Kentucky Bankruptcy Law

Counsel with Care

Empty Hands to Gratitude – thanks @brittpendleton

A young man I know recently talked to some students about gratitude. Usually we equate gratitude with stuff we have but Britt used illustrations from the Bible to show that the most grateful hearts are connected to empty hands.

For example, most of us know the story of the women who poured out the whole jar of perfume on Jesus’ head. She could have just poured out a portion and it still would have seemed extravagant, yet she ended up empty handed and was filled with gratitude.

On this Thanksgiving Day this lesson is quite apt. I help people who are unduly burdened by debt. Most are robbed of any ability to focus on gratitude because of the anxiety of losing everything they have worked so hard to obtain. I do not suggest that bankruptcy is something to be desired. Rather, what is desirable is to find peace and gratitude. This comes by no longer clutching onto things and behaviors that fail to fulfill. Sometimes this means recognizing that we cannot overcome our debt without help. Sometimes it means receiving the mirror image of grace offered by the bankruptcy code and emptying your hands.

Thankfully though, that code allows you to keep everything you need and many things you want while still giving you a fresh start. This is a worldly example of redemption that I hope somehow points people to the redemption that matters eternally through Jesus.

November 28, 2013 Posted by | Assets, Bankruptcy, Chapter 13, Chapter 7, Discharge, Exemptions, Gratitude, Property (exempt | , , , , | Leave a comment

Bankruptcy: Just the beginning

Well, I am not being terribly original today because I just wrote a post on my family law blog entitled “Divorce: Just the beginning”, but it occurred to me that there are similarities that are worth comment. People sometimes look to divorce to end their interpersonal pain and conflict and, similarly, people sometimes turn to bankruptcy to end their financial stress and conflict. However, in both situations, it is really important to recognize that the legal process involved is merely a beginning. Rather than an end, both processes really just begin the process of working out whatever issues led to the problem. And, just as important, it may be that those issues can and should be worked out without going through the bankruptcy or the divorce.

I spoke about how this plays out in a divorce situation in that other post, so I want to focus on bankruptcy. When people come to me, I take a comprehensive look at their finances and give them one of three opinions: 1) you can work this out without bankruptcy, 2) you might be able to work this out without bankruptcy, but here are the dangers and where to draw the line, or 3) bankruptcy is inevitable short of a miracle. My hope when I take someone through the bankruptcy process is that they will have a fresh start and never, ever have need of my services again.

However, if the debtor sees bankruptcy only as an end to their financial struggles, chances of repeat business for me remains high. Instead, if the debtor recognizes that they must make major changes to how they deal with money in their life, then I may never see them again. Now, there are some folks facing bankruptcy purely due to circumstances beyond their control such as being laid off or the economic downturn. The majority, though, have a mix of misadventure coupled with poor financial management skills.

One red flag for me is when a potential client asks about how fast their credit score will go up. There is a legitimate reason to ask this and that is if there is a plan to buy a house in the near future. Sometimes, though, the question really turns more on when they can reestablish credit worthiness for credit cards. So, a second red flag is when a client asks if they can hold one credit card out of the bankruptcy (the answer, by the way, is “no”).

Here is what I hope my clients will realize: that credit scores should have no meaning in your life and credit cards should be the incredibly rare exception rather than a rule. If one wishes to really seize upon a financial fresh start from bankruptcy, then I highly recommend a cash system for their ongoing purchases. A cash system means if you do not have the cash, then you do not make the purchase.

There are two exceptions to the cash system: purchasing a house and purchasing an education. Even when purchasing either of these items, it is still important to use discretion. For a home purchase, one should not purchase a house where you do not have in hand 20% of the purchase price to put as a down-payment. This is a good rule of thumb and it will also lessen the monthly payments because you typically will not have to pay for PMI insurance (private mortgage insurance). A second rule is to never buy as much of a house as you can afford. I know this flies in the face of conventional wisdom and your realtor’s recommendation, but figure the most expensive house you can afford on your budget and then subtract AT LEAST 10% from that figure. Actually, subtracting 20% would be even better.

The rules for purchasing an education involves some research. Before going to school be sure to find out the trends in employment for the degree you are seeking. Find out the most common pay range in the geographic area where you hope to live. Find out the price tag (tuition, books, fees, etcetera) for the degree. After you find out all these things, take a look at how long it will take you to repay the debt you will owe from that degree. If you are still feeling called to this particular vocation, then by all means proceed.

There are many other financial habits that one can develop post-bankruptcy to insure a true fresh start. Some are really basic such as balancing one’s checkbook instead of using the ATM’s balance. Perhaps learning what exactly compound interest is and how it works (both for debt and savings). Another is developing a monthly budget and sticking to it. Two excellent resources for learning to be financially free are Dave Ramsey and the ever reliable Crown Ministry. These resources may even allow you to avoid bankruptcy in the first place. However, if you cannot avoid bankruptcy, be sure to realize that filing the petition is really just the beginning of a process of reforming your relationship to money.

February 20, 2012 Posted by | Uncategorized | , , , , , , , , , , | 1 Comment

Learning to live lean

Bankruptcy is certainly an option when one lands in a bad spot due to unexpected life events. In fact, it is better for society for such a person to use the bankruptcy system to get a fresh start and become a productive citizen again relatively quickly rather than be dragged through a series of disheartening collection actions. However, bankruptcy does not really help those persons who do not learn from their economic woes how to live leaner. A tiny minority of people used Chapter 7s followed immediately by Chapter 13s and then began that process again as soon as possible to basically live off of credit for as long as possible. This tiny number of persons lead to reforms in the bankruptcy code that kept one from filing a Chapter 13 until four years after filing a Chapter 7 and prevented a repeat Chapter 7 for eight years. It also lead many to feel ashamed or embarrassed to file bankruptcy. For those who make no changes in their spending practices, the fresh start of bankruptcy will be short lived and they may end up in worse shape because of the timing limits for filing again.

It is those persons who feel embarrassed that I most want to help, because they are likely to learn to live lean to avoid ever being in that predicament again. They are the people who call and are most concerned about whether their name will be in the paper. They want to live within their means, but the costs of living crept up on them or some crisis precipitated unmanageable debt. For them, they can start living within their means if only that can break out of the bondage of overwhelming debt first.

One example of living lean is described in this post about cable television bundled with phone and other services: “Personal Soap Box”. While the post indirectly refers to cutting costs, it is helpful in explaining one way that a deal that sounds cost saving in the beginning can end up costing more in the long run. It also indirectly reminds us that cable television is not a necessity of life; cable TV is a luxury, not a utility like we have been trained to believe.

Bankruptcy is not something to be embarrassed about for basically responsible adults. The numbers of those who will be filing bankruptcy is going to grow larger and larger over the next year and most of those people are folks who wish to honor the debts they incur (as I pointed out in this post, the Jubilee system was a precursor of modern bankruptcy). Bankruptcy is merely the most efficient way for society to address overwhelming debts and keep such people as productive members who can continue to be consumers of goods and services, thus keeping the economy rolling along. But, especially in today’s economy, we must all be determined to live leaner and, if necessary, allow the bankruptcy system be our teacher.

January 17, 2009 Posted by | Bankruptcy | , , , , , , , | 2 Comments