Are Bankruptcy and 12-Step Programs Compatible?

In my view, there is no question that they are – and that lay counselors in these programs who advise otherwise do not understand the bankruptcy process.  Steps 8 and 9 of the program of Alcoholics Anonymous (copied verbatim by most other 12-step programs) are, respectively (8) Made a list of all persons we had harmed, and became willing to make amends to them, and (9) Made amends to such people wherever possible, except when to do so would injure them or others.  The book Alcoholics Anonymous talks about moral and spiritual bankruptcy, but what about plain old financial bankruptcy?  Many people recovering from alcoholism and other addictions are in serious financial difficulty.  Should they consider filing for bankruptcy through the court system, or would this somehow be “weaseling” out of debts, jeopardizing 9th step amends?

In fact, declaring bankruptcy provides a sensible, logical framework within which to work the financial portions of the eighth and ninth steps.  The person filing for bankruptcy is required to list all his creditors, his sources of income, and his material assets.  The courts, and the debtor’s attorney if he is represented, prioritize the debts based on federal law and determine how the limited financial resources of the debtor are to be applied.  Chapter 13 bankruptcy actually works very much the way a ninth step ought to.  Often referred to as “wage-earner bankruptcy”, Chapter 13 requires the debtor to adhere to a bare-bones budget for 3-5 years, paying any surplus income to a trustee who parcels it out among creditors.   Real effort and personal sacrifice are involved in repaying the debts, but there is a definite endpoint when the debt is considered satisfied. Bankruptcy addresses the issue of the injury complete repayment might do to others, such as family members who are hostage to a debt, or people dependent on a business which is temporarily insolvent.

The recovering substance abuser probably has a sense that some of his financial obligations have more moral urgency than others.  This list will not correspond exactly to the priority schedule of the bankruptcy court.  In the eyes of the court, a private loan made by a family member who is not well off financially will have the same priority as a credit card debt, and both will take a back seat to the Internal Revenue Service.  Some debts, such as arrears in child support, cannot be discharged (forgiven) in bankruptcy.  On the other hand, a conscientious debtor’s own priorities will probably be closer to the bankruptcy court’s determination than the priorities of debt collection agencies, whose squeakiest wheels are usually the least deserving, both from a moral and legal perspective.  Should a person feel a moral obligation to pay a debt which has been discharged in bankruptcy, there is no law preventing him or her from making payments on it at some later date, once the case is closed.  However, there may be good practical reasons for not doing so when it would jeopardize the fresh start a bankruptcy is designed to create.

A person who finds that the payments on his debts are leaving him without sufficient income to live on, and has no immediate prospect of either paying off those debts or increasing his income, or has exhausted conventional lending sources and is resorting to payday lenders and other loan sharks to meet basic living expenses, or is threatened with foreclosure on his home mortgage, is well-advised to explore bankruptcy.  Contrary to popular perception, reinforced by credit card companies and other lenders, recent changes in Federal laws have not closed this option.  There are numerous websites, including Kent Anderson’s, and books providing an overview of the bankruptcy process.  The anonymity tradition of 12-step groups would preclude a law firm’s advertising that any of its partners or staff members had personal experience with 12-step based financial counseling; however, a few well-considered questions during an initial interview should reveal whether a bankruptcy attorney has the knowledge to implement the desires of a client in this context.

Addiction is a factor in many bankruptcies

Unfortunately, addiction is everywhere in America. It’s becoming almost normative for adults to use some substance or engage in some activity to such excess that it becomes an overriding compulsion, trumping family, health, and financial solvency. The classic heroin addict has usually descended too far down the scale to benefit from filing for bankruptcy, but he has plenty of more respectable cousins still clinging to a tenuous middle class lifestyle while their compulsions drive them deeper and deeper into debt.

Alcoholism, abuse of prescription medications, gambling, and pornography are some of the commonest “respectable” addictions recognized as such by the medical community. Compulsive shopping, while not officially recognized as a disorder by the American Psychiatric Association, has much in common with gambling and pornography, including inducing changes in brain chemistry that trigger craving for more. For a good discussion of the addictive qualities of compulsive shopping, see: Compulsive shopping: Illness or Bad Choices.

Teenagers may become involved with hard street drugs such as heroin and methamphetamine.  When they do, it’s disastrous for the rest of the family.  An addicted family member will steal and sell household possessions, find a way to clean out bank accounts, and run up huge obligations through mandatory treatment and penalties from the criminal justice system. Addicted older adult children may persuade parents or grandparents to cosign for loans or otherwise underwrite the addiction at the expense of the parents’ financial security.

Active addiction contributes to bankruptcy in a number of ways. A budget which looks adequate won’t cover living expenses if a large chunk of it is being diverted towards alcohol or the gaming table. The addict (and often his or her spouse) will be in denial about just how much money the addiction consumes, and concoct implausible explanations for the chronic budgetary shortfall.

A mind befogged by alcohol or painkillers is prone to poor budget management and unwise spending decisions. An addict will neglect to pay insurance bills or make mortgage payments even though there is money in the bank to cover them. He or she is easily persuaded that some product or service will cure the misery his addiction fosters, and will shell out for a lavish vacation, a Cadillac-grade home-entertainment center, or a high-profile personal development seminar, incurring debt for something that fails to deliver the promised relief.

As addiction progresses is erodes employability, beginning with missed promotions and fewer hours and ending in layoff.  A person fired or laid off because of substance abuse finds it virtually impossible to get another job while he is still using.  Unless the process is somehow halted, there’s a good chance he’ll end up on the streets or in prison.

Addictions frequently lead to divorce.  The non-addicted spouse is now free of the day-to-day drain on household finances, but hasn’t taken much away from the breakup and now has difficulty collecting child support. Accustomed to a chaotic unmanageable budget, the spouse may continue to make poor decisions.  She (or he) may be headed for bankruptcy.

A certain class of addict has learned to form relationships with vulnerable individuals and then exploit them as a source of cash, persuading them, for example, to