I am dead broke. Well, correct that, I am much more than just dead broke. I am deep in the hole and drowning in debt.
About five years ago, I had a serious bike accident that made me undergo five different surgeries and about seven months of rehab’ just to able to walk and ride properly. I’m physically okay now, but my insurance was crap and I ended up owing about $35,000 to various doctors, hospitals and other providers.
I take my debts seriously, but I also lost my job because of my inability to work, so the debt has ballooned to more than $45,000 (interest and collection fees) in just medical debt. I got another job (although it doesn’t pay as well) and I have tried and tried and tried to pay back the money I owe, but the creditors have lost patience. In one case, I am being sued, which means that I will probably have my pretty small paychecks garnished.
I have student loans, I have credit card debt that keeps growing. If I include everything (except my mortgage), I bet I owe at least $75k and I don’t see a way out.
I am afraid to declare bankruptcy, because I did manage to keep paying my mortgage and I don’t want to lose my house. I also understand that if I declare bankruptcy, I have to give up a lot of my assets, which aren’t a lot, but I do have things like bikes and personal items.
On top of that, I am just embarrassed to be considering bankruptcy, since I see that as a sleazy option to avoid debt. I know you’re a lawyer, so I thought I’d ask “The Explainer” for advice.
First off, I am glad to hear that you recovered. I had a devastating crash about 30 years ago and I still suffer the consequences of that day. It ain’t fun.
Now, to your problem. Despite the disclaimer at the bottom of this column, I need to remind you that even though I am a lawyer, I am not offering you anything but general advice here. I am not licensed in New Mexico, so please visit an attorney in your state to get specific advice.
That said, I am going to offer a few very general guidelines you can follow.
Number one, don’t be embarrassed about considering bankruptcy. The founding fathers knew that many of us encounter difficulty and need an out when it comes to crippling debt. Hence, Article I, Section 8, Clause 4, of the U.S. Constitution requires that Congress establish “uniform laws on the subject of bankruptcies throughout the United States.” You have the right. You should consider exercising that right without shame.
Oddly enough, those “uniform” bankruptcy laws ain’t all that uniform, since at least a portion of those rules are under the purview of the states. As a result, we have a variety of rules that are specific to particular states … and they do vary.
Generally, individuals saddled with consumer debt can take one of two options: Complete liquidation of assets under Chapter 7 or a structured repayment plan under Chapter 13 of the Bankruptcy Code.
One way to decide between the two is to calculate your income and see if your six-month average is over or under the Median Income for your state. In New Mexico right now that six-month figure would be around $21,500 or ($43,100 for the year) for a one-person household. If you’re married or have kids, that number increases.
That “means test” is used by the bankruptcy court to determine whether you are abusing the system, by getting rid of debt you can actually pay back. If your income is below the median, there is no “presumption of abuse” and Chapter 7 may be an option for you.
If it’s above – and you can’t show that you have reasons to justify higher-than-normal expenses – then you might consider a Chapter 13, which would require you to submit a repayment plan that lasts from three to five years. It wouldn’t pay off all of your debt, but you would end up paying off a portion of it.
I am going to make an assumption, based on the tone of your question and guess that you have a relatively low income, so let’s look at your options under Chapter 7.
You mentioned that some of your debt is from student loans. Unfortunately, even if those loans are from private lenders, it’s generally not dischargeable. You have to pay back your student loans, so let’s eliminate that from the discussion.
Now, while I referred to this option as a “complete liquidation of assets,” it really isn’t the case. Before your assets can be used to repay your creditors, you get to take advantage of a whole set of exemptions that are part of either federal or state law. The list is long, so I am only going to touch on a few of the big ones.
As you mentioned your mortgage, let’s touch on that first. Under the Bankruptcy Code, states shall establish something known as the “Homestead Exemption.” That means that up to a certain amount, the equity you have in your home is exempt from seizure when you file for bankruptcy.
Those vary from state-to-state. In my state of Wyoming, you are allowed a homestead exemption of just $20,000. If you’re married and jointly hold that mortgage, the figure is doubled. In Texas, it is essentially unlimited. Your state of New Mexico has an exemption of about $60,000 (double that if you’re married).
So, let’s say that your house is worth $200,000 and you’ve paid off $50,000 of that. Your equity in that house is thus under the $60,000 exemption, so you’re golden. You will have to “reaffirm” the debt you owe the mortgage holder, but that is a simple step your lawyer can tell you about.
All states also offer wildly varying exemptions when it comes to things like cars ($4000 in New Mexico, for example), household items and “tools of the trade.” It’s a lengthy list and you may be able to choose to rely on the federal exemptions that apply, instead of those established by your state.
Again, I know this is a difficult decision, but sometimes the first step to get out of a deep hole is to stop digging. Allowing those debts to pile up as you figure a way out is akin to digging yourself into a deeper and deeper hole.
Visit an attorney who handles bankruptcies. For a single debtor, with a relatively straightforward case like yours, my guess is that you’ll end up paying around $1200 to $2000, including the $350 filing fee. I know it’s a lot, but it could well be worth it over the long run.
I have been following you on Facebook for years and I noticed last month you and your daughter went to see “The Program,” while you were in Iceland. I guess I have just a few questions:
1) How was the movie?
2) When is going to be released here in the U.S., so that we can see it?
3) What’s it like seeing yourself portrayed on the big screen?
4) How was Iceland?
Well, I appreciate your keeping track of my doings on social media (but feel free to actually “friend” me any time). It was certainly interesting to see how many people got a look at our Iceland trip while Annika and I were away. It sure saves me from boring people with the once-obligatory slide show upon our return.
While it wasn’t a factor in our decision to go to Iceland for a vacation in late November (the real reason was that I wanted to go someplace warmer than Laramie, WY, for a couple of weeks), it was terrific to see that “The Program” was showing at a theater just down the street from where we were staying on our first night there. I am a little taken aback by the fact that while the movie has been shown in at least 30 countries, there has yet to be a U.S. release date announced. Indeed, you may end up seeing it at home via iTunes or Amazon before you see it in an American theater.
So, how was it? I truly enjoyed it, but I must admit a huge bias here. You have to keep in mind that David Walsh is a good friend of mine. This movie is based on David’s book “Seven Deadly Sins: My Pursuit of Lance Armstrong.” He and I – as is portrayed in the movie – were in the same car at the Tour de France in 1999 and 2000. I was there for many of the events portrayed in the film and, if I wasn’t, David and I spent a lot of time talking about them on the phone over the years. Having been there for much of it, I have to say that director Stephen Frears did a terrific job compressing the events of 13 years into a reasonably accurate two-hour film.
Casting (well, aside from having the terrifically handsome Nathan Wiley portray a 41-year-old me) was spot on. Ben Foster did an impressive job as Lance Armstrong and Jesse Plemons did spectacularly well in his portrayal of Floyd Landis. Dustin Hoffman’s portrayal of Bob Hamman was on the money.
Chris O’Dowd did a terrific job portraying Walsh. No, the two of them don’t look at all alike, but O’Dowd managed to beautifully capture David’s indignant and often-helpless frustration when reporting on a story he correctly believed was obvious from the start.
I like this film because it gives a taste of what David went through in his 13-year campaign to get the real story out there. Walsh is nothing if not tenacious. My reaction to the U.S. Anti-Doping Agency’s release of its lengthy “reasoned decision” in October of 2012 was that it felt like reading David’s book, “L.A. Confidentiel: Les secrets de Lance Armstrong,” which he wrote in 2004. David had it right. It just took the rest of the world another eight years to come around.
His “Seven Deadly Sins,” and the ensuing movie are pretty much a well-deserved victory lap. Like I said, I have a bias, so take my review with a grain of salt.
Now, as for seeing myself portrayed in a movie? I have to admit, it’s kinda weird. As in real life, my character’s role is small. You won’t see a lot of me in there… but it is still a strange experience. You will be proud to know that I resisted the temptation to lean over and tap the shoulder of the guy in front of me in the theater and say “hey! That’s supposed to be me right there.”
However, the real lasting impression for me was the fact that I was watching someone portray me back at the 1999 Tour. Sitting next to me was my soon-to-be-16-year-old daughter. What made that special is that the first time I ever saw anything involving Annika was at ’99 Tour, on the rest day in Pau. Because I was in France, I missed her first ultrasound visit, so my son Philip (then five) went with my wife Diana. They sent me a JPG via email. Now, 16 years later, that little blob on a black-and-white image had turned into a spectacular young woman (five-foot-10, blond and gorgeous) watching a now-closed chapter of her dad’s life with him … in freakin’ Iceland.
How cool is that?
Anyway, the bottom-line is that you should have a look at the movie, if for no other reason than to appreciate what David Walsh did over those 13 years. He deserves his victory lap.
As for Iceland, I tend not to rely on the word “awesome,” as I find it overused by people describing things like meals, movies and motor vehicles. That said, I can’t think of a better word to describe that beautiful place in the North Atlantic. For the entire two weeks, I was in awe.
The Explainer is supposed to be a weekly feature on Red Kite Prayer (Pelkey gets sidetracked now and then).
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.