sticking with “recession.”  I prefer to call it a “repression.” While statistically not as devastating as a depression, it’s probably much worse than any recession our country’s ever seen, and doesn’t seem to be getting better in the near future.

Let’s face it, this sucks! Especially here in the Valley of the Sun, where we’re stuck in some of the worst circumstances in this region of the country, that’s been hit as hard as the proverbial perfect storm or “age.”

Before all this mess, many of us had equity in a house, and had a thriving 401k. Most of us accumulated debt doing what we thought was the right thing. Maybe you took out a home equity line on your house and invested in something or put yourself though school. Maybe you started a business doing what you love, taking out credit cards to cover expenses.  Maybe you just have a lot of credit card debt or a personal loan, just because, and you fully intended to pay them back. Each situation is just a little bit different than the last. What seems to be more uniform for most now is that now is that the $100,000 a year job you had when you took out this debt, no longer exists, or your pay has been significantly cut for example. The future looked bright, and you were doing what you thought was best then.

Whatever the case may be, many Arizonans have turned on their instinctual survival mode, and Chapters 7 and 13 of the bankruptcy code have been one of the best ways of getting at least some sort of fresh start to getting back on their feet again. Just last year, the District of Arizona ranked second in bankruptcy filings in the country.

Hopefully most of them have made this tough decision before they’ve depleted their 401ks, or other retirement programs (which are exempt in bankruptcy, meaning you don’t have to give them up).  Whatever the case may be, one can only make the best decision given the facts under the circumstances they’re in. Quite frankly now, looking down the crossroads of the question “to file” or “not to file (bankruptcy)”, answering the former affirmatively is certainly not taboo, or as much of a faux pas as it was once considered before.