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bankruptcy

Feeling Like You Are Bankrupt, Is Different Than Actually Being Bankrupt

by Brad Chaffee on February 16, 2010

in bankruptcy

Good afternoon my fellow haters of debt! I hope you are having a great week filled with debt free dreams and paid off creditors. Last week, on my increasingly popular, Debt Free News From A Debt Free Reader series, I received a comment that I wanted to respond to outside of the comment box.

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

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Bankruptcy – A Solution, A Cop-out, Or An Enabler?

by Brad Chaffee on December 16, 2009

in bankruptcy

bankruptHave you ever considered filing bankruptcy to resolve your financial crisis? I know I have, but was so very glad that someone who cared about me decided to speak up. Determining yourself to be financially incapable is nothing to take lightly, but it seems that these days, filing for bankruptcy is no different than having your teeth cleaned.

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:

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!

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Hope Is The Dream Of A Soul Awake

by Brad Chaffee on July 20, 2009

in Money Management

Hope

“When you do nothing, you feel overwhelmed and powerless. But when you get involved, you feel the sense of hope and accomplishment that comes from knowing you are working to make things better.”

As some of my most loyal readers know, I eat, sleep, bath, and drink personal finance.  It’s sometimes all I talk about, definitely all I think about, and I seriously love blogging about it!  I absolutely NEVER EVER pass up an opportunity to discuss with someone the benefits of debt freedom.  My co-workers and friends, even the ones that aren’t completely on board, seem to know deep down inside they should be at least more concerned with their financial habits.  My General Manager is rocking the debt snowball with excitement, and others are getting to know the budgeting process, and everyone I work with has received AT LEAST one FPU Dumping Debt audio lesson that I order in mass quantities to pass out freely.  It may as well become a part of the training!  You get hired, fill out your new-hire paperwork, get your uniforms, and then go see Brad. I love it!

The other night I was finishing up some end of the night chores, and one of my managers asked me a question about credit.  Now I was a little surprised, because he asked me what was the best way to establish credit.  Now either his ability to phase out the crazy man talking about how STUPID debt is, is supernatural, OR he just bought the myth that you MUST establish credit and figured there was no way I could be against that.  Either way he was about to get an ear full.  I quickly pointed out the fact that it was a myth, explained why, and let him know exactly what he would need to do when the time came to buy a house.  For those of you on the edge of your seat right now, the process is called manual underwriting.  It’s where your ability to obtain a mortgage is based on real life factors, rather than a 3 digit slave number.  Yes, I said slave number.  You may want to disagree with that, but think about it-the borrower is slave to the lender.  For the record, I am completely on board with the 100% down plan, but just as Dave Ramsey has realized, some or most people are not willing to make that leap and feel they must get a mortgage.

Anyway, we talked and talked about money and the perils of debt!  Maybe he was convinced, and maybe he wasn’t, who knows?  One thing I have learned about talking to people about this is that someone convinced against their will, is of the same opinion. If I reach them I am grateful, but if I don’t, at least I know that the seed was planted to possibly be harvested in the future.  I must of at least made a dent because what he said next floored me.  He told me he had to help his parents get out of debt.  First of all, this young man is 20 years old, and second anyone who is willing to sacrifice their own time and money to help someone else climb out of a hole, that they themselves didn’t dig, is a selfless individual.  My initial question to him was why did HE have to do it?  He simply said that they lost all hope.  I’ll say that again.  They lost all hope! They all but gave up and debt was the reason.  Doesn’t it make sense?  No matter who you are, when looking at a pile of debt that seems to be mounting by the second, you just want to run.  You want to run far, far away!  The truth is you can’t run from debt now, it’s too late.  You have to face it and beat it!  The time to run is in the beginning before you start.  That’s when you run!  Dealing with it will make you and your marriage stronger, and do wonders for your financial peace!  So decide to deal with it.

I asked him how much debt they had.  He wasn’t sure but he said it was less than $100,000, and possibly less than $50,000.  I smiled and told him that I knew of the PERFECT plan and that there was hope after all.  I went to my now legendary Honda CRX and pulled three Dumping Debt audio lessons from my stash.  One for him, one for his mom and dad, and one for whoever else they wanted to share it with.  I wrote on the wrappers Dave’s website, my website, and Dave’s book, The Total Money Makeover.  I told him that if his mom read that book and listened to that CD, she would most likely see hope again.  To be clear, the answer is not really the book though, the answer is YOU!  Dave Ramsey is just REALLY GOOD at getting you to realize that.  It’s not a magic book!  It’s not a quick fix!  It’s really more of a plan to use once you realize you are in control.  Having steps to follow makes it seem less overwhelming.  I promise you it works, but don’t take my word for it, go read it yourself!

Do you feel this way?  No matter how much debt you have, IT WILL STEAL YOUR HOPE! It will make you consider painful things like bankruptcy, divorce, and in some cases suicide!  It will make you settle for the bondage it causes!  It will make you feel like there is no other way.  It will cause you to start justifying your bondage by saying things like, “everyone else is doing it”!!  Everyone else IS doing it, and everyone else is BROKE TOO!  When you have no hope, you do not see a way out in order to take action!!  I am here to tell you that there is hope!  I am here to tell you to take action!  Take action and stop the bleeding.  Stop borrowing more money.  Do a budget and cut the waste from your life so that you can actually have a life.  You can do it and I know for a fact that you can!  WE DID!  I know of countless others who have done it too!  You are no different!  Take action and stop accepting the status quo,because you deserve better than that!  You deserve freedom and as soon as you realize that the weight of your burden will suddenly feel lighter.  You will be able to see the light at the end of the tunnel, and that light will motivate you!

Have you lost hope?  If so, you have nothing to lose by considering my suggestions.  Get the book!  Read it and then come here to stay motivated!!  New To EOD? What do you think about the almighty FICO score?  Do you worship at that alter, or have you too, decided to be free?

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A Destructive Mindset: Is This What You Believe Too?

by Brad Chaffee on May 22, 2009

in credit

Becoming Debt Free Is Priceless Indeed

I was reading an article yesterday titled, Debt-Free: Priceless, and the one and only comment on this article blew me away!  Seriously, the comment brought me to my knees, like kryptonite did Superman!  Back to the ice cave!

The article talked about what a Federal Bankruptcy Judge was doing to combat the destructive nature of credit card abuse, that possibly led people to his courtroom to declare themselves bankrupt.

“John C. Ninfo II, a federal bankruptcy judge, has founded the Credit Abuse Resistance Education (CARE) Program, www.careprogram.us, a national initiative to teach high school and college students about using credit properly — which, Ninfo argues, means sparingly to not at all.”  (My emphasis added)

As the article points out, Americans are dealing with $880 billion in credit card debt.  This is an astonishing number, and one that must be addressed, and now is as good a time as any!  The mindset of most Americans sadly reflect what the person who commented believes, which is why Americans have had a negative savings rate since 2005, and has steadily dropped ever since.

The Cynic floored me with this response:

“Let’s see: you have no money and your car is very low on gas, the house is low on food. I have a credit card. Of course, I am going to use it. You think? While Judge Ninfo is well intentioned, situations do and will come up where an individual must use a credit card. And if you’re unemployed, things get very interesting.”

Do YOU agree with the Cynic? Now my first thought was that the Cynic was probably a college student, but with the current amount of Americans dealing with large piles of debt, this could be anyone.  Now I couldn’t just read something like that without responding, even though whoever wrote it may never even see my response.  This is part of what I said:

“I think you have completely missed the point! The point is that you should AVOID allowing your situation to become as you described, by proper planning! That is what people need to learn again. You are more capable of handling bad times if you save for those little surprises life throws at you. I have not used a credit card in OVER a year and situations have come up, but we did not have to use a credit card because we have an emergency fund. We were prepared for those situations and that’s the difference.

I think what the judge is doing is magnificent, and from what I can see, the only thing I disagree with him on is, what order to pay off credit card debt. That is a very small issue though. The big picture is that someone is ready, able, and willing to educate people on how to be responsible with money. That is what we need, especially at a time when economic decline, has put people in those very situations that you describe in your response.”

Here are some interesting facts:

Savings Rate in 1933: -1.5% (Great Depression)
Savings Rate in 1982:   higher than 10%
Savings Rate in 1997:   4.5%
Savings Rate in 2005: -0.4%
Savings Rate in 2006: -1%
*as reported by CBS in 2006

These numbers have dropped as low as -2%, and have only recently started to climb as people have become worried about the future due to the downed economy.  Last year, J.D., a writer at Get Rich Slowly, wrote an outstanding article that digs a little deeper into the history and habits of Americans.  You should check it out!

If What You Have Been Doing Is Not Working, Do Something Different

The Cynics response is the best example of the problem!  His solution is to continue to do the same thing that he has been doing to get through life.  Handling things in this way will keep you living paycheck to paycheck! The solution is to bring the amount we save each year back up to a responsible level, NOT rely on credit cards to fill up our gas tank, or put food on our table! Instead, resolve to save AT LEAST $1,000 for emergencies, and let’s get back to the habits of folks in the 80’s!  If you properly plan now, you will not have to scramble later!  Use your emergency fund as your shovel to get you out of tough situations.  If you continue to use your credit cards you are only making your hole deeper and deeper.

TAKE ACTION NOW!

Save $1,000 to handle the small emergencies while you knock out your debt!  After you knock out your debt, build your emergency fund up more to handle the big stuff, like unemployment or unexpected hospitalization costs.  The Cynic is right about one thing, if you lose your job and you have no plan to handle it, things WILL get interesting!

What do you think?  Are you the cynic?  Do you know people who think like the Cynic?  How would you respond to this mindset?  Share your thoughts!

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Bankruptcy – The Morning After Pill of Personal Finance

Is Bankruptcy The Answer?
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 [...]

4 comments Get Motivated!

Are Your Priorities Backwards?

I keep seeing this commercial on T.V. and everytime it drives me just as crazy as the time before! The line that drives me absolutely mad is this one: “Far too many Americans health care and financial security are at risk.” It goes on to say that, “Health Care costs are driving American families [...]

11 comments Get Motivated!