Understanding Financial Hardship from a Creditor’s Perspective
For over 25 years, I represented debtors, filing over 4,000 consumer bankruptcies under Chapters 7 and 13. I saw firsthand how financial struggles drove individuals to seek relief from overwhelming debt. However, my focus has now shifted—I represent creditors, ensuring they receive what they are rightfully owed from Texas debtors. In this role, understanding financial hardship is critical, as many debtors claim it to avoid paying debts, reduce obligations, or even manipulate bankruptcy filings.
What Does Financial Hardship Mean?
In recent years, economic downturns have left countless individuals struggling. Job losses, medical emergencies, and rising costs have pushed many into overwhelming debt. While some genuinely cannot meet their financial obligations, others use financial hardship as a shield to delay or avoid payments. As a creditor’s attorney, my job is to distinguish between legitimate hardship and strategic avoidance.
At its core, financial hardship refers to a period when an individual’s income is insufficient to cover essential expenses. In legal proceedings—especially bankruptcy and debt collection—hardship is evaluated based on an income-to-expense ratio. If a debtor’s financial obligations exceed their earnings or leave them with little to no disposable income, they may claim financial hardship. However, creditors have the right to demand proof and challenge claims that seem exaggerated or unfounded.
How Debtors Attempt to Prove Financial Hardship
Debtors seeking bankruptcy protection or debt relief must provide concrete evidence of their financial hardship. This often includes:
- Income statements and pay stubs – Showing reduced earnings, job loss, or inconsistent income.
- Medical bills and healthcare expenses – Justifying financial strain due to unexpected medical costs.
- Unemployment records – Supporting claims of job loss or economic downturn effects.
- Household expense reports – Listing rent/mortgage, utilities, food, transportation, and childcare expenses.
- Debt obligations – Highlighting loan payments, credit card balances, and other liabilities.
Challenging Financial Hardship Claims as a Creditor
As a creditor, it is essential to scrutinize these claims carefully. While many debtors face genuine financial difficulties, others attempt to manipulate the system. Here’s how creditors can challenge questionable hardship claims:
- Demand full financial disclosure – Requesting tax returns, bank statements, and transaction records to verify actual income and spending habits.
- Analyze spending behavior – Identifying unnecessary expenses, luxury purchases, or misallocated funds that contradict hardship claims.
- Investigate hidden assets – Looking for property transfers, concealed bank accounts, or undisclosed investments that suggest financial stability.
- Challenge excessive expense claims – Questioning inflated costs for rent, utilities, or discretionary spending.
- Examine employment status – Confirming whether the debtor has actively sought new income sources or deliberately remained unemployed.
Financial Hardship and Bankruptcy Filings
In Texas, bankruptcy courts require debtors to pass a means test to qualify for Chapter 7 bankruptcy. This test assesses their income level against state median income and determines if they genuinely lack the ability to repay debts. Creditors should closely monitor this process to ensure that the debtor is not misrepresenting their financial status.
For those filing Chapter 13 bankruptcy, debtors propose a repayment plan spanning 3–5 years. Creditors have the right to review and object to these plans, ensuring they receive fair repayment rather than minimal settlements based on exaggerated hardship claims.
Protecting Creditors’ Rights in Financial Hardship Cases
As someone who spent decades helping debtors, I understand their tactics, reasoning, and loopholes. Now, representing creditors, my mission is to ensure fairness in financial disputes—not allowing strategic hardship claims to prevent rightful debt recovery. If you are a creditor seeking to challenge a financial hardship claim, secure unpaid debts, or navigate bankruptcy proceedings, expert legal guidance is essential.
