The Explainer: The financial consequences of a crash
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.
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.
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 Charles@Pelkey.com. 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.
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