Bankruptcy rules overdue for reform

While growing up, I surmised my parents’ strongest philosophy was “Don’t go outside without your good underwear on.”

I thought they were kidding until, on the day I got my driver’s license, instead of congratulating me, they gave me a new six-pack of Fruit of the Looms. Older now, I understand their message – the power of embarrassment, and that same power often keeps us from sharing information that can help others.

I share something in common with Col. Sanders, Mark Twain and Oscar Wilde … a bankruptcy. Hucksters P.T. Barnum and Donald Trump are members of the same club.

I find the combination of recent Spokesman-Review articles on bankruptcy, the current discussion of bankruptcy reform in Congress, and my own experiences in the program over the last two years to be worth “coming out of the financial closet.”

Outside of dating, nothing is more rife with misconceptions than bankruptcy. This includes the perception that bankruptcies are caused by addiction, astronomical credit card debt and a host of other reasons centered on low personal accountability. To listen to Congress and to read financial industry sponsored Web sites on the bankruptcy reform, America is inhabited by a legion of irresponsible lowlifes and is doomed.

The reality is, to quote a friend, “Bad things do happen to good people.” The leading causes of personal bankruptcies are unforeseen – medical bills and loss of employment.

The last time I checked, not many people were begging to undergo chemotherapy or wanted an extended hospital stay as sort of a medical spa.

Any of us walked into the boss’s office lately and said, “Please lay me off”? Well, actually, I did that once, but that’s another article.

We all know you don’t want to be the fat bird, loaded with debt, sitting on the end of a brittle financial limb, so we act responsibly and pay our debts, but how many of us can handle extended financial duress?

Mine came in the form of a seven-month unemployment, my first ever, after 9/11. I was paying my mortgage and the mortgage on my kid’s home.

Something had to give, and it resulted in a Chapter 13 bankruptcy, called a wage earner petition. Basically, I returned a house to the mortgagor and agreed to a court-ordered debt repayment schedule that lasts for 42 months. I chose this plan because, unlike Chapter 7, where debts are discharged immediately, I felt a moral obligation to repay what I said I would pay.

But there’s a reason only 35 percent of Chapter 13 plans are completed. It’s tough, and the discrepancies in the system help make it that way. With the imminent passage of new bankruptcy laws, this inequitable system will be the only option for other good people befallen with financial calamities.

In a Chapter 13, you do get blessed relief from collection agents, but the plan goes too far. I’m unable to get a statement of payments and balance from my second mortgagor because they say the law says they cannot contact me. In the meantime, they have raised my interest rates twice. What a racket!

You are also not allowed to pay anyone back personally. All payments must go through the bankruptcy trustee.

So, if I would like to pay extra outside of the plan to pay off the family dentist, it’s illegal. But yet I’m a bankruptcy deadbeat? Go figure.

If you are paying your court-ordered payments like clockwork, you must be allowed to pay extra to make things right with people that trusted you. This kind of change must be part of any bankruptcy reform.

Credit reporting changes must also be addressed. All three major credit-reporting firms had at least 10 significant errors in my credit file due to the bankruptcy.

If you have a bankruptcy, you must get the available free credit reports and review your file. Couldn’t reform also make credit scoring less like the voodoo science it now resembles and transform it into simple math?

Completed Chapter 13 plans should reflect favorably in a credit report as incentive.

Once you’re down, it’s hard to get back up. For example, by law we all need auto insurance, but yet the presence of a bankruptcy often means denial of insurance.

Catch 22, anyone? Life on a bankruptcy repayment plan is full of them.

Americans love comebacks, but I’m not sure our legislators, beholden to special interests, feel the same.