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 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.

Take Responsibility For Your Actions

To avoid the dreadful “B” Word, try using some of Dave Ramsey’s Baby Steps pay off your debt and clean up your financial mess. It works I’ve done it! 😀

  1. STOP BORROWING MONEY! NOW! You are making it worse with every dollar you borrow!
  2. Get yourself on a REAL budget.  Pay your four walls FIRST and your credit cards LAST.  Prioritize your life and your expenses.
  3. Consider getting a second job. Not fun, but before you shoot it down consider all the fun you had while running up ALL that debt.  Now it’s time to get SERIOUS!
  4. SAVE $1,000 FAST! Don’t say “I can’t”, because I know of 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!  Hmmm…keep the house and car because you like them OR declare yourself broke.
  6. SAVE 3/6 Months of expenses. Also known as emergency insurance for life.
  7. Save for College and Retirement! Student loan debt is proving to be a problem in this country!
  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.

The point is that you have many options to try before bankruptcy is the answer. A little effort goes a long way. You made a mistake. we all make mistakes but living up to those mistakes and dealing with them is how we learn and grow.

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.

About Brad Chaffee

8 Responses to “Bankruptcy – The Morning After Pill of Personal Finance”

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  1. Melinda says:

    Can I hear an AMEN! AMEN BROTHER!
    Having just read Maxed Out, I will say that his sources show that 95% of all bankruptcies are filed by people who are truly broke. But how did they get that way? How can you be broke when you make $70K annually?

    We were among those, making well above the average household income, but on the edge of that cliff that was built out of greed, insatiable appetites for new toys, wanting it all now, and not wanting to build up our foundation first.

    We were poised to jump into that rocky ravine that is bankruptcy, then we found FPU. It pulled us back, gave us a new way to look at things, allowed us to reorganize our priorities and the way we spent.

    While we are still “broke” right now, we are able to pay for everything we NEED to in a month and are slowly plugging away at our debt without incurring any new debt.

    It is hard, but it is working, and we can see the light at the end of the tunnel, and it’s not 10 years away like it would be with a bankruptcy.

  2. Brad Chaffee says:

    Thank God for FPU right?

    I am so glad I had people in my life that were able to get through to me about why bankruptcy was a bad idea.

  3. Ari says:

    While looking at your site I was interested to see your take on bankruptcy. Spot on, it is painful just been there. From my limited perspective I must say it was no morning after pill as you referred to it. It was a long painful process that made us really know our own business. With as out of touch as we were with our finances I must say it was a wake up call that shook us out of our complacency. We have taken on dependent family members and are now raising our granddaughter…yes, financially draining but a moral imperative for us as well. Are we at fault?…well yes, if not for our stupidity and our actions then we would not have been there.We were hugely overwhelmed and we are not off the hook, we are paying back taxes etc. Thank you for your time.

    • Brad Chaffee says:

      Hi Ari,

      Thanks for visiting and thank you for taking the time to comment. Sorry to hear that you had to go through such a painful process but it sounds like you are now on the right track. I may not have made it clear enough in my blog but when I wrote it I was really referring to people that used it like some people use morning after pills, filing for bankruptcy multiple times and not really seeing the need to make better decisions. I think that was a direct result of being able to file for bankruptcy so easily at one point. I personally know people who have filed three and four times in their life, and I have not ever heard anything from them that would suggest they are remorseful for leaving someone else to take the hit financially. I was also mainly referring to the fact that some people really do not need to file bankruptcy, but instead of pay their debt off, they choose to take the bankruptcy option. For those people bankruptcy is easier than paying off the debt, and that is why they choose it. I do believe that bankruptcy is sometimes the only way out but I must add that I also feel that just because someone files bankruptcy doesn’t mean they can’t pay the bills at a later time when they have corrected their situation. Dave Ramsey did that on millions from his bankruptcy and I just think that is AWESOME! Good luck with your new found path and I wish you the best!

      Thanks again for sharing your experience and I hope you continue to read EOD. 🙂

  4. fgreen says:

    Bankruptcy is not easy and many don’t take it lightly. I notice how you say take care of the walls first and do credit last. What do you do when you can’t make the minimum payment and the creditors won’t take less than and threaten to garnish your wages? In the past, I have done the opposite, make sure all creditors have at least their mins and let the utilities go since they don’t shut you off right away.

    I can see the lure into filing bankruptcy in order to keep from the embarrassment of having wages seized, especially if you work in the dept that handles that. I would be mortified if a wage garnishment came across my co-workers desk for me. My company isn’t too keen on finance people with bad credit and I could possibly lose my job if that was to happen to me.

    • Brad Chaffee says:

      The bottom line fgreen, is that having your lights on and a roof over your head SHOULD be more important than paying your creditors. It is completely backwards to think that your creditors should be paid while you sit in the dark cold/hot house, without hot water, refrigeration, etc.

      To answer your question. If a creditor wants to sue you because you can\’t make the minimum payment then so be it. You shouldn\’t be FORCED into paying something you don\’t have simply because you made some bad financial mistakes. Your family comes first. Secondly, garnishment doesn\’t just happen. Usually you are sued and then a long process starts to collect. When that process fails, then the creditor will usually decide to \”execute\” on the judgment. Even that is a process and the way I teach people to handle that is by using the Pro-Rata Method. (I wrote this article on the self reliance exchange explaining the process) A creditor will generally not execute on a judgment, or even try to, if the person owing them money is paying them something—even IF it is not the minimum amount they would like to receive.

      Also if someone files bankruptcy, and they owe less than even $100,000, they are taking it lightly. In which case, they aren\’t filing because they can\’t pay, they are filing because they don\’t want to pay. They are simply taking the easy way out that requires NO WORK or sacrifice from them to resolve the debt.

      The only time I think bankruptcy is an option is when someone owes millions of dollars (or they are TRULY bankrupt), or a creditor does execute on a judgment forcing the borrower to protect the income that provides for their family.

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