New London — Attorney Gregg W. Wagman has been spending a good portion of his workdays on the phone, helping clients navigate remote bankruptcy proceedings in U.S. District Court in Hartford.
The conference calls necessitated by the coronavirus pandemic have made his work easier, since Wagman usually travels to Hartford two or three days a week and spends hours in court while hearings are conducted.
As one of the few local attorneys who handle bankruptcy cases, Wagman said he expects to hear from more financially troubled clients due to the rising unemployment rate and continued shutdowns.
"There's all the people who were living without their six months to a year of expenses in the bank," he said by phone this past week. "It's not unprecedented, but it's been 100 years since we had something like this to affect the nation all at once."
In Connecticut, 2,041 people or entities filed for bankruptcy in May, a 23% decrease from May 2019, according to the American Bankruptcy Institute. But the unemployment rate was 9.3% during the same month, compared to 3.6% in May 2019.
Bankruptcy claims tend to involve people who have recently gone through divorce, lost their jobs or fallen behind on medical bills, Wagman said. Clients tend to come in a couple of years after getting into financial trouble and trying to pay off bills through a debt management plan or loan.
"I would just say to people, make sure you know it's an option, and don't be afraid," Wagman said. "It's a powerful tool to help straighten a lot of this out. The biggest thing I can tell you is, don't take money out of your 401(k) or IRA until you talk to a bankruptcy lawyer. It may not be an option for you, but it's available."
Most people go through bankruptcy without losing their house or car and are considered better credit risks to lenders after emerging from bankruptcy.
"The basic idea is that you owe more than you're paying," Wagman said. "The creditors come in and take your money and split it up. Otherwise, they come in, put liens on your house and garnish your paycheck."
Homeowners are allowed to keep $25,000 to $75,000 of equity in their home, an amount than can double if they are married. The two important dates in bankruptcy are the date of filing and the date of discharge, or the date the court says that debts have been discharged.
There are several different types of bankruptcy, including Chapter 7, a personal bankruptcy option that takes just four months; Chapter 13, which is a three- to five-year restructuring process for individuals or small businesses; and Chapter 11, which is a renegotiation or liquidation of debt.
People think of it as a moral failure, but Wagman said debt forgiveness is rooted in the Holy Bible, where the Book of Deuteronomy calls for release of debts every seven years, and in the U.S. Constitution, which authorizes Congress to enact uniform bankruptcy laws throughout the nation.
"Most of my clients are good, honest debtors who just got into a pickle," he said.
The Day spoke with two of Wagman's clients, both of whom asked that their names not be used because they didn't want their family members or employment to be affected by it.
A Norwich man in his 40s said that after going through a divorce, he made some financial mistakes and incurred approximately $80,000 in debt. He tried debt consolidation loans, but when he realized he couldn't swing the payments, he looked for an attorney.
"I was just doing what everyone does, that kind of rob-Peter-to-pay-Paul kind of thing," he said. "I was taking one credit card out to pay the other."
Wagman helped him file for Chapter 7 bankruptcy, and while he felt ashamed, he was amazed at how "by the book" and routine the process was for those involved. He was required to take a financial management course online, which he said was helpful. As soon as he received the discharge letter from the court, he was able to find a bank that was willing to give him a car loan. He had been making high payments on a car that was worth less than the amount he owed.
He resolved the $80,000 worth of debt for about $3,000, which included lawyer's fees and filing charges. His credit score had fallen, but climbed back up to 670, which is considered average.
"I don't know if it's cliche or not, but they say it's a fresh start," the man said.
The other client also found himself in financial trouble following a divorce and retained Wagman to help him reorganize his finances and pay off debt through a five-year Chapter 13 bankruptcy filing.
The 56-year-old said he made a good salary working in information technology but found himself owing back payments on his mortgage and a lot of credit card debt associated with the marriage. He had children and dogs at home, or would have considered walking away from his property. He didn't like admitting that his life had gotten out of control, but he was able to make court-ordered payments of $1,500 a month to clear his debt.
"I felt good about that, and it also forced me to truly budget my money and look at what was coming in and going out," he said.
Now, he said he has a healthy savings account and operates on the "cash and carry plan."
"If I can't buy it right now (with cash), I can't have it right now," he said.