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Choose Bankruptcy, Not ‘the Sweatbox’

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A while back, I wrote several posts to illustrate who Brooklyn bankruptcy and New York bankruptcy debtors are by the chapter they file in. (For example here is, “Who Are Chapter 7 Bankruptcy Debtors?“) Although I think the posts covered the topic quite well, one of their weaknesses was that they used averages from aggregates, which don’t always capture what the typical bankruptcy debtor’s experience is like. To fill that kind of gap, a forthcoming law review article discusses debtors’ pre-bankruptcy experiences in a way that might help debtors consider whether speaking to an experienced New York bankruptcy lawyer is better than trying to pay down debts. Specifically, the article, as its title suggests, focuses on, “Life in the Sweatbox.” I’ll summarize a few of its salient points for debtors.

“The sweatbox” is a metaphor academics created for the consumer-credit industry’s business model of extracting as much money in fees and penalties from distressed debtors as possible before they default or file bankruptcy. Using data from the Consumer Bankruptcy Project, the article asks how long debtors stay in the sweatbox, how it affects them, what sacrifices they make to stay out of bankruptcy, why they don’t file bankruptcy sooner, and why more debtors are reporting being in the sweatbox. It’s an ambitious agenda.

More than half of debtors spend at least two years in the sweatbox, with more than 30 percent staying in it for more than 5 years, which is longer than a chapter 13 plan. The article refers to these debtors as “long strugglers.” Notably, the percentage of long strugglers in 2007 was just over 10 percent, but now it’s up to 30 percent, so more debtors are waiting much longer to file bankruptcy than before.

Debtors in the sweatbox go to great lengths to try to regain their ground. More than half try to work with their creditors, regardless of the number of years they’ve been struggling. Long strugglers are twice as likely to sell their houses (11.5 percent), nearly half of them pawn property, and two-thirds work more. Nevertheless, they don’t appear to have much to show for it compared to debtors who file bankruptcy sooner—except fewer assets. Debtors in the sweatbox forgo food, utilities, car repairs, mortgage or rent payments, and most prominently, health care, including ailments requiring intervention.

A variety of factors ultimately trigger bankruptcy: pressure (including lawsuits) from debt collectors, foreclosures, high medical payments, unaffordable mortgage payments, and divorce. The intensity of these factors raises the question of why these debtors don’t file sooner. The answers are complex but the authors focused on one: education. Apparently, debtors with more education tend to wait longer to file bankruptcy, which may be due to perception of stigma over bankruptcy or that they’re more willing to assert their legal rights against debt collectors, e.g. by using the Fair Debt Collection Practices Act.

So why are there more debtors in the sweatbox than before? The most compelling answer appears to be technology. In the past, debt collectors would strain to collect smaller balances, but the advent of digital communication has made it more profitable to go after more debtors. In fact the number of people working as bill or account collectors grew 64 percent between 1998 and 2015.

The draft article can be found here.

If you see your financial life in this post, then you’re probably living in the sweatbox. It may have many ways to enter it, but there’s only one real way out: consulting with an experienced New York bankruptcy lawyer.

For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.

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