Bankrupt 

A local blogger cast the first stone, reporting that Kim Bergel, a candidate to represent Eureka's Ward 3 on the city council, filed for bankruptcy a couple of years ago.

The post, which came from an endorser of Bergel's election foe, incumbent Mike Newman, questioned whether someone with so many unpaid bills could be trusted with a city budget. But someone quickly shot back, pointing out that Newman himself had filed for bankruptcy in 2004.

Blogs and political circles quickly lit up with discussion of whose bankruptcy was worse, what the cases say about the candidates and whether they render either unfit for office.

Ryan Emenaker, a political science professor at College of the Redwoods, said bankruptcies are fair game for discussion during a campaign, noting that the filings themselves are public for a reason. But he advised caution.

"I think it's information that's useful to the public, but probably not too much should be made of it," he said. "There's so many people that have been in that situation, and there's a reason bankruptcy is and should be an option for people. There are a lot of reasons you can go bankrupt that have nothing to do with bad choices."

According to the American Bankruptcy Institute, more than 11.7 million people have filed for bankruptcy protection since 2004, not including business filings. That averages out to more than 1 million filings a year. Caralyce Lassner, who co-chairs the institute's Consumer Bankruptcy Committee, said that despite public perception that these filings all stem from horrible fiscal irresponsibility, the root cause of most are unforeseen events like job loss, medical emergencies and divorce.

"The vast majority of cases come about because people make rational decisions based on the information they have at the time, but then circumstances change," Lassner said. "It's very, very rarely that you are going to see the person who takes the trip to Tahiti and comes back and files for bankruptcy."

Lassner explained that there are two types of bankruptcy protection for individuals in the United States: Chapter 13 and Chapter 7, the latter of which makes up roughly 70 percent of filings. Chapter 7, Lassner said, is what most people think of when they think of bankruptcy: A person who can't pay his or her debts files for protection and doesn't have to repay his or her creditors. There are some exceptions — past-due mortgage payments aren't forgiven, nor are most tax debts — and some things are exempt from the process. Generally speaking, a filer gets to keep the equity built up in his or her home and car, personal possessions and retirement funds. But folks generally walk away with little other than a clean debt slate and a major hit to their credit score.

Chapter 13 bankruptcy is much different, Lassner explains, noting that the process uses formulas to determine how much a person has left over when expenses are subtracted from income, and then determines how much debt he or she can repay over a three or five year period and sets up a plan of monthly payments to a trustee, who then divvies the money up between creditors. This allows filers to repay some or all of the money they owed, and can include provisions for paying overdue mortgage and car payments. Generally, whatever debt goes unpaid at the conclusion of the plan is forgiven. (Unsecured debt — like that from credit cards and medical bills that isn't secured by real property that can be seized for nonpayment — is usually last in line for payment under these plans.) People generally walk away with some of their personal property — that house and that car they can still make payments on — and the bulk of their debts washed away, but their credit scores still take a large hit.

Newman said his bankruptcy stemmed directly from his divorce in 2000, during which he and his now-ex agreed that he would walk away from the marriage with the house and the family debt, most of which consisted of unpaid credit card bills. (Newman said most were his ex's doing, noting that "she ran up a few bills.") Newman said he ultimately sold the house to help pay down some of the debt, and later sold his All State Insurance office in Henderson Center to the same end. Newman said he took a year to do some "soul searching" before getting back to work as a commercial insurance salesmen for Shaw and Peterson Insurance Inc., where it took him some time to build up his client base.

Four years after his divorce, Newman said he was still drowning in debt, working to make ends meet and never quite getting there. "I was skimping and crimping on everything and just wasn't making headway," he said. After a year of considering it, Newman said he finally cried "uncle" and filed for Chapter 7 on Aug. 23, 2004. According to court documents, Newman entered the process with about $86,000 in debt — $4,400 of it owed to the IRS and the balance to credit card companies. Four months later, Newman's bankruptcy case was closed, with the credit card debt wiped away and only the unpaid taxes remaining.

Bergel's financial troubles started when her husband — who runs his own construction business — took a fall and broke three ribs about six years ago. Initially, it didn't seem too serious, she said, but six weeks later he went to the emergency room and doctors found he'd been bleeding internally. Bergel said he almost died before spending four days in intensive care. Ultimately, he was OK but couldn't work for a time and the family struggled. "We exhausted our savings," Bergel said. "When you're self-employed and you're not working, you still have to pay all your bills."

With two young children to support, Bergel said the family ran up its debts. Court documents show the family took a second and third mortgage out on its home, and ran up some $100,000 in credit card debt, in addition to other debts locally, including a $10,000 award to Bracut stemming from a breach-of-contract lawsuit. After four years of struggling to make the situation work, which was "horribly stressful," Bergel said they met with a bankruptcy lawyer who suggested they file for Chapter 7 protection. But, Bergel said, they opted for Chapter 13 instead, because they wanted to repay at least some of their debt. "It was never our intention to get to that place, and so we wanted to be sure we could do what we could," she said. "It would have been a heck of a lot easier to if we'd gone Chapter 7, but I feel better about the way we chose." It's worth noting that the Chapter 13 filing likely also helped the Bergels keep their home. But Bergel said even the bankruptcy payment plan has been stressful, and court filings indicate the family has struggled to keep up.

Both Newman and Bergel said they struggled trying to keep their chins above water for four years before ultimately filing for bankruptcy protection. Lassner said that's typical. "People do everything they can — loans from retirement, selling assets, robbing Peter to pay Paul — just trying to keep things afloat and thinking it's going to get better," she said. "Bankruptcy is never an easy decision ... but I would say that, sometimes, choosing to file for bankruptcy is one of the most responsible things you can do for the most basic life center you have responsibility for, which is your family."

Emenaker said it's interesting how the public seems to view bankruptcies differently, noting that sometimes it's seen as a "financially smart decision" while others it's viewed as "some example of bad moral character." Which is the case for Eureka's candidates? It's up to the electorate to decide, but either way the city's Third Ward will have a bankruptcy survivor representing it. And the council member will have some decent company. After all, in addition to the million or so Americans seeking bankruptcy relief annually, both Abraham Lincoln and Thomas Jefferson filed for bankruptcy before becoming president.