Are people who file for bankruptcy "using the system"?

As a bankruptcy attorney, I was asked by a criminal law attorney whether I thought people were acquiring debt with the intention of discharging it in bankruptcy. I assured this attorney that this was NOT the case. The overwhelming majority of clients we have had and have are devastated by having to file for bankruptcy. There may be a few that “work the system”, but that is the exception.

Furthermore, I can also vouch through my experience that the majority of people who are on unemployment compensation would much rather be working. They are making a minimal amount of money on unemployment which doesn’t even begin to cover the income they received when they were working. Without even the income to pay their living and food expenses, unpaid debt starts accruing and creditors add fees and raise interest rates and the amount owed increases rapidly, making it even more impossible to pay back. It’s a no win situation.

My advice if you are falling behind on paying your debt is that you do not use equity from your homestead or use funds from your retirement accounts as both of these assets are usually exempt in bankruptcy. In essence, if you cannot pay your bills, do not devastate yourself even more financially by using up assets which you may keep if you must file for bankruptcy. I have seen too many clients who have done so and they are destitute. Many of these people should be retired, but they don't have the means to retire.