According to Greek mythology, Sisyphus was a very clever man who preferred to engage his brilliant mind on shady and even criminal dealings. His lack of scruples meant he crossed Zeus, king of all the Greek gods on Mount Olympus, many times including two occasions where he cheated death. When Sisyphus finally died of old age, Zeus punished him by making him push a giant boulder up a steep hill for eternity. Every time when he’s near the top, the boulder would roll back down to the bottom, forcing him to start the journey all over again.
In the realm of personal finance, the struggle to stay solvent can feel just as excruciating, an ordeal reminiscent of Sisyphus’ eternal struggle. However, mercifully for us earthlings, getting out of this jam is possible.
Bankruptcy. This legal proceeding often attracts many negative labels—shame, failure, recklessness, and irresponsibility, to name a few. But it is also a beacon of hope. The bankruptcy law we have in the U.S. today began to take its shape in the mid-19th century. Two particular bankruptcy chapters are especially relevant to the folks drowning in personal debt: Chapter 7 and Chapter 13.
Chapter 7 involves a court-appointed trustee selling off a petitioner’s non-exempt assets to pay off creditors. Broadly speaking, our house and car are considered non-exempt assets, but there is some wiggle room. At the conclusion of a Chapter 7 proceeding, which usually takes 4 to 6 months, all remaining qualifying debts are wiped out (or “discharged” in bankruptcy terms) allowing the petitioner to rebuild their financial life, hopefully sturdier the second time around.
Chapter 13 allows a petitioner to enter into a repayment plan, typically lasting 3 to 5 years, to pay off their qualifying debts. A bankruptcy trustee examines each petitioner’s circumstance to decide how much of the total qualifying debts they need to repay to creditors. The upside of Chapter 13 is that the petitioner gets to keep their assets.
Why the emphasis on “qualifying debts”? In bankruptcy proceedings, not all debts are treated equally. Credit card debts, personal loans, and medical bills are common examples of qualifying debts. They can be included in bankruptcy filings and thus can be partially or wholly extinguished in the end. Federal student loans, alimony, child support, and certain types of taxes are considered non-qualifying debts; they remain unaffected by bankruptcy. For mortgages, petitioners get extra time to catch up on arrears if they file for Chapter 13. Mortgages may become irrelevant under Chapter 7 because trustees could sell off the underlying properties to repay creditors.
Confused? No kidding! Bankruptcy is a complicated process and not easy to navigate on our own. This means we are better off hiring a bankruptcy attorney to represent us, and their service is not cheap, adding yet another expense to our growing financial woes. Let’s also not forget that bankruptcy will ruin our credit for years to come, and the associated stigmas can take a mental toll on us. Given choices, bankruptcy is never a path we would take happily and willingly. It’s really a last resort.
If you find yourself facing financial difficulties, seek advice from a non-profit credit counseling service or a bankruptcy attorney to understand your options. Remember, while the journey may be tough, it is possible to recover and rebuild towards a brighter future!
And once the storm is over, you won’t remember how you made it through, how you managed to survive. You won’t even be sure, whether the storm is really over. But one thing is certain. When you come out of the storm, you won’t be the same person who walked in. That’s what this storm’s all about.
Haruki Murakami
