Some still think consumer bankruptcies are bad for consumers

Last week I wrote about how an article in Forbes magazine was spreading mis-information about how bad consumer bankruptcy was.

Not surprisingly, the article (by tax attorney Stephen Dunn), garnered more attention.

Some leading consumer bankruptcy attorneys got Forbes to publish their rebuttal (in the on-line magazine, but not in the print version). Lead writer Geri Detweiler pointed out that consumers rarely get anywhere fighting collection lawsuits in local courts. Another attorney pointed out that bankruptcy trustees rarely seize property in consumer cases, and that few debtors get in trouble for lying on their petitions, because there is usually no reason to.

The next salvo in the Forbes battle was — you probably guessed it — a reply-to-the-reply by Stephen Dunn. Dunn resumed his anti-bankruptcy rant, saying consumer bankruptcy “is usually not the best option.”

Dunn’s reasoning in his second article isn’t much different — or any better — than in the first. He refers to an example of a contractor comtemplating bankruptcy, and comes to the conclusion that workouts with all his creditors would be preferable. But he fails to say that the legal fees for arranging alll these would be vastly higher than in a bankruptcy case. He also seems to come from an area where the contractor has lots of home equity — I haven’t seen much of that in Lawrence area bankruptcies lately!

But the biggest problem attorney Dunn has in these Forbes diatribes, is that he tends to look at each problem as a tax lawyer. As they say, “if your only tool is hammer, everything looks like a nail.” While he is still right in that bankruptcy law often does not address tax problems well, that doesn’t mean that real people aren’t helped by the bankruptcy code.

Look at it this way: if Joe Debtor has $100K in debts, and $20K of those are to the IRS but can’t be eliminated in Chapter 7, only a tax attorney would consider eliminating 80% of the problem quickly and cheaply to be not worth doing!

Forbes is a good magazine if you are looking for investment advice or general business news. But you should definitely steer clear of it for bankruptcy information!

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