I feel that this issue is one that many are faced with and wanted to share my thoughts on the matter with all of you.

Arlin wrote:

“OK. So I am now at the point where it looks like [my] only option out is Chapter 13. My income is too high for Chapter 7, and a Debt Management Plan doesn’t help at all – I have been to the counselor. Am I a creep for wanting to do this? I am 52, I have a credit score of 730, and have NEVER been late on payments or missed payments. Through a series of events with my kids I have racked up tons of legal bills and other expenses trying to get them turned around. They are now turned around, and I can no longer keep up with payments. Thoughts?”

Arlin, first off, let me say that I do not think you are a creep for having these thoughts. I think that people who knowingly run up debt with no intention of paying it, and file bankruptcy are creeps. This does not seem to describe you sir. I think you have done what most have done, and lost hope. Bankruptcy seems easy enough, but hardly ever does it solve the problem.

The following is based only on what I know of your situation, so my opinion and assumptions are very general.

With that said, I do believe you have better, more helpful options available to you. For starters, I do not know what state you are in, but if you do not qualify to file chapter 7, I’m assuming that you have a pretty good income. That’s GREAT news! Secondly, you are still young enough and have plenty of time to get things turned around. It may sound old but 52 is not the end of the road by any means. Furthermore, your credit score says that you have been very responsible borrowing and paying back money in the past. So far so good.!

I do not judge anyone who has filed bankruptcy, but I do have an opinion about how wrong it is. I feel it is wrong not to pay someone the money that you agreed to pay them. So essentially, if you were to file bankruptcy, it would not have been you that helped your children, but instead the lenders who loaned you the money to help them. My opinion is that you should pay them back, by sucking up the hard part, and fixing this mess all by yourself. You made the mess, someone else shouldn’t have to clean it up. (I say this with the utmost respect and kindness.)

The Question: Are You Bankrupt?

Again, I do not know how much  money you actually owe, but I am willing to guess that you’re not bankrupt at all. I believe that bankruptcy is a LAST resort, which I do not think you have made it too as of now. From the sound of your comment, you have just recently become delinquent. Is that correct? If it is, then you have other steps to work through before declaring yourself bankrupt.

Just because you have been unable to pay your debt payments does not mean you are bankrupt, it just means you have some work to do. Bankruptcy is something someone is FORCED into declaring. For instance, someone may be forced into declaring bankruptcy if a former judgment was being executed on. In this case, there really is no choice, because then the money will be taken out of their pay even if they cannot afford for it to. “Execution” of a judgment is a process that usually takes some time to reach.

Here are some of the questions you may want to ask yourself to find out if you have reached the point of bankruptcy.

• Are you on a budget?
• Have you tried communicating with the creditors about setting up a lower monthly payment plan?
• Have you tried using the Pro-Rata Method?
• Do you have any judgments against you?
• Is anyone trying to execute on those judgments?
• Have you attempted to do a Total Money Makeover?
• Have you tried using the Debt Snowball Method to rid yourself of this debt?
• Have you cut unnecessary monthly expenses to give yourself more disposable income?
• Have you tried to find ways to increase your income?

If you have not tried using the above listed avenues, you are by no means bankrupt. According to your comment it just sounds like you have simply given up. Is that a fair assessment?

I challenge you to reach a little further, and dig a little deeper for other solutions, because I do not think you are bankrupt at all. I also do not recommend giving up. You said you have been to a counselor, as well as a debt settlement specialist. Let me just say this; you are your best debt settlement specialist. Debt management companies are in it to make money. You are your best source of making it through this mess you are in, and it will cost you nothing extra.

• You have the ability to negotiate your own settlement.
• You have the ability to pay down your own debt.
• It doesn’t cost you a dime in fees.
• There are more benefits in doing it yourself, than having someone do it for you.

All you have to do is not give up on yourself or your ability to get this problem resolved. I believe in you Arlin, and I know you can do this without filing bankruptcy! It might be tough, and it will take some sacrifice, but you will feel so much better having avoided bankruptcy. I hope this has been helpful, and more than anything—I want to wish you luck and courage in dealing with your current state of affairs. I would love it if you kept me updated as you work through this.

photo credit

Have you ever considered filing bankruptcy to resolve your financial crisis?

I refer to filing for bankruptcy as the equivalent of taking the morning after pill to prevent unwanted pregnancy, and here’s why. The fact of the matter is that in both cases, someone wakes up one day and suddenly realizes “Hey, I shouldn’t have done that”.

The time to consider the consequences is before the act—not after. Just like someone should make responsible choices when deciding to have sex, they should also consider the consequences that running up a bunch of debt could bring. In either case, the outcome can be disastrous.

I always feel the need to make it clear that my intentions are never to disparage anyone who has filed or thought about filing. My only intention is to help those who I may be referring to, see the truth that they are not bankrupt at all—they most likely just have a mess to clean up.  I also think that we have an obligation to repay what we owe, no matter how inconvenient the mess may be.

I believe that this topic needs to be discussed more often. I talked my sister out of filing bankruptcy just a few months ago. She has a little work to do to clean her mess up, but she is so glad she didn’t file. The truth was she wasn’t bankrupt at all, she just needed to change her habits and behaviors in order to turn things around. Her lifestyle was bigger than her income so she had to down-size. She had a hefty mortgage and was behind—the bank accepted a short sale without recourse. She had car payments that were eating her alive—bye bye cars.

There are times when someone really has no other choice to file, but it’s not because they owe, $50,000, $75,000, or even $100,000. When you are truly bankrupt, it will still be your LAST resort. Even then, it may resolve your legal obligation but does it resolve your moral obligation? A topic for another post but I would like to point out that Dave Ramsey filed bankruptcy on over a million, and still he returned after rebuilding his wealth to repay those he had previously owed.

This article was inspired by one of my good friends who I deeply respect. He told me that one of his financial goals for 2010 was to file bankruptcy. Say what? I care enough about him that I decided to interject.  We had a great conversation about it.

The trouble is society enables a false sense of security by gladly accepting bankruptcy as a part of life. Too many people believe that bankruptcy or even debt consolidation is the solution to their problems, but that couldn’t be further from the truth. Allow me to explain.

Is Bankruptcy A Solution?

If by solution you mean your troubles will completely vanish—NO, IT IS NOT! This entire blog is about financial behavior and habits that heave us into a dark hole, when really all we had to do is plan for and avoid falling into the hole in the first place. Saying bankruptcy will solve your problem is like saying sweeping dirt under your rug means you have a clean floor.

The dirt still exists, just like the behaviors that caused you to find yourself feeling financially incapable still exist. Have you ever known someone who filed for bankruptcy and still ended up racking up a bunch of debt again? I do. I even know people who have filed bankruptcy more than once and STILL they do not see the folly in this cycle of slavery.

Bankruptcy does not solve anything! It hides the problem and gives the false impression that the problem is gone. The problem isn’t that you have a bunch of debt, the problem is “WHY” you have a bunch of debt.

Cause and Effect: “WHY” (<~~ your behavior) you have debt is the cause, and the actual debt itself is the effect.

Is Bankruptcy A Cop-out?

I believe that the average person would not admit that it is a cop-out. They would instead claim that it is a necessary financial move in order to regain control. You wanna know what I think? It’s very much a cop-out! Whether or not someone realizes it to be one does not matter.

The truth is that cop-out is defined as: 1.) A failure to fulfill a commitment or responsibility or to face a difficulty squarely. 2.) A person who fails to fulfill a commitment or responsibility. 3.) An excuse for inaction or evasion.

So no matter what the reason or justification you have for filing, by definition it is considered a cop-out to do so. You have decided NOT to “face your difficulty squarely”, but instead to totally avoid any and all responsibility to keep your commitment. Something to think about at least right?

Is Bankruptcy An Enabler?

Filing bankruptcy enables you to avoid the true problem—your behavior. It gives you a false sense of accomplishment when really you have done nothing but avoid responsibility. I know that may seem harsh to sensitive and politically correct ears, but I feel that something should be called what it is. Trust me when I say I hold myself to the same level of scrutiny, even if I sometimes suffer from denial in the beginning. I am hard on myself when I am wrong, sometimes to a fault.

Furthermore, by not saying what I have said I believe that I would be enabling you to continue to believe that bankruptcy is just a way of life. That there is nothing wrong with evading responsibility if it means that you benefit.

Here’s another definition for you to chew on.

Integrity – adherence to moral and ethical principles; soundness of moral character; honesty. (I would like to add: REGARDLESS of whether or not it suits you at the time.)

In other words, even if it benefits you at the time to relieve yourself of any legal obligation, you should still repay your debt. Avoid bankruptcy.

What IS The Solution?

Getting your hands dirty! Humbling yourself to accept the fact that you made a mistake and may have to work a little harder to clean it up. Realizing that you are where you are today because of the decisions you made yesterday.

Get out of debt by yourself and with a clean conscious. You owe someone money, and they deserve to be paid back.

Here’s what you have to do to truly resolve your situation so that you never return:

• Take responsibility for your actions!
• Change your behavior and attitude about debt!
• STOP borrowing money!
• Raise your income! (2nd job, yard sales, extra hours)
• Get on a budget today!
• Save a baby emergency fund!
• Pay off debt like your life depends on it!
• Finish your emergency fund!
• CELEBRATE! Self reliance is something to be proud of!! You did it!! See…you weren’t bankrupt after all!

In the precious words of my self-reliant 3 year old:

“Look Daddy, I did it all *bys myself!” (*spelled the way Isaac says it—wrong but so darn cute!)

In the words of a proud daddy:

“Atta boy!”

Now go get yourself out of your own mess! You will feel so much better after you do.  It is very rewarding to know that you accomplished something you saw as, or that others claimed to be impossible. I believe in you and your ability to do this, even if you do not. Do not sell yourself short, or the person you owe the money to for that matter. And finally, do not believe what society has marked as “acceptable”, instead prove it wrong! Face your difficulty squarely!

I was on the Financial Peace University Forums today and happened to notice the word bankruptcy being thrown around as an option. This isn’t a rant as much as it is an argument as to why you should avoid bankruptcy completely.

I realize that this is a very touchy subject for people so my intention is not to make a judgment, but instead to express an alternate view. I would like to remind everyone that I was very close to filing bankruptcy myself at one or more times in my life and am very glad that I didn’t. I assure you it wasn’t because I struck it rich.

The truth is that after listening to Dave Ramsey talk about bankruptcy,as well as every other person that calls his show, I have come to the conclusion that bankruptcy is no fun!! It seems to be a very, very painful process that can cause an emotional breakdown. Declaring that you have no money is a tough pill to swallow to say the least! Still, people file bankruptcy in record numbers. Some argue that filing bankruptcy is a service that keeps families from becoming homeless, and some say that it is a way for people to avoid the repercussions of irresponsible spending and poor money management to give them a fresh start. We will talk about them both.

Bankruptcy Keeps People From Becoming Homeless?

Really?  I am so surprised every time I hear this argument, because the first thing I want to ask is, “Did that person decide to file bankruptcy AND quit their job?”  In my mind this argument is bogus!!  Getting foreclosed on is not easy, and having your car repossessed is no picnic either if that is the only car you have but to say that one couldn’t go find a cheap apartment, buy a beater and reorganize their financial life in a way that would enable them to gain control is senseless.

Irresponsible Spending and Poor Money Management?

You betcha!! This is the reason people file bankruptcy! Couldn’t you say that if they did the opposite then bankruptcy would never become in issue? Do something different, get something different!! It is as simple as that. People are filing bankruptcy to avoid the problems that they created and instead of owning up to the outcome they decide to make someone else take the hit! That is absurd to me. Usually I hear, “Well Dave Ramsey filed bankruptcy.” These are the people that are simply avoiding the truth of the matter. YES, Dave filed bankruptcy but he also REPAID all of the debts he filed bankruptcy on. That’s integrity!! He was also in MORE debt than MOST people.

How To Take Responsibility For Your Actions To Avoid The “B” Word, using some of Dave Ramsey’s Baby Steps

1. STOP BORROWING MONEY! NOW! (You are making the fire BIGGER with every dollar you borrow- PUT OUT THE FIRE)
2. Get yourself on a REAL budget.  Pay your four walls FIRST and your credit cards LAST. (Here is something new you can try- SPEND LESS THAN YOU MAKE!! Who knew common sense and personal finance were related?)
3. Consider getting a second job. (Not fun, but not to worry- just  think about all the fun you had while running up ALL that debt.  Now it’s time to get SERIOUS!)
4. SAVE $1,000 FAST! (I don’t want to hear that you can’t, because I know there are several ways you can- Cut the budget, cut grass, deliver pizza, deliver papers, sell on Ebay and consider selling your BORROWED CAR, and buy a beater. If you say you can’t then you will never try.)
5. Pay off your debts (except the house) from smallest to largest using the debt snowball method. Dump anything you can to knock down your debt pile. (Keeping the things that caused the problem is insane!  Let’s see – Keep the house because you like it OR declare yourself BROKE?  I hope you like the house!!)
6. SAVE 3/6 Months of expenses. (The Rainy Day Fund – It’s gonna RAIN.)
7. Save for College and Retirement (Help your children avoid student loans and ensure you are not eating Alpo at retirement because Social Insecurity WILL disappoint you.)
8. Pay off your Mortgage with Gazelle Intensity.
9. Build Wealth and GIVE! (If you have no payments you will be able to build wealth “SCARY FAST”, and GIVE like never before.

You will be glad that you did not file bankruptcy. I sure am!! Now go take control of your life and your problems.

Bankruptcy – The NOT SO GREAT Escape!

It is really quite simple.  You borrowed the money and you need to pay it back.  Why should someone that loaned you money have to take the hit because you finally decided that you have borrowed too much and the only way out is to NOT PAY ANYONE?  Harsh maybe but let me point out that as I considered bankruptcy many times, I was just as harsh on myself.  Not to mention I had some great advice from some great people.

Take responsibility for your errors in judgment and decide to clean up your mess!  You will be so happy that you did!  The lessons you will learn a long the way will be life changing!  This is not a consensus, it’s just one man’s opinion.