January 13, 2020
The “Financial Sweatbox” is a term that came into common usage during the period prior to the enactment of the 2005 Bankruptcy reform legislation (BAPCPA). The sweatbox is the period of time that consumers struggle with attempts to pay debts with money they often do not have leading up to their filing of bankruptcy. Taking advances from one card to pay another. Making workout arrangements that are bound to fail because they lack the ability to repay their debts. The reasons for this are as varied as there are people in the sweatbox but the impacts are far-reaching and do not stop at just the debtor’s finances.
In a recent Notre Dame Law School Law Review article (read the article here), written by Pamela Foohey, et al., this topic was reviewed from a number of angles but the area I would like to discuss here is the length of time in the sweatbox. Foohey’s research analyzed data from 2007 and 2017 and found that there was a significant increase in the amount of time people were waiting to file bankruptcy after their financial difficulties began. During the 2007 period there were a greater number of people who had only waited between 1 – 24 months before they filed but the 2017 data had a major shift where the majority of people were waiting between 24 – 60 months before they filed. The shift can be attributable to a number of factors such as the current state of the economy compared to 2007 but there is one unmistakable truth – if you spend too much time in the sweatbox you will make your post-bankruptcy recovery much harder and here is why:
When you file a Chapter 7 bankruptcy, the court-appointed trustee will seek to liquidate your non-exempt property to pay back all or some of your unsecured creditors. However, if you are stalling the filing of bankruptcy, it is possible that you are devaluing some of the exempt property that you could be using to re-establish your post-Bankruptcy financial life. While you are in the sweatbox, you may be selling off property to pay back some debts. Market fluctuation can also contribute to losses in value while waiting. All the while, your delinquent accounts are growing due to late fees, default interest rates and attorney fees for collection on past due loans. Texas has some of the most debtor-friendly exemption laws that allow debtor’s to keep the majority of their property to help with their “Fresh Start” that bankruptcy is designed to deliver. If you are sweating too long trying to make a decision, you may be doing yourself a major disservice.
Contact LoBue Law, PLLC today to discuss bankruptcy options with an attorney.