By watching the debt profiles of my clients, I could have predicted most of the economic problems of the past 18 years.
Of course, hindsight is 20/20. But I’d be willing to wager that I can tell you exactly who’s going to be filing for bankruptcy over the next 18-24 months unless something happens in Washington.
Before you write me off as a total hack, let me explain – and by the time I’m done, I think you’ll agree with me.
Bankruptcy Court Is A Reflection Of Where We Are
When I started practicing bankruptcy law back in 1995, I saw primarily people with credit card debts.
Lots of my clients had cards from retailers, the result of checkout signups that promised a discount off the day’s purchases. In a few short months, the bill had spiraled out of control and they landed in front of me.
But time changes, as does the way in which our society operates.
For example, the retail credit cards of the late 1990s gave way to American Express, Citibank and Chase as those companies loosened their credit guidelines and flooded the market with plastic.
As the technology bubble was bursting in the early 2000s I began to see people coming to me with massive credit card bills, SBA loans, and tax debts.
Though studies cited extreme medical debt as being a major factor in the decision to file for bankruptcy, I never personally saw it in my office. Lots of unpaid copayments, to be sure, but not much in the way of uncovered hospital bills and the like.
As the years gave way to the mid-2000s, the clients began to come to the office with mortgage problems. Subprime lenders and the treadmill of refinancing had preyed upon the finances of the nation – and bankruptcy filings reflected that trend.
The foreclosure problem continued for some years, reaching a crescendo in 2011 and 2012. But eventually those settled down as well.
The Next Wave Of Debt Problems
So what’s next? Well, that’s the problem isn’t it? We’ve got 20/20 hindsight; it’s seeing clearly into the future that’s so tough.
I can tell you that I’ve gotten more calls and clients due to private student loans in the past year than at any time in the past. The press talks constantly about federal student loans, but those seem to be more under control as more people learn about programs such as income-based repayment.
The lion’s share of the problem is with the private student loans, those unregulated and and offering none of the protections and programs afforded by the federal loans.
Private student loans are securitized much in the same way as are mortgages (and we all know what happened with those). Many of these trusts have seen their credit agency ratings lowered as a result of rising default rates, which indicates that even Wall Street is skittish about them.
On the consumer side, I can tell you that my clients have been getting sued for private student loan debt at an alarming rate. Due to the fact that there are no protections or programs available, many of my clients end up in a Chapter 13 bankruptcy as a way to keep the wolves at bay.
In fact, just a few weeks ago I helped a 20-something file a Chapter 13 bankruptcy in spite of the fact that his sole credit card had a total balance due of less than $1,000.
His reason for filing? $106,000 in private student loans, each of which had filed a lawsuit against him for nonpayment.
Seeing Me Now Makes Sense
Another client, a woman in her mid-30s, came to me with $80,000 in private student loans that she knew she could never pay without help. She wasn’t behind on her debts – even the student loans were being managed.
But she wanted to get into a position that would let her start saving up for a downpayment on a house.
We filed a Chapter 7 bankruptcy on her behalf, wiping out her credit card debts. Then we got her federal student loans into an income-based repayment plan that would reduce her monthly payments and set her on the road to discharge of her federal loans.
Next up, we’ll be doing a Chapter 13 bankruptcy case to help her pay off the private student loans. She’ll have more money at her disposal to repay the private loans than she did before she met me, and we’ll be able to help her knock out the debt far more quickly than would otherwise be possible.
Is this the outcome you’ll face? Maybe, and maybe not. It was right for this particular client, but one size does not fit all when it comes to debt relief.
I can tell you one thing, though. Lawyers like me who have spent a lot of time dealing with student loans are able to look at your debt situation from many angles. Sometimes bankruptcy makes sense, and other times there’s another choice that’s best for you.