By Rachel Jones, Staff Attorney to Chapter 13 Standing Trustee Chris Micale, Western District of Virginia (Roanoke)
The events of 2020 have had a devastating impact on the very low-income population. The working poor are struggling, particularly those working in sectors such as hospitality and tourism. State and Federal funding and local programs such as food banks and community action programs do not have enough resources to meet the current demands. More and more individuals have been forced into extreme poverty. According to the Center of Budget and Policy priorities, the amount of non-elderly individuals living below poverty in February 2020 was 51 million. In April, that figure soared to a staggering 75 million, then declined to 65 million as of July 2020.
Before transitioning to a staff attorney for a Chapter 13 Trustee, I began my legal career as a Legal Aid attorney in the far Southwest corner of Virginia. For more than a decade, I represented very low-income clients and managed and trained attorneys new to practice. As I am sure many are aware, Legal Services Corporation provides funding to programs throughout the country to provide civil legal advice and representation to low-income Americans. The program is also funded by grants, state funding and individual donors. To qualify for Legal Aid Services, individuals must apply either through a hotline or online. When the applications are screened and eligibility determined, the case will then be assigned to a Legal Aid attorney. Typically, to qualify, families or individuals must live in households with annual incomes at or below 125% of the federal poverty guidelines ($32,750 for a family of 4). Applicants have the option of either completing an application online or calling a toll-free hotline to apply. Given the limited resources available to legal aid and the overwhelming need, many income eligible applicants only receive advice or limited representation.
Throughout my tenure at as a Legal Aid attorney, federal and state funding decreased and need increased, particularly after the 2008 recession. With far fewer opportunities for employment in the service area, the Trade Readjustment Act, while well intended, did little to help individuals new to extreme poverty. While the Trade Readjustment Act did provide recently displaced factory employees with the cost of education, books, and a stipend for living expenses, many workers displaced after decades of factory work (and not having set foot in a classroom in 30 years) felt they could not benefit or simply chose not to return to school. Many of those displaced workers who did return to school found the online classroom setting intimating and foreign. With few other options, many of these individuals found alternative employment for considerably lower wages.
Due to the decrease in resources and increased demand, my former program established a tiered system to triage cases that were considered “priority” cases. With few exceptions, those priorities involved protection of person, protection of income, and protection of housing. Typically, protection of person involved representation in protection against acts of domestic violence by means of assisting a client with a restraining order or assisting a client with maintaining housing during a divorce. Meanwhile, protection of housing and income (my area of practice) involved a laundry list of legal issues including eviction, loss of entitlement benefits, stopping foreclosure, stopping a wage garnishment, or preventing repossession of an essential vehicle. To obtain representation in a Chapter 7 or 13, applicants typically (with few exceptions) needed to be subject to a wage garnishment, have received a notice of foreclosure or be high risk for the repossession of an essential vehicle.
There are unique challenges to legal aid work. One can liken a legal aid office to an emergency department in a hospital. Many cases require immediate action for the client, such as a self-help eviction where a disgruntled landlord changes the locks or terminates essential utility services in the dead of winter (and always at 4:45 P.M. on a Friday, as it seemed). Applicants are often desperate to stop a garnishment quickly and have no access to emergency funds Many do not have a social or familial safety net to assist them in times of need. Clients are often difficult to communicate with due to no funds to keep their cell phones activated. The lower income wage earners have a considerably hard time taking time off work due to the fear of losing wages and access to affordable childcare is difficult. Also, lack of available public transportation can be a factor in a low-income Debtor’s ability to keep appointments with counsel.
These factors are exacerbated by the geography of the region, which is roughly the same as the size of the state of New Jersey. For my former service area, which borders Tennessee, Kentucky, North Carolina and West Virginia, there were three field offices over an hour away from one another. Often, due to staffing shortages and conflicts, one of the bankruptcy attorneys for the entire service area would be required to handle a case with a Debtor residing two hours away. Internet service is not reliable, and in many areas, there is simply no cell phone service.
Throughout the years, I mistakenly assumed all Legal Aid’s did bankruptcy representation. I now understand this is quite unusual. There are certainly arguments for and against legal aid bankruptcy practice. Many low-income Debtors would often come to legal aid after a private practice attorney charged them an upfront fee they could not afford, and but for Legal Aid assistance they would not have representation. On the other hand, speaking from experience, Legal Aid’s often do not have the resources to train new attorneys to do complicated bankruptcy work. Even in a Legal Aid program with experienced bankruptcy attorneys on staff, it is not possible to represent every individual who asks for help.
Ruby Payne’s dated and somewhat controversial book A Framework for Understanding Poverty presents some valuable insight into social classes and poses the question what does it really mean to be poor? In her book, Payne argues there are mental models for lower, middle, and upper class. She further analyzes an individual’s cognitive frame based on economic class, which dictates how we respond to our environments. Specifically, she argues that it is not only the lack of financial resources that determine poverty, but also the lack of mental, physical, and emotional resources to name a few.
Admittedly, my experience with representing the low-income demographic is generally limited to rural poverty. However, my experience with the rural population supports her argument. Often overlooked in the poverty equation are an individual’s resources. This includes any physical limitations or disabilities they have. It also includes access to affordable health care, including preventative care and arguably access to safe and sanitary affordable housing. Emotional resources include not only support systems, but how individuals respond to their environment in times of distress. Many individuals in poverty, whether it be generational poverty or situational poverty are under-resourced.
What I found most troubling about low-income representation is how one, seemingly minor but frustrating, episode to the middle or upper classes, can be devastating for a low-income individual. One of my very first clients in practice was a single mother of two children with a low-wage job. One morning, she was unable to get to work because she had a flat tire. Because she had no available time off work and had been previously reprimanded for tardiness, she was terminated for cause, which left her with no ability to draw unemployment benefits. With no stream of income beyond child support, her utilities were eventually terminated, and she was facing eviction. Throw a disgruntled ex-spouse into the mix and she is also facing loss of custody of her children and more court dates that interfere with her ability to work. Scenarios such as these were all too common in my former practice.
Unfortunately, what my clients were forced to do is visit the local pay day loan establishment and borrow $500-$1000.00 on a loan with an interest rate of over 100%. The most common scenario is for a consumer to borrow a relatively small amount of cash while they either sign a security agreement giving the lender a lien on the vehicle or agree to give the lender access to withdraw the monies in the event the payment is not made timely. The interest rates are astronomical and for the very low-income individual, the chances of these loans every being paid off are quite unlikely. Because the pay day/title loan system sets the borrower up for the failure, the individual has no choice but to find another pay day loan/title lending outfit to borrow to pay off the first loan. And the cycle continues until it can no longer.
Linda Tirados’ memoir Hand to Mouth: Living in Bootstrap America provides interesting insight into why people living in poverty purport to make such terrible decisions such as borrow money at high interest rates, smoke, eat unhealthy foods, move with frequency, make bad choices with regards to relationships, and have so many children. Tirado, living in poverty herself was approached by a publisher in 2013 after her blunt and direct response to a Gawker forum discussing why do poor people do things so self destructive? Her book not only presents insight into the realities of a wage earner in poverty, but more importantly, her memoir invokes personal self-reflection on biases against the poor. As an example, Tirado, after being criticized for her cigarette use explains that as a waitress, she finds the effects of smoking keep her appetite suppressed during a double shift and keeps her focused on her work. Tirado acknowledges it is unhealthy, unwise habit, but states “I smoke. It’s expensive. It’s also the best option. You see, I am always, always exhausted. It’s a stimulant. When I am too tired to walk one more step, I can smoke and go for another hour.”
I would argue that for the Debtors living in poverty, Trustees need to take a more panoramic approach and be mindful of the issues impacting individuals in extreme poverty. On the face of the petition and schedules, it may certainly appear some Debtors are making bad choices. Often, on the face of the schedules alone, it may present that a Debtor is borrowing money they know they cannot pay back. The Debtor may not be able to hold down a job and it may appear the Debtor simply does not want to work. The Debtor may move every few months to a new address. The Debtor may have a large food budget compared to their wages. The Debtor may spend an excess of $100.00 a month on cigarettes.
A Debtor with several pay day loans may ultimately not be making unwise financial decisions but may simply not have a support system and be forced to borrow from title lenders to make necessary car repairs or prevent the termination of essential utilities. A Debtor who has sporadic employment history may have physical health issues or have special needs children at home which causes tardiness or significant absences from work. A poor Debtor with a high food budget may not have the resources to prepare food and rely on fast food for all meals. A $100.00 per month being held aside for “emergency savings” each month may be reasonable for a Debtor with no medical insurance. A Debtor who moves with frequency may have barriers to securing affordable, sanitary housing.
This is not to suggest that there are not situations where a poor Debtor is making unwise financial decisions. However, it is often too easy to form an opinion on the Debtor’s financial choices and circumstances on the basis of the petition and schedules alone.
The opportunity to file bankruptcy is a valuable resource for many debtors who find themselves overextended financially. For very low-income individuals, it can truly be a lifeline in their efforts to avoid a bank account or wage garnishment, to catch up on mortgage payments, to prevent the repossession of an essential vehicle, to deal with court fines or to get a driver’s license reinstated – essentially to maintain their precarious financial stability.
It is likely that very low wage workers are going to continue to approach the Bankruptcy Courts, often pro se. And, they are, admittingly, sometimes hard to work with for all the reasons stated here. However, it does behoove all of us bankruptcy practitioners to be cognizant of (or sensitive to) the special life challenges faced by this group of Debtors to ensure that they have the same access to this opportunity as those with greater economic privilege.
Rachel Jones, Staff Attorney to Chapter 13 Standing Trustee Chris Micale, Western District of Virginia (Roanoke)
Graduated with a B.A. from American University (Washington, D.C.) in 2001 (International Service).
Graduated from Syracuse University College of Law in 2006 (J.D.)
Practiced at Southwest Virginia Legal Aid Society from 2006-2018.
Member of Virginia State Bar Bankruptcy Board of Governors.
Lives in Wytheville, Virginia with husband Mike and 10 year old son, Courtland.
Spare time: training for and competing in trail ultramarathons.