In the past, I’ve written about why Dave Ramsey is wrong about bankruptcy. A recent article published by Forbes by attorney Stephen J. Dunn about “bankruptcy hacks” demands a response. Mr. Dunn’s article, laced with ad hominem attacks against bankruptcy attorneys and straw man arguments against bankruptcy, is one of the most poorly written articles about bankruptcy that I have seen in 20 years of legal practice.
Without any supporting evidence, Mr. Dunn claims that he has “rarely seen a consumer bankruptcy do a person any good”. That is strange, because I have never heard any of my clients complain about getting a discharge of their debts. Nearly all of my clients come out of their cases with no debt besides their house or car payments and end up keeping their homes, retirement accounts and nearly all of their other assets.
Mr. Dunn suggests that debtors can save money on legal fees and instead negotiate with creditors. Mr. Dunn’s statements lead me to believe that he has never actually tried to negotiate with creditors on behalf of a debtor and most of the people that I see do not have the resources to pay their debts even if a creditor were to agree to a 50% reduction. That is why they are seeking the help of a bankruptcy attorney.
Mr. Dunn’s concern about the “stigma” of bankruptcy on a debtor’s credit is misplaced. If someone is not paying their debts, their credit is probably already bad. Most of my clients see their credit scores improve because of bankruptcy.
Mr. Dunn is correct in that sometimes a bankruptcy does not go as planned, though it is not as “often” as he would suggest. Honesty and sacrifice are part of the price of admission to bankruptcy court. One of the most important aspects of any bankruptcy attorney’s job is to inform the client about any risks of filing for bankruptcy and to maximize the amount of money or assets they get to keep. A debtor should not file for bankruptcy without being fully informed of what property might be at risk and they must plan accordingly.
Mr. Dunn also expresses concern about debtors being prosecuted or cases being dismissed due to false information. Well, a debtor should face those consequences if they intentionally lie to the court or the bankruptcy trustee. Bankruptcy is meant for “honest but unfortunate debtors”. The simple solution to that problem is to not lie to the court and own up to an honest mistake if you make one.
Mr. Dunn also claims that “bankruptcy almost never resolves tax obligations.” That statement is just plain silly and I have personally helped clients get rid of hundreds of thousands of dollars of income tax debt. Bankruptcy will not remedy all tax debt, but it can get rid of a good portion of it while giving the debtors breathing room to pursue other remedies available.
Mr. Dunn’s final objection seems to be that attorneys allegedly take payment via credit card and then include that debt in the bankruptcy. Well, I do not know any bankruptcy attorneys that take credit cards for payment of bankruptcy fees. And if someone borrows money right before bankruptcy without the intent of repaying it, the creditor could file a lawsuit in bankruptcy court to block the discharge of that debt. Why would I take a form of payment from my client knowing that it could very well invite a lawsuit from the creditor? My clients do not have the money to pay additional legal fees to fight a creditor lawsuit. That is why they seek out the help of a bankruptcy attorney.
Bankruptcy is not for everybody, but it is not the evil that Mr. Dunn would have you believe it to be. Most debtors are happy to get rid of their debts and get a fresh start. When the emotional debris caused by excessive debt is cast aside, debtors are often able to pick up the pieces of their lives and move on. Bankruptcy is not a big monster that hides in your closet. It can be valuable medicine to treat financial ailments despite what Mr. Dunn might tell you.
Image credit: Candie_N (Welcome Spring)