MD Bankruptcy Law & The Myth About Bankruptcy
By Robert K. Goren*
There are literally dozens of debt consolidation businesses, many of which charge huge fees in advance and are owned or subsidized by creditors, chanting the mantra—AVOID BANKRUPTCY! Why is it that these firms are so intent on treating Bankruptcy like the plague?
Unfortunately for many people who owe debt (debtors) and who are constantly harassed by creditors, their collection agencies and attorneys, unscrupulous collection practices are common, including dissemination of misinformation about the nature and consequences of filing for bankruptcy protection. It is not uncommon for collectors to demand payments after assuring debtors that they can no longer receive a discharge under the new bankruptcy law or that bankruptcy will ruin their credit forever. Both claims are false.
Nearly four years ago, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), the revised bankruptcy law, which was purportedly designed to prevent bankruptcy abuses and to force more individuals into repayment plans under Chapter 13 of the Bankruptcy Code, rather than Chapter 7, which provides a fresh start with no repayment required. The experience of the past four years has taught that few, if any, of these goals have been accomplished. Eighty-five to ninety percent of those who could have filed prior BAPCPA can still do so and many abuses still occur by dishonest debtors or creditors.
BAPCPA did manage to accomplish one thing—it imposed burdensome new requirements on debtors and their attorneys resulting in increased costs to the consumer. Despite these burdens, many distressed consumers and small businesses have continued to use the bankruptcy process. In 2008, over one million cases were filed nationally. Approximately two thirds of these cases were filed under Chapter 7, giving debtors the complete fresh start that Congress mandated. Individuals who believe that bankruptcy protection may not be available will find that bankruptcy remains their best option. Most people receive a permanent elimination of their debts and most are able to rebuild their credit within two to three years. While no one wants to file for bankruptcy protection, the debt consolidation business created by the credit industry continues to misinform the public about options available to consumers who finds themselves in financial difficulty and fails to reveal the conflict of interest inherent in the process of negotiating debt with lenders who own or control the negotiators.
Debt consolidation plans run by the creditors may succeed for some, but many are derailed by exorbitant fees, creditors who refuse to participate, or interest that continues to accrue. The dire consequences of bankruptcy spewed by some debt collectors or debt consolidation programs are simply untrue. The truth about the availability, benefits and consequences of bankruptcy need to be understood in order to make an intelligent decision on how to proceed.
*Robert K. Goren is a member of the law firm of Goren, Wolff & Orenstein, LLC in Rockville, Maryland. He has been representing individual and small business debtors in bankruptcy for over 25 years.
