Do consumer bankruptcies really hurt consumers?

If you have been looking around on the Internet for financial or bankruptcy information, there’s plenty of it out there, but you gotta know who you can trust.

If you’re looking specifically for bankruptcy information, we hope you will trust this site. I try hard to keep it up to date and accurate.

Until recently, in the financial realm, I might have agreed that you could also trust Forbes magazine’s articles, but that’s getting harder these days.

Forbes used to be the plaything of it’s late publisher Malcolm Forbes, the fun loving, cycle-riding, balloon-flying magazine magnate who put some spark in the conservative movement back in the 1980’s. Lately, Forbes has been run by his son Stephen, a more dour soul noted for his two presidential campaigns that didn’t really get off the ground.

Unfortunately, Forbes just recently put out an issue with an article in it that has a lot of mis-infomation about bankruptcy. In the June 3rd issue, tax attorney Stephen Dunn (above) tries to make the case that “Consumer bankruptcies do more harm than good.”

The article is not well researched. Where to begin? How about with Dunn’s assumption that bankruptcy isn’t necessary because creditors rarely sue consumers. Huh??? Just in our own area, there have already been literally thousands of consumers sued over debts in Lawrence District Court this year. Same thin in Haverhill District Court. many of the defendants will indeed help themselves by filing consumer bankruptcy cases.

Attorney Dunn thinks that instead of eliminating these cases with bankruptcy filings, the consumers should instead litigate them in the district courts by raising counterclaims and defenses. Here, he really has his head in the clouds; most of my clients have trouble even finding the courthouse, are terrified of going to court, and aren’t trained in litigation, and can’t afford to pay lawyers to do it. For them, bankruptcy is indeed a cheaper, better, and more efficient option.

Another of Dunn’s wacky arguments is that consumers often “lose thier homes” by placing too low a value on them in bankruptcy filings. This charge doesn’t even make sense; consumers have to justify their real estate values as part of the bankruptcy process, either with a broker’s opinion or Zillow estimate. “Low” values don’t lead to homes being taken away; I have never seen anything remotely like that in seventeen years of bankruptcy practice in the Merrimack Valley. Homes are lost because people can’t make enough to make the payments, period.

Next on the Forbes hit list is Dunn’s assertion that creditors can challenge the dischargability of a debt. Quite true, but it rarely happens (and never happens without a good reason), so what is the big deal.

Dunn also points out that “taxes can be problematic in bankruptcy.” This may also be true, but by and large my bankruptcy clients aren’t looking to discharge tax debts. They need to eliminate unsecured credit card or medical bills; if they happen to be able to get rid of a tax bill, OK, but if not it’s not usually a big real-world problem.

Forbes may be a good magazine for stock market news and financial reporting with a conservative spin; but based on this article, I wouldn’t trust it for a realistic view of the bankruptcy process

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