Let's say, hypothetically,
that I made some bad financial bets.
Maybe I was irresponsible with a credit card.
Maybe I got involved in a certain shaped scheme.
I've got a lot of debt and I gotta get out of it.
Well, companies go bankrupt all the time.
Can I do that?
So I've got no way to pay off this debt.
Creditors are hounding me,
and the stress is just building and building.
I've gotta go find a lawyer,
specifically a bankruptcy lawyer.
My name is Stephen Starr.
I'm an attorney here in New York.
I practice bankruptcy and restructuring
with a law firm, Starr and Starr PLC.
When should a person consider personal bankruptcy?
So that's a good question.
As a bankruptcy attorney,
we're not trying to push your sale bankruptcy.
We're always looking at what's the best solution
for an individual.
The first question is what are your debts?
Which is a total of how much money do you owe
in terms of things like credit cards or back rent
or student loans?
And then what's your income?
What's the money that's coming in?
And we compare those.
And if you have more money coming in than you owe,
and it's not too burdensome,
it's somewhere below, let's say, 50%,
which a lot of people in New York pay really high rent.
Maybe people can get out of it through budgeting, right?
I'm a big fan of budgeting,
but if you're in a really deep hole,
budgeting is not gonna help.
A lot of my clients,
it's literally their debt is a multiple of their income.
So they owe a hundred thousand, they earn 50,
and that's gross numbers before taxes.
The other thing is people are about to start
the next chapter of their life.
And what do I mean by that?
Someone was an entrepreneur.
They had a business,
it didn't work out,
and now they're gonna do something else.
Well, should they keep paying back all the debt
that they incurred in the failed business?
Or should they work on the next chapter life?
So if a person is considering it,
what should their first step be?
Is that to reach out to an attorney?
I don't view bankruptcy as a first resort.
I do view it as a last resort.
So I think the first step,
and you might be surprised to hear this,
people need to get control
of just understanding the numbers.
Sometimes clients come in
and they'll have all these envelopes in a bag
and they're not opening their mail
'cause they're dealing from fear,
literally making piles and figuring out
how much do you owe?
And adding that up and looking at your expenses.
Could you explain to me the difference
between chapter seven and chapter 13?
Chapter 13 is really useful for people
who need the chance to catch up with payments over time.
We would usually use that if someone has,
if they own a home and they're facing a foreclosure
or they've fallen behind on their payments.
It's gonna be a really helpful tool,
I think, for people bouncing back
after all these COVID troubles,
than if people lost their jobs,
but then found a new job,
they can then catch up over as much as five years
through a chapter 13 plan.
It's like a repayment plan.
It's a court-enforced repayment plan.
In the chapter seven,
what assets do you get to keep?
And what gets taken away?
Seven is a liquidation,
and the idea there is you filing a bankruptcy case.
Most people's debt, again,
going back to broad examples,
90, 98, 99% of my clients debts
do get wiped out, with the exception of student loans
and certain tax debts.
Most individuals, most of my clients,
when they file chapter seven,
they get to keep all their property.
But the way chapter seven works,
there's a person called the bankruptcy trustee.
So an example I often use is if someone had a collection
of luxury cars, Porsche, Lamborghini, Maserati, Ferrari
very high-end, luxury automobiles,
the law is not gonna let you keep automobiles
with that level of value.
It's gonna give you some money back,
but the trustee would hire an auctioneer,
have an auction, get bankruptcy court permission to do that,
take that money, pay the creditor.
For both chapter seven or 13,
maybe the answer is different.
What is the long-term impact on your financial health?
There's something called the Fair Credit Reporting Act,
which governs credit reporting.
And that says that the credit grantors
can look to bankruptcy up to 10 years.
But the received wisdom
is if you file a seven,
you're gonna rebuild your credit
in much faster time than that,
and at the end of the process,
most of my clients are able to rebuild their credit
within a few years.
There is life after bankruptcy, right?
They don't wanna leave people
penniless and homeless as a result of bankruptcy
It's starting to sound like personal bankruptcy
might be for me,
but it would really help if I could talk to somebody
who's been through this process personally.
I've been through bankruptcy
and I can tell you all about it, Henry.
Oh, wow, really?
Who are you?
My name is Donald Ash.
And yes, I'm a teacher that had to file bankruptcy
probably about a decade ago.
Tell me your story.
Why did you have to file in the first place?
I got into a bit of a business scam
that ended up stacking up so much debt on me
that I couldn't pay it off.
So because I was a teacher not making much money
I kinda got into a business deal
that I didn't research very well,
friend recommended it,
and once everything was said and done
I think I had racked up
almost $100,000 in debt.
How did you decide to file?
How did you find out, "This is the best option for me?"
I actually just kind of started calling around
to see what lawyers can help me.
And after getting turned away from a couple,
one recommended me to a lawyer and we gotta sit down
and go through just everything
that was going on with my finances
and figure out what I could discharge and what I couldn't.
Beyond just the thing that happened with the business scam,
it also gets rid of...
So that's auto loans.
I think I had a credit card for like $1,000,
a Discover Card.
And I might've had a little bit of medical money
to pay back, but it wasn't a lot.
But that also got discharged.
So at first, I was just thinking maybe I just should
just put the business stuff on there and worry about that.
But in the end, I put on everything
that I could put on there.
And I just said, "It's fine.
If we're going to do this,
just get rid of all, just everything
that's not student loans.
So I just have one thing to focus on."
How was this process for you,
I guess, mentally and emotionally
while it was going on?
And even now, I suppose?
I have to say, it's probably one of the hardest things
I've ever done.
It's like repo man, repossession people,
going to your mom's house
in the the wee hours of the morning.
And she doesn't know what's going on.
And I'm like, "That's not what this was supposed to be."
It was a big mess.
It was a really big financial mess.
One thing I can say is, if you do file,
know that you can turn things around.
It's not impossible, but you have to keep in mind
that things have to change for you, financially.
You have to make some changes
to make sure that change can happen.
It is an option,
and I'm proof
that you can file bankruptcy and get through it
and come out on the other side,
because yeah, my credit,
it's in the high 700s right now.
So it's back to a workable.
Yeah, that's fantastic.
At it's lowest point, it was in the low 500s,
even high 400s.
It was a dark time, but you can get through it
if you set a plan for yourself.
With the economic calamity caused by the pandemic,
you'd expect bankruptcies to be through the roof,
but that's actually not the case.
I'm gonna talk to Jack Pitcher about it.
He is right over there in the Bloomberg Building.
Yeah, my name is Jack Pitcher.
I am a reporter on the Personal Finance and Wealth Teams.
You're not seeing a lot of bankruptcy declarations
across the country right now.
We've actually seen a decrease in personal bankruptcies.
What are the reasons for that, do you think?
So it's pretty much coming down
to all of the measures that have been enacted
to help people,
the stimulus payments, the moratorium on evictions
and foreclosures, auto lenders and credit card lenders
have been more lenient
with people who are late on payments
than they typically are.
So that's preventing a lot of the events
that typically actually push people into bankruptcy.
Usually when someone, an individual,
is filing for bankruptcy,
it's because all of a sudden their car is being repossessed
and they can't drive to work,
or their home is being foreclosed on.
Those events that typically actually push someone
to go talk to a lawyer and ask if they need to file,
there's been less of that since the pandemic began.
There are weirdly resilient careers
that thrive during times like this,
like repo men and bankruptcy protection lawyers.
So like those people aren't yet seeing
a boom in business.
Correct.
Actually, I talked to a number of bankruptcy lawyers
reporting on this story,
and a lot of them told me
they're having one of their quieter years ever.
Most of them are expecting a big pickup,
but for the most part that hasn't started yet.
Yeah, is there a sense on when that might happen?
I've heard a lot of people say a lot of different things.
Everyone seems to agree that a wave is coming
with the level of unemployment we saw in March and April.
Not very many people have a great idea of when.
It will likely have to do
when some of these protections stop.
And next year when we see the foreclosure moratorium end
and some of these other things,
There are a couple of things that have already ended
that maybe it could lead to a pickup
in the fourth quarter of this year,
like the enhanced unemployment benefits.
It's been a long time since there was a stimulus payment.
So there likely are gonna be more people
who are cash stressed the rest of the year
than there have been so far.
Maybe we're looking at a ticking time bomb
waiting to go off.
If you're considering personal bankruptcy,
you're not alone.