From our nation's banks to bad mortgages, everywhere you turn there seems to be another bailout. And in today's tough times, many individuals and families are looking for a bailout of their own.
Many find that in the form of a bankruptcy.
It’s no secret that personal and consumer bankruptcies are on the rise, but is bankruptcy the answer?
Experts say tax season is often a busier time for bankruptcy filings because people are getting their tax refunds and they are able to pay for a bankruptcy.
When a person or business files for bankruptcy it usually means most of their debt is wiped out. That means the people they owe, or creditors, will see little, if any, money.
Experts warn that bankruptcy should always be a last resort, but for people like Dan Roth, it may be the only way to get out of debt.
“It was a very stressful situation, hard to sleep at night, sometimes, thinking how you're going to repay your debts,” says Dan Roth.
It has been nearly two years since Roth filed for bankruptcy, a time this Plymouth native would rather forget.
“I never thought of having to do a bankruptcy in my lifetime. You always see it happen to the other people and you never think it can happen to you, but it did,” explains Roth.
Roth said it all started several years ago when he started buying rental properties in South Bend. His goal was to generate extra income and retire early.
“Everything was going very well for me,” explains Roth.
But when his property taxes went up suddenly, Roth says he was unexpectedly in over his head.
“After the taxes hit, I started losing about $1500 per month out of my own pocket and that’s when I knew there was a problem,” says Roth. “My biggest mistake was getting too many houses too fast, that kinda snowballed from there.”
Roth's bankruptcy attorney, Ted Benchik, believes Roth is also a victim of appraisal fraud and bought the homes for far more than they were worth.
Roth says he did not want to ask for a loan from family and friends, so filing for bankruptcy was really his only option. A tough decision for a man who has always paid his bills.
“I've always been a responsible person, never had been late on a payment in my life. Always had dreams of retiring early, thought this was a great opportunity to do that and it basically backfired,” explains Roth.
With bankruptcies on the rise, it is getting increasingly hard for creditors to collect the money they are owed.
“If somebody calls our office and wants to work with us, we'll try desperately to do that,” says Brooks Grainger. Grainger is a South Bend attorney who represents creditors.
“My client list would be anything from large banks you've heard of, small credit unions in the area, to a lot of little mom and pops,” says Grainger.
He says medical and credit card bills make up a majority of what they try and collect on.
It is in the best interest of creditors to help debtors get on a payment plan, because if they file for bankruptcy, they are often no longer responsible for the debt.
“We can ‘catch more flies with honey than with vinegar,’ and we try to work out a payment arrangement with them, so that they start paying sooner rather than later,” says Grainger.
Grainger also says “buyer beware” to folks in debt.
Too often, Grainger says he sees debt consolidation companies that claim to help people, but end up hurting them more in the long run.
“There are a lot of those programs that are outright scams,” explains Grainger. “There's a lot of them that do a lot of good for a lot of people, don't get me wrong, but I think what I’d do your homework.”
Meantime, Dan Roth says his experience in filing for bankruptcy has turned him off to the rental property business. Right now, he's concentrating on working his day job and building his savings.
“It's a lesson learned, I've always tried to take the mistakes I've made and learn from them. And now that I'm going to get a fresh start, I'm not going to make those mistakes again,” says Roth.
Grainger says bottom line, there are places that can help folks work their way out of debt; just be proactive and take action before time runs out.
The U.S. Bankruptcy Court has a list of approved credit counseling agencies. Green Path is a local agency that is approved. You’ll find a link to Green Path and other agencies at the bottom of this story.
In Roth's bankruptcy, he was able to re-affirm some of his debt, so he was able to keep his home and continue payments on it.
If the courts allow, debtors can re-affirm certain debts, in order to work out a plan to keep their car or home. This is all done on a case-by-case basis.
With personal bankruptcies up, experts anticipate we'll see more businesses filing for bankruptcy in the coming months.
Bottom line now is a good time to try and get back to basics and save more if you are not already doing that.
Click here for a list of bankruptcy resources.