Bankruptcy and divorce no longer a black mark

Bankruptcy and divorce no longer a black mark

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Photo by Noel Worli/ flickr community commons

SAN DIEGO, October 12, 2011—Survey after survey shows that financial issues are one of the most common catalysts for divorce. Based on my own years of experience as a family law attorney, it’s absolutely true. Unraveling a couple’s financial problems often becomes a major consideration during a divorce, and a divorce doesn’t often make anything better.

As a result, it’s often necessary to talk about the option of filing for bankruptcy. For such a long time, there was an enormous stigma associated with filing for bankruptcy relief. While people are still embarrassed about it, bankruptcy doesn’t carry the same sense of shame it did a generation ago. In fact, now it’s becoming akin to divorce.

So does this trend indicate a decline in personal responsibility because people don’t want  to own up to their obligations? Steven K. Brumer, a San Diego based attorney whose practice focuses on financial law and bankruptcy, says the stigma is disappearing but not for the reasons people might think.

Attorney Steven Brumer says the stigma of bankruptcy is fading.

“In part, creditors themselves are viewed as to blame for many people filing bankruptcy today,” says Brumer. “My clients haven’t done irresponsible things with their money for the most part. They lost jobs, got sick, and they had mortgages that adjusted to the point that they now can’t stay current. They pay on credit cards for a while, they miss a few payments, and interest rates go from 15 to 45 percent overnight. They’re done.”

Brumer says the black mark of bankruptcy is still something clients discuss with him when they explore whether to file. “But ask any client who’s come out the other side of a bankruptcy, and they’re happy they did it. The stigma was true for a while but not any more,” says Brumer.

Doesn’t that sound a lot like divorce?

So is the number of bankruptcy filings increasing  as a result? For a long time it was.  According to Reuters, though, the number of consumer bankruptcies filed in September, 2011 actually fell by 17% to 108,517 from 130,329 a year earlier. This might mean the economy is improving.  People don’t hesitate as much and they don’t feel nearly as ashamed as they used to about it. Brumer says this is in part due to the fact they come into the office ready to file, and are armed with more and better information.

But make no mistake, no one is ever eager to file for bankruptcy, particularly when it’s part of a divorce. “There is reluctance in their voice. It is like a divorce. The client sometimes still views it as a failure. But they need the result it’s going to provide. The impact will always be there. The repercussions are severe so it will never be meaningless but its impact has lessened drastically,” added Brumer.

People feel abused by the financial industry, and many feel no obligation to pay loans back.

People are just plain angry. They feel abused by the financial industry and by the people who loaned them money. Many no longer feel any ethical obligation to pay it back. Brumer says he hears comments like, “Those SOBs increased my rates for no reason” and “I asked for a loan modification and they won’t even talk to me.”

This anger is eroding personal ethical and moral underpinnings because individuals feel like they are victims of fiscal abuse. Bankruptcy clients are sick of it and feel no obligation to people who have treated them so poorly. Did the companies really bring this on themselves? Brumer says some of them did through unscrupulous lending decisions. But borrowers were betting on property appreciation, taking a risk and making calculated mistakes.

“They didn’t bet $50,000 on black in Vegas,” says Brumer. “The lending industry is certainly partly responsible for this mess. It wouldn’t have happened if banks held loans they way they used to, requiring a down payment and a clean credit history and if the lender knew you and would work with you.”

It’s sad to see it no matter who is to blame. “It has a significant impact on people, losing homes and vehicles. In many cases it’s tragic,” says Brumer. “The consequences are still significant and severe, especially when it’s part of a divorce too.”

The good news: while divorce and bankruptcy can both be painful and should be your last resort, neither one is the end of the world.

Myra Chack Fleischer serves as Lead Counsel for Fleischer & Ravreby in Carlsbad, California with a focus on divorce, property, custody and support, settlement agreements, mediation, asset division and family law appeals. Read more Legally Speaking in Communities Digital News. Follow Myra on Twitter: @LawyerMyra.

Copyright © 2014 by Fleischer & Ravreby, Attorneys at Law

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