December 23, 2017

The 32-year-old mother entered the high rise in downtown Memphis as a memory tugged at the far corners of her mind. Suddenly, it came to her. She had been in this very building with her own mother for the same purpose — to file bankruptcy.

She anguished over the decision but a court order had recently enforced a judgement against her that allowed a company to seize a portion of her check. With her struggle to make ends meet, the judgment would put an unbearable strain on her already overburdened finances — the proverbial straw that broke the camel’s back.

Despite the stigma, she decided that bankruptcy would stop the vicious cycle of juggling bills each month so that she could now start fresh. She even dreamed of becoming a homeowner one day.

While the U.S. Bankruptcy Court for the Western District of Tennessee in Memphis funnels millions of dollars to the court, the lawyers and the creditors, the debtors for whom the entire system exists don’t fare so well. The clients are stuck in a vicious cycle.

Most people choose to file Chapter 7, which allows the person to start over from square one without seizing any debts. In contrast, Chapter 13 requires monthly payments while stopping car repossessions and home foreclosures. This method is most common in the South and was what this mother chose. She didn’t understand the difference between the two. However, filers who opt for Chapter 13 must continue making payments for five full years. Most cannot even last 12 months under the program. These individuals went through each and every step of the bankruptcy — paying filing and legal fees and dealing with a seven-year blemish on their credit record — but do not ultimately benefit from the program. Once they have defaulted, they revert back to all unpaid debts with interest rates higher than ever.

When comparing Caucasian filings with African-American filings, the latter usually file under Chapter 13 but cannot complete the program. Some return for repeat filings, with a few filing Chapter 13 up to 20 times during their lifetimes. They view bankruptcy as a last resort.

If you are considering bankruptcy, talk to our knowledge attorneys about which options — Chapter 7 or Chapter 13 — is best for you.