Back in the old days, very few people filed for bankruptcy. There were few bankruptcies filed before the modern U.S Bankruptcy Code was enacted. Before 1978, there were minimal protections for Debtor’s who filed for bankruptcy.
Creditors had all of the advantages. Once the bankruptcy code was changed in 1978, bankruptcy became more of a viable option for the average person. There were also other factors as to why people didn’t file for bankruptcy. Credit cards didn’t exist until 1966. Also, women couldn’t get a credit card or even open a bank account without a man’s consent until the 1970’s. Now, over 70% of Americans over 18 own credit cards. Because of these factors, people couldn’t even incur debt. Now debt is so easy to obtain, and the financial education of those people is so poor, people are easily taken advantage of by banks.
Because bankruptcy filings were so rare before the 1978 Bankruptcy Code change, there was a huge stigma to filing bankruptcy. The bankruptcy filings were published in the local newspaper so everyone knew who filed for bankruptcy. It was embarrassing. Also, once you filed for bankruptcy, it was almost impossible to ever borrow money again. In cities like Miami, Ft. Lauderdale and Palm Beach, if someone filed for bankruptcy, everyone knew. Because everyone knew, it was very hard to do business because people didn’t want to do business with someone they knew filed for bankruptcy.
Today, filing for bankruptcy is very common. Bankruptcy in Miami, Ft. Lauderdale and Palm Beach are an everyday occurrence. Thousands of bankruptcies are filed every year in Miami, Ft. Lauderdale and Palm Beach. When I first started filing consumer bankruptcies in 1990, very few attorney’s practiced bankruptcy law. In fact, there were only three bankruptcy judges for all of Miami, Ft. Lauderdale and Palm Beach. Now there are seven bankruptcy judges for Miami, Ft. Lauderdale and Palm Beach. The United States has spent millions of dollars to upgrade their courthouses and other facilities because of a huge increase in bankruptcy filings. In 2004 the U.S. Congress passed a new bankruptcy law which was added to the former law. Banks thought the U.S. Bankruptcy Code was too liberal, allowing Debtor’s to file bankruptcy too easily. So the banks decided to make the changes to the bankruptcy code. Because both houses of the Congress were held by Republicans, the bill passed, and President George Bush signed the bill into law in 2004. It took effect in 2005. When bankruptcy lawyers went to seminars conducted by the bankruptcy judges in 2004, we were told that the new law was never put through congressional committees or discussed by any member of congress before it passed. Basically, it was written by the banks, and rather than using a legal dictionary, we were to use Webster’s dictionary to define what was in the new bankruptcy code until appellate courts could determine what the new bankruptcy code meant. After 17 years of new case law on these subjects, almost all of the 2004 bankruptcy code has been interpreted. There are still several issues that are outstanding, but for the most part, all bankruptcy lawyers should know what they are talking about when discussing your issues and what is resolved and what is not. There are rumors that since Democrats now control both houses of Congress and the White House, there may be another change to the Bankruptcy Code. Once this happens, there will be a new set of learning to be necessary, but those changes are already in congressional committees. I think we are done using Webster’s dictionary.
Because filing bankruptcy is much more common today than in the old days, it’s almost impossible for anyone to find out if you filed for bankruptcy. It still has to be published in a newspaper, but now we have legal newspapers which most people do not have. Even if people do get the legal newspapers, those papers include all lawsuits filed as well as all foreclosures. Unless you are looking for it, it’s highly unlikely that anyone will find out that you have filed for bankruptcy. Even if people do find out that you have filed for bankruptcy, there is almost no stigma because so many people file for bankruptcy these days. In fact, in 2004, the largest number of people to ever file bankruptcy filed. There were over two million people who filed for bankruptcy that year. That amount is expected to be exceeded when Covid-19 is finished, and everything gets back to normal. People are using their credit cards to live. Because they are not working, they have no health insurance, so medical bills are stacking up. Many people have taken deferments offered by banks on their mortgages. Once these deferments are over, some banks may put the amounts deferred at the end of the loan. That is great because you won’t have to come up with all of the amounts you are behind immediately. But what the banks are not saying is that because you are in deferment, the banks are forced to place insurance, which can increase the cost of insurance on your home significantly. Also, your property taxes are being advanced by the bank. They will expect those payments to be repaid immediately. Because of all of these factors, when Covid-19 is done, bankruptcy filings will skyrocket. We are already being informed by the bankruptcy court to prepare for an unusual amount of bankruptcy filings in 2022. It is expected that there will be a huge amount of foreclosures once the foreclosures are allowed to begin again. The Federal government put a stop to all federally guaranteed mortgages to suspend all foreclosure activity until Covid-19 is over. Once this happens, there will be a rush to the courthouse to file as many foreclosures as law firms can file.
Bankruptcy will be back as an option in 2022 because so many people have been out of work. There will be no other option in many cases because of credit card balances not being paid, medical bills not being paid, and especially mortgages and car payments not being paid. The good part is that there is no longer the stigma that our parents and grandparents had if they were forced to file for bankruptcy. Rebuilding credit is much simpler than it was before as well. . Within two years of filing bankruptcy, your credit can be re-established if you do things correctly. Finally, there is such little stigma in filing bankruptcy because banks want your business. They don’t care that you filed bankruptcy anymore. In fact, because you have filed bankruptcy and discharged your debts, you can use all of your income to pay them back the money you can now borrow because you no longer have any debt. To the banks, bankruptcy is business. They just write off the bankruptcy debts on their taxes. To you, it is personal. You have to look at it the way the banks do. They don’t care that you are filing bankruptcy. The money you owe to them is a drop in the ocean. If you look at filing bankruptcy the way the banks do, any possible guilt will disappear.
