Bankruptcy Realities Bankruptcy filings are skyrocketing, hitting middle America hard January 25, 2010 Stephen J. Nash Nash & Lodge, PLLP nash@nashandlodge.com Bankruptcy used to be something for "other people".  Middle America never thought that this was something they would ever have to face unless they had a medical catastrophy.  In fact, the bankruptcy laws were changed in 2005 to make the filing of bankruptcy more difficult and more expensive with very little uproar from middle America.  Its probably fair to say that most silently thought that bankruptcy was too easy for "those people".  Well, today, those people are middle America.     With the United States facing the worst economic situation since the Great Depression, middle America is in trouble.  With high unemployment rates, wage and benefit cuts, high rate of business failures and the severe loss of real estate value Americans assets have shrunk but their debt has remained the same.  While millions have raided their retirement funds and savings to keep afloat, they are rapidly running out of money and, when they do, the options are bleak.  The house goes into foreclosure, the car is repossessed, the bill collectors won't stop calling and the unwanted collection letters begin to mount.  At some point in time, the stress and pressure becomes too much and they finally have to consider filing bankruptcy, something they never thought they would ever have to do.  But here is the kicker:  because of the 2005 changes, they now have to qualify for bankruptcy and the cost has gone from hundreds of dollars to thousands of dollars.  The credit card debt they just racked up can't be discharged and they find out that the money they took from their retirement funds could have been protected from bankruptcy but it is now all gone.  If they don't qualify, what do they do?  Even if they do qualify, they lose most of the assets that took a lifetime to acquire.  Bankruptcy is not easy and is not cheap but it is often a debtors last hope.  Corporations have been filing "strategic" bankruptcies for years.  Individuals should take the same strategic approach.  First, the debtor may be able to avoid bankruptcy (a short sale with a satisfaction of the underlying debt).  Second, the debtor needs to make sure that he/she is not throwing good money after bad or using assets that can survive a bankruptcy.  Third, the debtor has to make sure that he/she does not put themselves in a worse position if they later have to file bankruptcy (i.e., they are now in a worse financial situation but no longer qualify for bankruptcy).  Fourth, the debtor needs to make sure the timing of the bankruptcy is to his/her maximum advantage.  There have been over 100,000 bankruptcy filings by individuals in the United States in each of the last 10 months.  We know that the majority of properties in the U.S. are underwater and that most of these properties have more than one mortgage against them.   These mortgages are not going to be fully paid off in a short sale and the debt is not going to be forgiven.  We know that many people have been living off of credit cards and credit lines that are no longer available to them.  We know that middle America is getting hit hard with economic troubles across the board:  loss of jobs, wage cuts and business losses.  We also know that while middle Americas income and assets have dramatically fallen yet their debt remains and is increasing.  Something has to give.  We can pray for a miracle that will save us or we can come up with a plan while we still have options.  The earlier these debtors (we are all debtors) have a plan, the more options he/she will have and the more likely he/she will be able to get a handle on their debts and get a fresh start even if he/she has to go through bankruptcy.  The longer they wait, the the more likely they will have no options and will end up where they didn't want to be with a result a much than it had to be.     NOTICE The foregoing is not intended to constitute legal advice for any specific circumstance, but is intended to reflect broadly applicable principles, under Minnesota law, relevant to a typical situation. Each set of facts and each contract are, or can be unique; the unique facts and specific language of the contract may require a different legal analysis and may result in a different outcome. Before proceeding in reliance upon this or any other general description of law, consult with an attorney competent in the field of practice relevant to your situation. Copyright 2010 Nash & Lodge, PLLP