Interviewer: What is a typical scenario that someone ends up getting in debt in the first place?
Andrew Campbell: Typically, people accrue debt and they run into some type of emergency. The most common problem they run into is medical. It’s always an unexpected problem – divorce, job loss, medical problems. That was one of the reasons for the ACA, which is now called Obamacare. Sixty percent of the people filing for bankruptcy filed and said the main reason was because of medical debt. When they looked carefully at that, anyone who’s thinking about would say, “Oh, well, I guess most of those people were uninsured.”
And they were wrong. Seventy-five percent – three out of every four – of those people who filed because of medical debt had been insured but their insurance was horrible. They were probably in the individual market; they were probably self-employed people and they had horrible policies that had enormous deductibles and that caused a bankruptcy. Some of these deductibles were $10,000 deductibles.
The ACA maximizes deductibles for an individual at $1,000 to $2,000. For families, it’s a little bit higher but it’s much better type of system that they’ve set up that the insurance companies must abide by.
Interviewer: In your experience, have you ever seen clients that landed themselves much deeper in debt because they procrastinated or waited until the last minute or even hesitated?
Andrew Campbell: Well, yeah, most people who file are honest people. They’re not trying to scam the system. There’s a strong sense of right and wrong. A lot of people don’t want to file for bankruptcy. They see it as morally wrong. But big companies don’t have any problems filing for bankruptcy.
Lots of big, famous people who became very successful have filed for bankruptcy because that’s the great part of our system. It allows money to work in certain ways and it allows people to take risks that they normally couldn’t take.
I’d say it’s not so much procrastination as thinking that their situation will get better and it simply doesn’t, sometimes. I think that’s a bigger problem and I don’t necessarily think that that’s a bad thing. To believe otherwise is to tell me not to have any hope, when in fact circumstances can and do change.
Secured vs. Unsecured Debt
Interviewer: Let’s go over the difference between secured and unsecured debt.
Andrew Campbell: Secured debt is debt that if you don’t pay it, somebody will come and take whatever is secured by that debt. For example, you’ll have a car and you did not pay cash for the car in full. In other words, it was financed at purchase. If you don’t pay that car note, then that car can be repossessed. That’s a secured debt. That’s also called a purchase money security interest.
There’s unsecured debt, which you see a lot. Not all, but most credit card debt is unsecured. There are certain cards that are offered that are secured debt.
Medical debt is unsecured debt. Student loan debt is unsecured debt, but what that means for private student loans or for credit card companies or medical companies, doctors, hospitals, is that they have to sue you in a court of law in order to garnish wages or to take any of your property.
The only exception is public student loans. They don’t necessarily have to sue you. They can pursue you administratively through the federal government. The federal government does not have to sue you. They can simply begin garnishing wages or hitting bank accounts through administrative actions. But you always get notice – or you’re supposed to at least – so that you have some kind of due process rights.