Some of you readers who are paying close attention to the posts herein—I hope someone is paying close attention!—are no doubt counting up the number of posts and realizing that this is not the seventh. To be sure, I don’t even know what number this post is, and I’m the author! However, those readers who are lawyers or have any connection at all to the legal profession know exactly why I’m calling this post “Chapter Seven.” It is not Chapter Seven of this blog, but Chapter Seven of the Federal Bankruptcy Code that I’m writing about here, or rather, my experience with Chapter Seven.
Readers will recall, in the post “From Bailey Park to Pottersville” I discussed how working people were transformed into homeowners during the post–World War II period and how it bought two generations of relative class peace in the United States. Films like It’s a Wonderful Life and Miracle on 34th Street, that extolled the virtues of families leaving the cities for suburban houses with their white picket fences and backyard swing sets, were not a lie. It really was better for working-class families in their safe suburban houses than it had been in their apartments in the urban slums or tarpaper shacks in the mining communities. Actually, it’s somewhat ironic: one of the first people who promoted the idea of building clean, well-built, and secure housing for the industrial work force was Adolf Hitler. It wasn’t the only one of Hitler’s ideas that the U.S.’s business and government leaders borrowed for use in the postwar period—the Interstate Highway system, an integral part of the suburbanization of America, was an imitation of the German Autobahns (in German the word Bahn means “railroad track,” among other meanings), designed to move freight and especially weapons and soldiers quickly from one part of Germany to another.
Ever since World War II, Hitler and his National Socialist movement have been the personification of evil in all our social and political discourse—and rightly so. What we so often forget, however, is that Hitler did not come to absolute power simply with the use of violence. Like gangsters everywhere, he understood that “blood is a big expense” and that bribery is cheaper and often more effective. The political and economic elites in the United States saw clearly how Hitler won and consolidated his power, by buying off large sections of the population, pitting them against other sections of the population, and demonizing any dissent as “unpatriotic.” It worked for a long time, certainly long enough to restabilize American society in the postwar period and long enough for American corporations to make billions of dollars in profits.
While American workers were feeling good about the “American Way,” as they grilled their hamburgers on their backyard patios and drove to church on Sunday morning in their new Chevrolets, Fords, or Plymouths, they didn’t notice a hidden cost of their new standard of living. You see, they didn’t really own those houses yet, nor did they own their cars. They took out mortgages to buy the homes, and the car dealerships were happy to arrange financing so that people could buy vehicles. In the 1950s such debt was not onerous. Home mortgage interest rates were low, as were auto loan rates. Houses were relatively inexpensive relative to wages, and automobiles were even less expensive. Jobs were plentiful, and the unions were strong and able to negotiate wage increases without striking. A man with a ninth-grade education who was willing to work hard could support a wife and nine children comfortably on his income alone: my father-in-law did exactly that.
Working people became comfortable with debt. Rather than the debt growing out of desperation—when a miner would buy food and clothing for his family at the “company store” with advances against his wages or a worker in New York or Chicago would go to the Mafia “loan shark” to pay for a medical procedure or legal expense—it was easy debt, just part of the budget, to be paid like the rent or the utility bill. The government even encouraged borrowing by making all interest payments deductible from income taxes—and in the post–World War II years working people were actually paying income taxes for the first time. That, too, was easy: it was simply withheld from their wages, and never noticed. In the first quarter of each year, after the accountant figured out all the deductions and exemptions, there was a tidy little refund check.
Debt was a great way to keep consumption—and consequently production—going. When the economy went into recession in 1958, we began to see metal charge plates at the department stores and plastic credit cards at the gas stations. Was the budget too tight for lavish Christmas gifts? No problem: charge them on the card. If there was not enough money for that television set, bowling ball, or patio furniture, there was the credit card. Consumption continued; production continued; the economy did not go into freefall. Consumption on credit became a habit. It became the “American Way.” The American worker, who had become a homeowner, was now becoming a debt slave, the new version of the sharecropper or indentured servant.
One could charge $100 on the credit card in a month and then be presented with a bill at the end of the month for $15 or $10, or possibly less, as a minimum payment. All too often, one didn’t notice that the interest rate on revolving balances was worthy of a Tony Soprano. Very soon, the balance on the card had become unmanageable. But help was on the way in the next day’s mail: a solicitation for a new card—oh, and you can pay off your old cards with this one and have one easy monthly payment. Loan shark number two would be happy to lend you the money so that you can pay off loan shark number one before he sends someone to break your kneecaps.
Millions of us fell into this trap. I was no exception.
I fell into another trap, trying to climb out of the first trap: this was the home equity trap. During the 1980s and 1990s home prices rose dramatically, but mortgage interest rates actually fell after their peak around 1980. Banks solicited me: “you can reduce your interest rate, get cash to pay off other bills (borrowed against the increased value of the house), and actually pay less each month.” I added up all the numbers, and it was true. How could I not go for it?
After refinancing the house three times, I had borrowed over $200,000 against a house whose original purchase price was $42,900. The debt payments on the house and the credit cards were onerous indeed, but while I was working I was one step ahead of them. There were occasional out-of-budget windfalls that enabled me to retire one or another of them, and had I managed to keep my job I would ultimately have won the debt battle, albeit in a Pyrrhic victory that left me unable to retire comfortably. Of course, I did not expect that within months of my last refinancing that housing prices would begin to drop for the first time since 1947. I did not expect the worst economic crash since the 1930s to hit a year after that. And I certainly did not expect to be unemployed five years short of retirement age.
Nevertheless, there it was: the economic equivalent of the perfect storm.
The federal Bankruptcy Code was enacted in order to provide relief for debts that could not be paid back, whether by institutions or individuals. We’re somewhat more familiar with the Code’s Chapter Eleven, which provides protection for corporations from their creditors while they reorganize or are acquired by other investors. Donald Trump, who claimed to be the brilliant job-creating businessman during his few days of running for President in 2011, has used Chapter Eleven at least five times. When I was working at a financial magazine in the 1970s I came to work on April 1 and announced that General Motors had filed Chapter Eleven. I never would have dreamed that it could actually happen, as it did in 2009.
For individuals there are two provisions in the Code: Chapter Thirteen, which enables an individual to reschedule his or her debts under the direction of the court-appointed Trustee, sometimes reducing debts to pennies on the dollar, and Chapter Seven, which wipes the slate clean.
I wasn’t sure if bankruptcy was appropriate in my situation, but there was no way to be sure without consulting an attorney. The first attorney with whom I met held out hope that it might be a way forward, but he confused me. He was suggesting filing Chapter 13 first—or was it Chapter 7 first?—and then later on filing the other one, and maybe this would work, and maybe that would work…meanwhile, he never got any hard information from me, nor did he explain to me how much all this would cost. My friend Ellie, whom I mentioned in the post “Putting One Foot in Front of the Other,” suggested a different bankruptcy attorney, who had the advantage of being in my local area. The first thing he did was to ask for a list of our expenses and our income, and then he told me what his fee would be. When I got our expenses and income onto paper and showed them to him, he said, “Yes, you need to file a Chapter 7 bankruptcy. I can do that for you.” Some of the money that my father had given to us went for that purpose.
Revisions to the Bankruptcy Code enacted by the Republican-controlled Congress and signed into law by the Republican President in 2005 made it more difficult for an individual in my situation to file under Chapter 7. While I was working I had been earning too much money to qualify, based on my income for six months. We needed to wait until I had been unemployed for two months before my six-month income was within range to allow me to seek protection under Chapter 7. Additionally, there was a lot of information to be gathered, and the attorney’s paralegal had to draft the petition. So after an initial consultation in early December, we were ready to file at the end of February.
About a month later, we had to go to the Bankruptcy Court in Newark to meet with the Trustee. As it turned out, eleven other of our attorney’s clients were scheduled for the same time, so we all trooped into the meeting room together and waited our turns. It impressed me that every one of them had a different and unique path, but that all the paths led to the same place. It inspired me to write a song, not about bankruptcy but about home foreclosure, which the Industrial Union Council Solidarity Singers introduced on May 1 at the American Labor Museum. The Trustee asked a few routine questions, based on the paperwork submitted by the attorney. If the attorney’s office had drafted the petition properly, we could be sure that all the bases were covered. At that meeting, the creditors had the right to send representatives to challenge the petition. In our case, none did; but we did see a challenge to another petition.
On June 4, we received a notice in the mail that our petition for discharge of debts had been granted. Almost a quarter of a million dollars that we had owed (including our home mortgage) was off our backs. It was now our responsibility to stay out of the debt trap and live completely within our means. How do I feel about walking away from those debts? Frankly, all the things that the money bought for me, I paid for many times over. I feel no remorse whatsoever about depriving the creditors of their usurious interest money. And I never lived like a king: I drive a car with nearly 200,000 miles on it. I can count on the fingers of one hand the number of times I have gone away on vacation over the past thirty years. My house is smaller than a lot of apartments, and I take my family out to dinner fewer than ten times in a year. For nearly forty years, until 19 November, 2010, I worked damned hard. How do I feel about walking away from those debts? I only wish I had done it sooner.
The one question that remains is our house.
The bankruptcy took care of one instrument that we signed at our house closing called the Note, in which we promised to pay back the principal and interest. Chapter 7 prevented us from ever again being liable for that debt, and the bank cannot sue us to recover it. However, that debt had been secured against our house and the lot that it sits on. The bank did—and still does—have the right to take possession of that property and evict us. The reality in the state of New Jersey is that it takes approximately a year and a half to two years and a half (on average) for a bank to do that. Foreclosure defense is the next step in the battle. It will be the subject of a future post, a post which will not be titled “Chapter Eight.”