I was playing in my head with a piece I was writing for consumers about the bankruptcy decision.
I caught myself thinking about “whether the bankruptcy was caused by mortgage debt or ….” .
And I hauled myself to a halt.
How did the words “bankruptcy” and “cause” get linked in my head?
In my head, for Pete’s sake? Forty plus years as a bankruptcy lawyer urging people to get a fresh start when needed.
Bankruptcy is not caused by insolvency, it’s a cure for insolvency.
Debt in excess of assets, particularly liquid assets, causes insolvency.
Where debts come from
The real question should be: how did the debts that create the need for bankruptcy arise?
The trite explanation for debt is irresponsible spending and lack of financial self control.
Not in my experiences of the past two decades.
Instead, financial distress most often comes from
- job loss;
- ill health;
- divorce; and
- multigenerational family issues.
Add to that, the ridiculous cost of housing where I practice in the Bay Area. Too many folks subscribed to the idea that home ownership is an essential to be really middle class. And now we have the pandemic.
Bankruptcy is a cure
If inability to pay your debts is the disease, bankruptcy is the remedy.
The question for families is whether they avail themselves of a freely available, legal remedy for that situation.
Or, do they continuing treading water with respect to their debts until there is a further crisis.
So, for purposes of the blog I was constructing, the correct construction juxtaposes whether the financial distress was caused by mortgage debt or some other cause.
My message is that bankruptcy is as much a beginning as an end.
It ends the distress of being financially incapable.
It is the beginning of an opportunity to realign spending, to move beyond the misfortunes of the past, and to address the challenges of the present and the future.
Families need cash reserves; they need retirement savings. Families with children need to save for college if they are to escape a further round of incapacitating debt.
My mantra becomes: clear thinking and emotional courage cause bankruptcy. And the debtor is better for it.
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Every day one delays handling one’s past-due debt, is another day the creditors add another black mark to the credit bureau reports. You can’t begin to rebuild your credit until you get your bankrutcy discharge.