The Explainer: The financial consequences of a crash

Dear Explainer,
I love bike racing and I got pretty good at it really quickly. The bad thing is that my decision to put everything aside to pursue this sport has probably cost me, big time too.

Let me explain. In my junior year in college a friend of mine convinced me to give a local bike race a shot. I was in running shorts and tennis shoes and still finished second. I was bitten. A few months later, I was on the university team, doing really well and had more money into bikes and kit than I ever imagined I could spend on having fun.

When I graduated, I put my job hunt aside and got into racing as much and as often as I could. I probably put in 10,000 miles in 2010 and was on my way to topping that in ’11. Unfortunately, I had a crash in July and broke my hip, my pelvis and my collarbone. My front wheel hit a big, ugly pot hole on the way down a long descent and the carbon rim cracked, three spokes broke and I hit the ground hard enough to crack my hip and seriously break my pelvis and my collarbone. I was three months past my 26th birthday, so I was no longer on my parents’ insurance.

No insurance, no job and months’ worth of recovery time, I almost lost my house and only got by with help from family, friends and (I hate to admit it) credit cards. At this point, I am probably looking at debt approaching $50,000 or $60,000, most of it owed to doctors, the hospital and those credit card companies. I also have about $32,000 in student loans. I am finally back in the job hunt and my grades and résumé are probably good enough to land me a job, but I don’t see any way out of the financial mess I am in even with a good paying job. I’ve considered some of those debt consolidation companies who promise to negotiate your debt away for pennies on the dollar.

My basic questions are whether I can or should even think about talking to the debt company or should I consider bankruptcy. I have also wondered about suing the manufacturer of the wheel.
— Annie

Dear Annie,
Wow and I thought my 2011 sucked.

Let’s start with your last question first. Suing a manufacturer for a defective product is probably going to be difficult, especially since you say you hit a “big, ugly pot hole” before it failed. Still it’s possible and you really need to speak with an attorney about something like that. Based on the limited information you provided, I sure as heck don’t feel comfortable telling you yes or no.

Let’s hope, though, that you still have the wheel and that an expert could reasonably conclude that your use was reasonable and that the failure was the result of a manufacturing defect or a failure of the product to live up to its promised level of performance.

There are three ways to approach product liability questions and your lawyer will walk you through each of them as the two of you decide if you have a case or not. As I mentioned, there is the question of a manufacturing defect, which generally means that the particular wheel you had was not built to the standards set by the manufacturer. If, for example, your particular wheel was made with measurably less carbon fiber material than the specs called for, that would be a “manufacturing defect.”

If the wheel manufacturer decided that it wanted to produce the world’s lightest bike wheel, but all of them had a habit of folding like an origami crane, that would be a “design defect.”

The good thing about product liability cases is that you don’t even have to show that the manufacturer was negligent (or as reckless as he would have to be in my design defect example), but just that the product was defective. Period. It’s a strict liability claim.

Now you hit a pot hole, so the defendant – if there is one – may claim that the damage resulted from extreme use that exceeds the warranty – either express or implied – of the product. You, in turn, might be able to say that even if it is not expressly mentioned in the warranty, the manufacturer implies that the rim is suitable for use on the open road – pot holes and all. You might also take a look at a recent Explainer on the topic of road hazards like pot holes and the like.

You might also want to check the “Recalls and Safety News” page of the U.S. Consumer Product Safety Commission to see if that particular product was subject to recall. Ideally, from a plaintiff’s perspective, the recall would have been issued after your accident, but you need to check. It’s actually pretty interesting to see how many bike-related products are subject to recall.

Again, these are just quick answers to very complicated questions and you really need to see an attorney about this one. Your damages sound like they would be significant, so if there is a case, there’s a good chance an attorney would pursue it on a contingency basis.

No matter what, you have some serious debt issues we need to look at.

First off, let’s just scratch the “debt consolidation companies” option off of the list. While there may be some perfectly great businesses out there whose sole intent is to help consumers out of their problems, I just haven’t run across any. What I have run across is companies that promise to help you through a debt crisis with rather vague allusions to “negotiations” that will eliminate the problem.

You may notice a number of those companies start with having you stop paying all of your bills and then make monthly payments to them while they 1) extract a fee for services and 2) try to contact your creditors in an effort to convince them to accept pennies on the dollar. Whether they succeed or not, they will still charge you. What’s more, even if they don’t end up using the money you’ve sent in to pay your bills, you might find it difficult – if not impossible – to get it back without a big fight. Hell, you can negotiate for yourself, although it takes patience and persistence and you don’t have to pay a fee.

Should you consider bankruptcy? You know that’s a tough decision, but it is one you might want to consider seriously. For most consumers, there are two bankruptcy options: Chapter 7, which involves a complete liquidation of your assets (more on that later) and a complete discharge of your consumer and medical debt. Unfortunately, student loan debt is generally not dischargable, so that $32,000 you mentioned will probably be around until you pay it off. There is one way out of student loan debt in a bankruptcy, but proving that repayment will pose an “undue hardship” on you is a tough hurdle. You need to speak with a bankruptcy attorney about that one, since it involves a lot more than the usual Chapter 7 or 13 would.

Still, you have $50,000 or $60,000 in dischargable debt and it may be worth considering bankruptcy as an option. From the sounds of it, you are probably pretty light on the asset side these days, so let’s talk about Chapter 7 first. As I said, on the downside, a Chapter 7 involves the liquidation of assets. On the plus side it is followed by the discharge of debt (with that damn student loan exception I mentioned).

You mention your house and, based on your age and such, I am going to assume that you are a recent home-buyer. Odds are pretty good that even though you are a homeowner your accumulated equity is probably less than the exemption that the bankruptcy court will allow. I know I sound vague here, but it’s because bankruptcy laws are a weird hybrid of federal and state statutes and the amount of the so-called “homestead” exemption varies from state to state. And by “varies” I don’t mean just a little bit, I mean by huge amounts.

Take my state of Wyoming, for example. If you were to seek bankruptcy protection under Chapter 7, you are allowed a $10,000 homestead exemption. In other words, you could have up to $10,000 of equity in your home. Double that if you’re filing jointly with a spouse.

Now, let’s say you live in the great state of Texas. There the homestead exemption is “unlimited” as long as the property in question doesn’t exceed 10 acres within city limits or 100 acres in rural areas (200 acres if you’re a family). Ten acres within city limits?!?!?!? I honestly think that the mansion in the old TV show “Dallas” would be exempt, while a guy who owns a beat-to-crap trailer home on a 100-foot-by-50-foot lot in Wyoming would not be. I have quite a few gripes about the Bankruptcy Code, but the variable homestead exemption is at the top of my list.

Anyway, you can find the state-by-state exemptions on-line and your attorney can certainly help you decide if Chapter 7 is right for you, given your state’s exemptions and exclusions.

Let’s assume for a moment, though, that you live down the street from me here in Wyoming and you have $50,000 in equity in your home. In addition you have a car that you love, but it’s worth far more than the $1800 exemption provided for under state law. You have other assets that exceed the list of exemptions and you want to protect all of them.

You don’t want to see your home sold and you don’t want to lose the car. What you can do there is talk to your attorney about a Chapter 13. That would stop any and all collection actions and help you establish a repayment plan with your creditors. Again, it’s more complicated than that and there are some things to consider regarding your student loans, so you need to speak with an attorney.

Bottom line, you do have options.
— Charles

The Explainer is a weekly feature on Red Kite Prayer. If you have a question related to the sport of cycling, doping or the legal issues faced by cyclists of all stripes, feel free to send it directly to The Explainer at [email protected]. PLEASE NOTE: Understand that reading the information contained here does not mean you have established an attorney-client relationship with attorney Charles Pelkey. Readers of this column should not act upon any information contained therein without first seeking the advice of qualified legal counsel licensed to practice in your jurisdiction.

Follow me on Twitter: @Charles_Pelkey

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    1. Author
      Charles Pelkey

      I have to agree, Reverend, but there are circumstances in which the failure may be due to a defect. Given that she hit the pot hole, we have to assume that she’d have a high bar to hurdle in order to make her case, but based on the limited information provided, I am disinclined to tell her that she doesn’t have one.

  1. Paul

    Another sad story about our crappy health-care system. Imagine the same person and same story in Canada and the outcome would be completely different.

    The bankruptcy decision really hinges on your job prospects. If I were in your situation I wouldn’t go that route until I had some idea of my near-term earning potential.

    1. Author
      Charles Pelkey

      I agree about the crappy health-care system.

      However, I disagree about the advice to hold off until after she gets a job. The whole bankruptcy case revolves around income and assets at the time of filing, so if she pursues a Chapter 7, she’s much better off doing so before her first checks from any new job start coming in. Post-filing income generally doesn’t affect the assessment of assets.

  2. bigwagon

    If the failure happened in a timed competitive event I think she will have a hard time pressing a lawsuit. Racing usually voids all warranty and it would be difficult to argue in court that you weren’t taking unreasonable risks or knowingly pushing the limits of the equipment.

  3. Dave J

    Wow, it pains me to read about this. I’m from Canada, and a very similar situation happened to me. Three months after my university graduation, I broke a femur in a traffic accident while training on my road bike. Not only did the govenment cover my sugery and all required medical care, but the insurance included with my Canadian UCI racing license covered the expenses that the govenment does not cover, such as the ambulance ride (this insurance covers any racing or traning related injuries in any country). I think your American health care system is down right scary, and I just cannot understand those that continue to fight public healthcare. Furthermore, don’t your American racing licenses provide any health insurance backing??? If not than that’s also scary (and backwards).

  4. Brad Hawkins

    Don’t forget that potential employers may and often will check for and take into account a personal bankruptcy. That can disqualify you from jobs. Sucks to be poor. I feel for you, I really do.

    36 spoke box rims on 28’s have saved my bacon many a time. Why do people buy carbon wheels again?

  5. Conrad

    I feel for you but I don’t think suing the wheel manufacturer is the right thing to do. We all know carbon wheels are fragile. That is a risk you chose to take.
    I agree the health care system in our country is a complete mess. But I still pay an assload for crappy health insurance in case these things happen. Maybe thats why I can’t afford carbon wheels.

  6. Dan O

    Going after the rim company seems a little off – especially after describing how it happened – and during a race.

    This sad story is another example of how whacked out our “health care” system is. Even if you have insurance – still crazy expensive, loop holes galore, deductibles, paperwork, etc. It’s nuts.

    Going bankrupt from an injury or serious sickness is just plain wrong. Health care should not be profit driven. These kind of stories scare the crap out of me – and I have insurance.

  7. Randall

    I’d like to second what Conrad said. I have great insurance, but I still pay thousands of dollars each year for it.

    In my mind, health insurance for a competitive cyclist is a “cost of doing business.” Starting a race without it, especially MTB or a crit, is crazier than starting the race without skewers.

  8. Annie

    I want to thank Charles for answering my questions and want to clear up a few things.
    My crash happened during a long training ride, so it wasn’t during a competition. If it had, I would have gotten some help from USACycling’s accident insurance. I was on my own. As of last week, the bills have hit 73k.
    I am looking into the bankruptcy option. Suing the wheel manufacturer is probably not going to happen. I kind of just threw that last question out there, because I was curious.


  9. Lou

    Have you tried negotiating with the health care providers ? As you are aware, heath insurance is a morass with different insurers paying vastly different amounts to providers for the same services. Many hospitals have charity care programs and many individual practitioners will accept reduced fees or write them off entirely. Especially if you’re dealing with a small practice or an individual doc, a direct conversation truthfully explaining your circumstances may help. In any case, much more ethical atmo than suing a manufacturer for hitting a pothole. All this does is make wheels more expensive for the rest of us and put 35% in your attorney’s pocket in the unlikely event you win.

  10. Ray G

    I have to echo Canadian Dave J’s comments. I’m from Canada too, and it really boggles my mind as to why there is such a resistance to anything “socialized” in the US. Having something like a national Health Care Program in place would benefit ALL Americans in time of need. Of course it would require every American to contribute financially to it, big deal. Retaining the legal right to sue over a defective product is a given, but when it’s through no fault of the individual just consider the potential alternatives; financial bankruptcy before you even get started in life. Forgive me but that’s just plain stupid.

  11. Eric W.

    While I feel for Annie and the situation she is in. I have to disagree with the group. Annie could afford to buy a set of carbon wheels and the bike to go along with it, at the minimum a $5000 investment, perhaps more. She also can afford a home So for a 26 year old Annie is doing well to be able to afford all of the above. She has to have insurance for her home, why she made the choice to not purchase health insurance for herself does not make sense to me. Especially since she participates in a high risk activity such as cycling. Yes, health insurance can be expensive, I know I had to buy it for my family for over a year. How did we pay for it, we watched every penny we spent. As a taxpayer I have a problem paying for someone elses choice not purchase insurance when it appears as though they can afford it. Definitely check with the health care provider to see about a payment program. We had to pay out of pocket for a procedure our son had done. The hosptial was more than happy to work with us concerning a payment program. Also, our hospital took 25% off the bill when they found out we were paying cash. As Ray mentions, do not start off your adult life with a bankruptcy. Your credit will be shot for at least seven years and getting a job will be much more difficult. So get a second and third job, cut back on the racing for a few years and dig yourself out of the hole your in. You can do it, and you will be better off in the end paying off your debt rather than taking the easy way out by filing for bankruptcy. I sincerly wish you the best of luck in getting back on track.

    1. Author
      Charles Pelkey

      As an attorney, I don’t usually spend a lot of time lecturing people on what they should have done to avoid the mess they’re in now. That said, I have to agree that Annie’s priorities were a little off. She is an example of why the mandate was included in the health care measure passed by Congress. It will be interesting to see if it can pass the Constitutional test applied by the Supremes.

      Anyway, Eric, your suggestion of negotiation and payment plan is a good one. My primary concern is the the overwhelming amount of debt (now 72k plus 32k in non-dischargable student loans) without an income stream. From a financial and legal perspective, she’s much better off declaring bankruptcy now than she would be when she has a job that may or may not happen any time soon.

      Admittedly some employers do consider bankruptcy in making hiring decisions. Some check credit scores. She may get a job and still find herself in dire straights. While retaliation based on garnishment is illegal, it may be difficult to prove. I would prefer going into a new position with the “fresh start” offered by bankruptcy, whether that be the discharge offered by Chapter 7 or a structured payment plan offered by a 13.

      From her question, it appears she’s single, so second and third jobs are a much better option in Annie’s case than it would be for someone with a family and the host of unpaid responsibilities that come with that.

      Either way, I’ll try to keep track of her story and keep you apprised.

  12. Darwin

    People are assuming she can buy health insurance. Often you can’t, even at outrageous rates nobody will provide it if you have per-existing conditions or any type of risk. Health insurance is a racket and they want to take in more than they pay out. Those companies are just sucking value out of the medical system.
    Also, don’t buy carbon wheels.

  13. Dave J

    “As a taxpayer I have a problem paying for someone elses choice not purchase insurance……”

    Eric, under proper healthcare reform (Canada), nobody’s taxes pay for the “choice” to not buy healthcare insurance. As Canadian residents we all have it, everyone’s taxes pay for it, and nobody goes broke because they got hurt or sick. We can also rely on the fact that no insurance company can ‘opt out’, or find some loop-hole that prevents funding for our care.

    Furthermore, by the time my American colleagues pay their taxes and their health insurance premiums, they’ve doled out more money than my taxes.

  14. Bikelink

    I recently researched and recommended options for “catastrophic” health care insurance to the younger members of my club who are uninsured. It’s unwise to be uninsured these days, but as some have pointed out particularly problematic if you race or even ride in groups. If you are reading this and aren’t insured, you probably need to be. There is a gov’t website that walks you through finding options, including high deductible, (relatively) low premium coverage that keeps you out of the kind of trouble the poster found themselves in. Here’s the link: (P.s. as a physician in our country I can tell you that most of us strongly support universal coverage, and are very frustrated by the “system” that patients find themselves in).

  15. Eddie

    Situations like Annie’s are the very reason the required mandate was written into the health care reform law. I find it very funny that the people who raise hell about paying for health care for the un-insured are the very people that object to the mandate.

    From my side I would just like to say “good luck Annie, and hang in there”

  16. Hammerhed

    What am I missing? Based on the results of third-rate bike race, a recent college graduate with no knowledge and very limited experience in the cut-throat game of professional bicycle racing decides to make a life-altering career decision and fails in the process. When she realizes what a stupid and expensive error she has made, she typically wants to blame everyone else and to try to litigate her way out of the mess. Unless the carbom wheel really did fail because of negligent construction, the situation is entirely of her own doing. How do you turn those facts into an indictment of our (the US’s) health care system. She and people like her who refuse to take responsibilty for their actions, and you who encourage her, are the problems in America.

  17. Bikelink

    Hammershed…who do you think is paying for her unpaid medical care? You (and all of us) are. The only way out of that would be a strict libertarian view where she doesn’t even get the medical care up front. The “mandate” is an example of understanding human nature and coming up with a solution that works. Annie wasn’t the first and wouldn’t be the last to make poor decisions about purchasing medical care…medical bills are a leading causes of bankruptcy (unfortunately even with insurance sometimes). Systems like the current health law doesn’t rely on everyone making good decisions, but instead creates an environment where things don’t fall apart even when we make poor decisions.

  18. Kyle

    Charles offers sound advice here, and I wish Annie continued health and happiness as she resolves her unfortunate financial dilemma.

    Regarding the medical insurance issue: this is not the forum for that debate, but if many wish to waive the banner in favor of the new health insurance regulations in the U.S., I will add my 2cents.

    “Free” emergency medical care is already available in the U.S. for those who can not afford to pay. It’s the do no harm standard of care. Withholding life saving treatment until paid does the opposite, and that (ie: doing harm) is illegal.

    The new health law will eliminate affordable coverage options like “catastrophic only” in favor of what Washington decides is best for the citizenry. Sorry, but you’ll have to purchase a policy that covers a lot more than car wrecks and an Ebola outbreak.

    I know that some people want the government to tell them what insurance policy they should purchase. Some doctors want the government to tell them what treatment they should administer. Some businesses want the government to tell them how much profit they should make. To appease those folks and make their fantasies come true, the new health law offers generous tax incentives, funding increases for existing programs, and new bureaucracies to keep track of all the taxpayers’ money it plans to redistribute toward that end.

    Others don’t want that to happen…go figure!

  19. Jim D.

    I remember some years ago the insurance companies didn’t want to cover “at risk” behaviors like riding/racing bicycles, rock climbing, downhill skiing, etc. I have insurance through my employer which I haven’t used in years. It’s there just in case.

  20. paul

    all this talk about health care is really confusing and boring guys. can we just go back to talking about sexy high end bike parts made of plastic? i mean, we have priorities in life, right?

  21. Jody

    We have all made bad choices in life. Some of us have gotten away with it others haven’t. I think a few folks have been a bit hard on Annie. I did a lot of stupid things in my youth with no insurance and it took me years to pay off those hospital bills. To condemn someone for following their dreams seems a bit harsh. Annie all the best and I pray for your health and recovery.

  22. Michael Olexo

    I find it interesting the focus on Annie’s need to be “responsible interesting.

    So how about this?

    There are public spaces, that I as a homeowner am responsible for, and can be sued for
    if I am negligent in caring for them. So why is the government entity that is responsible for
    the road that Annie road on, not liable for that pot hole, and thus her injuries from it?

    And I know that, yeah, there are potholes, and we should all watch out for them, but
    roads in my area, probably everyone who reads this area as well, need to be much better cared for, and if Annie sued for her own personal reasons, wouldn’t all us bike riders collectively benefit if she makes the local or state government sit up and take notice?

    Doesn’t this have the potential, and this is a hot topic I know, doesn’t this have the potential to be a class action lawsuit as there are probably many many Annies out there?

    Just sayin.

    I’m an avid urban and road bike rider, a home owner, and live in San Francisco.
    Because of the economy, every year the city of San Francisco figures out something
    new for me to be responsible for that they used to be responsible for, and now
    pass the costs on to me, the homeowner. Street trees used to be pruned by the city,
    now I am responsible for mine on the public sidewalk out front of my home.

    I am also responsible for the condition of the public sidewalk out front of my property, yet is property that I do not own. If someone trips, I am liable and can be sued for it. So most homeowners, like me, to avoid this, go to a great expense to repair a sidewalk that should have been cared for by the city, but when they turned it over to me was in such bad condition
    I had to pay to have it repaired.

    I pay taxes, and my taxes go to take care of the road, which is “owned” by and is the responsibility of a city, county, state or federal government agency.

    So in Annie’s case, why is the government entity not liable for her injuries, as I am for my sidewalk?

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