Lessening bankruptcy's social stigma in order to help clients ease the sting of crushing debt

Matthew A. Sembach, Scaringi Law's newest attorney, once had very different ideas about his future career. Matt wanted to become a carpenter, not a barrister.

Even now, Matt views his legal practice as a way of "fixing" problems for people. Nowhere is this "Mr. Fix It" metaphor more apt than in Sembach's focus on bankruptcy law for his clients. His work helps those with vexing financial problems get out from under crushing debt so they can begin rebuilding their financial futures.

Yet Sembach finds that the biggest hurdle in helping his bankruptcy clients can be getting them past the initial, social stigma often surrounding such financial issues.

"The biggest thing people need to know is filing for bankruptcy is not the end of the world," Sembach stresses.

Indeed, Sembach often recounts to clients the long litany of famous figures that have preceded them into bankruptcy: Abraham Lincoln, Ulysses S. Grant, Thomas Jefferson, Henry Ford, Walt Disney and Milton Hershey - just to name a few.

"Bankruptcy is not a bad word," Sembach says. "But I have had people on the verge of tears when I mention the term."

Bankruptcy as useful legal tool

Bankruptcy is a tool. Indeed, bankruptcy is found in both the Constitution and in the Bible. These are just a few of the facts Sembach likes to point out to his clients, some of whom feel like financial failures in the face of bankruptcy.

Bankruptcy is provided for the United States Constitution (Article 1, Section 8, Clause 4) and it appears in this Deuteronomy passage that Matt often cites: "At the end of every seven years you shall grant a release of debts. And this is the form of the release: Every creditor who has lent anything to his neighbor shall release it; he shall not require it of his neighbor or his brother, because it is called the Lord's release."

Yes, a bankruptcy will stay on a person's credit report for 10 years, but many creditors view a recent bankruptcy as a positive because the debt to income ratio has been reduced, Sembach adds.

As for the top reasons why most people file for bankruptcy, Sembach says all of them are good and legitimate ones: job or income loss; unexpected Medical bills; and/or divorce.

The benefits of bankruptcy

For those in real financial trouble, bankruptcy is a bold-face benefit - not an economic Scarlet Letter. It helps people with out-of-control credit card debt, medical bills and other unsecured debt for which no collateral is held. Bankruptcy can even assist people who are behind on their mortgage payments.

One of bankruptcy's biggest benefits is the automatic stay it affords filers. Basically, it freezes all claims and actions. Once a bankruptcy petition is lodged with the court, this automatic stay halts all other pending litigation.

Also, creditors have no choice in the matter. Once a creditor is listed in a bankruptcy petition, that creditor does not have the option of refusing to participate in the bankruptcy. As long as the debt exists, the debt will be included in the bankruptcy proceeding.

Finally, at the end of a bankruptcy case there is often a beautiful thing known to bankruptcy filers as "discharged debt."

When a debt is discharged, any amount still owed to the discharged creditor "goes away" (at least as far as the debtor is concerned). That means if the debt is unsecured, there's no further obligation on the part of the debtor. If the debt is a secured debt, and if the debtor wishes to keep the collateral (the car or house, for example), the debtor must continue to make loan payments.

What bankruptcy doesn't do

Bankruptcy won't normally help people who owe child support or alimony - or student loans.

"I very often tell people that I would have filed for bankruptcy a long time ago if I could discharge my student loans but I can't," Matt jokes.

In addition, most fines owed to government agencies and most taxes owed to the government cannot be discharged through bankruptcy.

Though he sees the many benefits of bankruptcy, Sembach cautions some clients against making a hasty filing before thinking their financial situation through.

"Anything less than $10,000, and I usually discourage people from filing because it's not worth it," Matt says. "Often the filing fees and damage to the credit score make bankruptcy not the best option in that kind of case."

In future articles, Sembach will continue to debunk the myths and explore the pros and cons of bankruptcy. And he will continue his mission of removing the stigmas so many attach to this legal maneuver to help people see bankruptcy as the useful financial tool it can be.