Why shouldn't you file bankruptcy every 8 years for your whole life?

[Ridewithme38]

So, recently i dug myself so deep into debt that there is no way i'm going to get out. I have twice as much credit card debt as i make in a year and even the minimum payments are more then my paycheck a month. I've been doing a TON of research into bankruptcy the downfalls and the benefits and find that, the downfalls, really really aren't that bad.

For someone like me, who rents an apartment instead of buying a house and doesn't plan on ever buying a house, who owns a reliable car and prefers to buy used. Even people that own homes and lease cars, most of the time, you are able to keep your primary home and vehicle. Even if you aren't deep in debt.

I can't figure out why everyone doesn't just discharge their debts every 8 years? What possible reason is there NOT to file bankruptcy? It just seems like a smart financial decision to me. What am i missing? Is it only the 'moral' issue that holds people back?

[justbroke]

It really just simply comes down to credit. Eventually you will be blacklisted by most creditors (American Express, Capitol One, etc) and won't be able to obtain prime lending rates. If you only rent, buy used cars, and generally don't care about credit, then the decision is easier. However, if you have a family, own a home, and make things stretch by using (and depending on) credit, you don't have as much flexibility.

So why file for bankruptcy every 8 years? Because a Chapter 7 discharge sticks on your credit report for 10 years and if you need credit that could be problematic (in general). Besides, if you do this with the intention of defrauding creditors (because you "know" you're filing every 8 years), then it is not only an ethical issue for me, but also a legal issue if a creditor could prove that is the case.

So it's probably an ethical, not a moral, issue.

Just my thoughts.

[bcohen]

The purpose of bankruptcy is to eliminate untenable debts and protect property necessary to maintaining one's livelihood, in order to improve one's financial situation going forward. For example, when the economic collapse hit, millions of people--myself included--lost jobs, and were forced to accept lower-paying jobs. As a result, debts which would have been manageable suddenly became untenable, forcing millions into default and/or bankruptcy. However, people who have filed for bankruptcy and adjusted to their "new normal" are now able to save money and build a positive net worth, which would have been impossible to do with old debts hanging over their heads. People who are not able to live within their means, either due to personal irresponsibility or insufficient income to cover their costs of living, generally do not benefit from bankruptcy, as you have found out.

I suppose that if it is your plan to never own anything of value, never own a home, never own a car worth more than your state's exemption, never keep a "cash cushion" of money in a bank account, then filing for bankruptcy every 8 years could be a viable plan. Of course, the amount of "real money" which you could actually succeed in borrowing and not paying back would likely equal out to less than $1000 per year, excluding "phantom money" such as fees, penalties and interest, which you wouldn't have paid anyways. Using bankruptcy to squeeze out a few thousand dollars in "free money" from creditors is simply not worth the effort, ethical/legal issues aside. There are much easier ways to come up with an extra $1000 or so per year.

Now if you find yourself incurring a lot of involuntary debt such as uninsured medical bills, uninsured liability for an at-fault car accident, uninsured liability for accidental death/injury/property damage, etc. then repeated bankruptcy filings could save you a lot of money--maybe many tens of thousands of dollars or more.

[justbroke]

Well-said, bcohen.

[AngelinaCat]

Also, you will be given extra attention by the trustee. At our 341, there were at least two couples who had filed previously, and they were grilled as to WHY; hadn't they learned anything in the meantime?

[switch625]

When I was doing my research on filing, I came across an attorney's website who offered a quote by a former BK judge who basically said "Bankruptcy Court is the one rare 'business' that does not like repeat customers".

I have to believe that repeated filings results in diminishing returns an may not be worth the effort. I also believe that the BK Court can deny a "repeat customer" further bites of the apple if the presumption of fraud and abuse prevails. Better to leave that second and third time to file BK for that time when you have medical bills you can't pay, when your life depends upon it.

[TXskyblue]

When my chapter 7 was discharge for about 80K in credit card debt, I had a similar thought. It's not that I wanted to defraud companies, but it made me wonder why more people didn't do it.

Then I did some napkin math and added up how much I paid in interest racking up all my debt. I probably paid close to what I discharged in payments over the years.

I suppose you could go on a spree and not make payments, but the trustee and judge would eye that pretty hard.


In the end, I don't think it would be very profitable.

[kberly69]

All of the above, plus, psychologically it isn't good for most people. Living in fear/dread of phone calls, the mail box, emergencies with financial implications, etc. I never want to get on that train again!