04 Jun Another Ivory Tower Intellectual Gets Consumer Bankruptcy Wrong
This week’s Forbes magazine contains an editorial by tax lawyer Steven J. Dunn entitled “Consumer Bankruptcies do More Harm than Good.” Mr. Dunn acknowledges that he is not a bankruptcy lawyer (although he knows a few bankruptcy lawyers – including his son, who once represented a bank in a lawsuit against the president of a company who signed a personal guarantee).
Mr. Dunn then proceeds to discuss his concerns with Chapter 7 (which he mislabels “consumer bankruptcy” – and he thereafter ignores Chapter 13 relief, which is, of course, another type of “consumer” bankruptcy).
With these obvious qualifications and definitions established, Mr. Dunn offers readers the following nuggets of enlightenment about the uselessness of bankruptcy:
- Creditors rarely sue consumers over debts
- If a creditor does threaten to sue, the consumer should threaten back to assert his defenses, such as breach of contract or fraud. Chances are the creditor will back off.
- Debtors commonly lose their houses when they intentionally undervalue their homes in bankruptcy schedules, resulting in trustee objections and, ultimately seizure and sale.
- Creditors can challenge the dischargeability of a debt. This apparently happens frequently and in the case involving Mr. Dunn’s attorney son, the guarantor that was sued ended up moving to a country with a non-extradition treaty with the United States to escape the judgment.
- Bankruptcy filings trigger tax audits.
- Tax debt is especially tricky to discharge in a Chapter 7
Now, I do not know Mr. Dunn, and I am going to assume that he is a reasonable, intelligent and fair minded gentleman. But his editorial completely misrepresents the nature of consumer bankruptcy cases and the fresh start that bankruptcy can and do offer the vast majority of people who file for bankruptcy relief.
In what alternate universe do creditors hesitate to sue debtors? In Atlanta, where I practice bankruptcy law, creditor firms file suits by the hundreds and the notion that a creditor rights mill attorney would hold off on suing because of a “breach of contract” threat by a consumer (this assumes that a non-lawyer consumer knows about affirmative defenses in civil litigation) is patently absurd.
Are dischargeability challenges filed? Of course, but extremely rarely – I have seen less than ten in 23 years of active practice. Do debtors often lose their homes because of intentionally low property valuations? Perhaps – but I have never seen such an instance. Are the rules about tax dischargeability arcane and complex? Yes, but debtors discharge tax liability all the time with no problems.
I suspect that any one of my colleagues here at the Bankruptcy Law Network could fashion a point by point refutation of Mr. Dunn’s editorial. The problem, of course, is that none of us has access to the Forbes Magazine platform. No doubt tens of thousands of affluent, influential and well-connected subscribers are reading Mr. Dunn’s editorial which may reinforce their previously held misconceptions about consumer bankruptcy.
Mr. Dunn paints a wholly inaccurate picture of the consumer bankruptcy world. It is disingenuous at best to use the phrase “consumer bankruptcies” in the title of his article, while disclaiming chapter 13 cases are consumer cases. When he does support his assertions with anecdotal evidence, his examples are the rare exceptions rather than the typical results.
Diligent and thoughtful consumer bankruptcy lawyers always discourage bankruptcy filings unless absolutely necessary. And even Mr. Dunn begrudgingly admits that “I am not saying that bankruptcy never makes sense for a consumer.” But the analysis presented here overlooks and downplays the necessary role that the consumer bankruptcy laws play in preserving hope for millions of hardworking but unfortunate (and, admittedly, sometimes careless) people who deserve better than the purgatory of unmanageable debt.
Jonathan Ginsberg, Esq.
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