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Bankruptcy: It's all Around Us

June 17, 2014

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Note: This is a little bit of a rant!

This last weekend there were some bad storms in my area. I was just getting home from my weekend job around 8:15pm Saturday when my phone rang and one of my friends, we’ll call her M, asked if she could come over and hang out in my basement. Of course, I said yes and M arrived with her tiny dog about 5 minutes later.

The storms didn’t end up being too bad, we had hail stones about the size of baseballs but there weren’t very many of them. Here’s a photo one of my Facebook friends took of our hometown during the storm:

IMG_224049217726489 (3)

And here’s some of the hail collected by another Facebook friend who lives in my town:

IMG_224163435917718 (3)

Anyhow, during the storm M and I just sat around talking and somehow during that 2.5 hour period she disclosed to me that she had gone through a bankruptcy in January 2013. She said that because of this she can’t qualify for a mortgage until at least January 2015, though she is anxious to buy a house and quit renting her current home. She also added that there is another challenge in that she doesn’t have much credit history since all her accounts in the past were in her ex-husbands name. On top of this, her current boyfriend just went through a divorce and bankruptcy with his ex-wife during the fall of 2013.

As I sat listening to her talk about their combined financial troubles and how they’ve had to put their dream of owning a house on hold because of their bankruptcies, I felt bad for her but also scared and a little angry. The house they want to buy would be in her name since she can qualify for the mortgage sooner than he can, and I must admit the thought of them owning real estate together when they’ve only be dating a few months scares me. I also felt angry because M is a smart gal. How could she have gotten herself into this mess? A mess where both she and her boyfriend have such terrible financial history and yet they want to take on more debt! I doubt they can handle the mortgage, she just got a new car (I don’t know how she got the financing for it) and she’s already having trouble paying her bills as it is. Why does she think she can and should buy a house and take on a mortgage?

Just to give a little more information, M is quite a bit older than me, about 10-12 years so I felt uncomfortable stating these facts or asking too many questions, plus we aren’t best friends.

I must be a little naive, I had no idea there were this many people who went through bankruptcy. Do they even try to live on a budget and get their debts paid of themselves or do they simply resort to bankruptcy because they think it’s “easier”? It’s called responsibility and that’s a big part of being an adult! You took on the debt, you bought the crap you didn’t need and you should be responsible for paying off your debt and living very frugally to get there.

Now, I know there are some with unfortunate situations, job loss, medical emergencies, etc but for the most part the people living in the US are just over-consumers who got themselves in unnecessary and stupid debt. Please don’t hate on me for saying so, but it’s dumb. Yes, I too have made some consumerism mistakes, but I’m taking responsibility for my actions and paying off my debts myself.

What do you think about bankruptcy? Is it really necessary for most people?

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Kayla

Kayla is a mid-20s single girl living in the Midwest, USA. She is focused on paying off her consumer and student loans, while simplifying her life and closet. You can join her on her journey at ShoeaholicNoMore or follow her on Twitter.

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25 responses to “Bankruptcy: It's all Around Us

  1. It’s always hard to say because we may not be seeing the entire picture. Medical reasons are the #1 reason why people go bankrupt…even people with insurance!! My cousin once told me he declared bankruptcy and I know there was no medical reason, but even still I guess it isn’t my business to judge. Still it’s sad because he has seven kids between two marriages and confessed to me his current wife wants a divorce. In those situations I just become thankful that my situation is awesome compared to that and it strengthens my resolve to keep being financially responsible.

    1. You are so right, we don’t see the whole picture but somtimes it’s hard to not judge when they tell you about their financial troubles and then go buy a new sports car…

  2. I’m a debt advisor and I’ve seen a lot of clients have to go bankrupt. I’ve never kept statistics, but my feeling is that roughly 1/4 are because of business failure, 1/4 because of old mortgage debts (this is in Britain where you can’t get non-recourse mortgages), 1/4 because of a failed relationship (debts that were manageable when you lived together aren’t for a single) and 1/4 because of a significant drop in income/unemployment/long term illness. Of course for many people there is a combination of factors.

    Many of these should have managed their finances better – they shouldn’t have taken out the mortgage, they shouldn’t have accumulated so much credit card debt. But it’s extremely rare for me to feel that they were completely irresponsible. Every civilised country has some form of bankruptcy as a means of getting a clean start from an impossible situation.

    1. I understand that sometimes bankruptcy is the only choice and it even occurs as a result of things beyond your control, but it sure seems like a lot of the time (at least in the few I know of from people around me) the parties have been pretty irresponsible with their finances.

  3. Wow. It sucks to have to listen to such a rough story. I am also shocked at the number of people that go through bankruptcy! I listen to the Dave Ramsey show on the way home from work and the number of people who call and talk about it baffles me. Especially when they explain the reason they went through it. It is rather unfortunate.

    It also makes me want to rant a bit because it is usually that person’s fault they are in the mess in the first place. It also bother’s me so much when people get to settle on credit cards they wracked up in the first place. I know some people have different situations like the one . But typically it is just consumer debt and they get $10,000 worth of “stuff” for $2,000. Just seems unfair to me. I don’t get to bankrupt my student loans why can someone else bankrupt their expensive car and poor life choices? /end rant

    1. I totally understand your frustration! That’s exactly how I feel as well. It makes me mad that while they are taking the “easy” way out, you and I (and lots of other PF bloggers) have decided to take responsibility for our debts and pay them off using any means necessary.

  4. Hi,

    As others have written before mentioning all the different reasons to file bankruptcy, some of which are legitimate reasons to go completely broke (i.e. medical emergencies) I often wonder if people view bankruptcy as a free pass to erase past bad decisions and get to start over, not fully comprehending the repercussions. I find myself surrounded by all these financially smart and responsible people that when someone like your friend who was a little irresponsible in the past we tend to judge them a little harsher. Maybe you subtly ask her questions that make her think. (i.e. Can you handle another mortgage if you were single? Have you compared the cost of renting vs. buying? Have you looked into secured credit cards to build credit history? And lastly tell her waiting another six months to purchase a home is nothing!

    1. Those are some great questions. I too think that people think of bankruptcy as a clean slate/fresh start and the “easy” way out. That is the part that frustrates and angers me. I do realize some bankruptcies are filed out of necessity, but I honestly believe the majority are not necessary. We are a culture that wants things right NOW and a bankruptcy (in their eyes) is a good way to get rid of all that debt all at once.

      1. And if that is the case, where bankruptcy is an easy start over, it wouldn’t surprise me if a few years down the road they were drowning in debt again. sigh.

  5. I actually know a couple like that – they went thru bankruptcy but they would always post about monthly trips they take and eating out at these ‘expensive’ restaurants. But like what they said, we probably dont know the whole story and are getting paid more – I would just assume that after going thru such a financial thing like that you wouldve learned your lesson. I am with you – it irks me in a way.

    1. Glad to know I’m not the only one frustrated by these people’s financial habits and choices. It is sure irritating at times, especially when we are working hard to pay our debts off ourselves.

  6. With my post yesterday, and now this, it seems like owning a home is a real priority for a lot of people out there. What’s the rush? I would be extremely hesitant to take on more debt, in the form of a mortgage, if I just went through declaring bankruptcy. Even more so if my partner was in the same situation. People need time to develop better financial habits and learn why they ended up in that situation in the first place. As everyone else said, we don’t have the whole picture, but if she bought a new expensive-ish car, that doesn’t exactly scream responsible. I don’t have any personal stories about it really, except that one of my aunt’s friends simply walked away from her house. She couldn’t afford the mortgage payments anymore. I can’t imagine ending up in that situation.

    1. I totally understand what you’re saying EM. I agree that perhaps they need to take time to learn from their past financial mistakes before taking on additional/new debts. Maybe a course on PF should even be required in the bankruptcy process… 🙂

  7. Tough topic, but I think it really depends on the *real* reason as to why they reached the bankruptcy decision. If not for what “we” deem a good reason (and really, who are we to judge what’s a good enough reason?), some may have gotten to debt because of mistakes or ignorance, and BK may be the only way for them to move forward. This becomes especially critical with dependents… I am sure someone with 100k credit card debt could and maybe even should buckle down and pay their stuff down, but at what cost? Will that haunt the whole upbringing of children, never having time off, taking vacation, never taking them to parks, because you’d rather pay debt than forfeit? It’s a very gray area… yes, I do firmly believe people should pay back what they borrow. But I also know debt can become suffocating, and sometimes, BK may be the only choice to move forward instead of simply slowing down the sinking process. That said, the number of people that have filed for BK is a bit… high. Too high. It makes me question their validity.

    1. You are right Tania, this is a tough topic. I hear your reasoning about the quality of life decreasing to pay off debt, but I truly believe that you should be responsible for your own debt and “mistakes” unless there’s truly a valid reason outside your control (job loss, serious and expensive medical emergency, etc). Thanks for sharing your thoughts!

  8. I think, for some people, it’s seen as the easy option out because it gives them a blank slate to start again, so to speak. However, I don’t think some people understand what it actually means and what it does to your credit rating. Nor does it really teach you about responsibility.

    1. Agree with you Nicola. Many believe it’s the magic wand that cleans up their mess, but don’t understand what it truly means. A big part is changing their behaviors of what got them to these point in the first place. If they don’t address that, they are likely to repeat.

      1. Yes, again responsibility for your actions is key to changing your mindset and not ever landing yourself in the same position again.

    2. I agree on all points Nicola. The repurcussions of bankruptcy make it a less attractive option for sure, but some people don’t take the time to research and find out what all the results of bankruptcy can do to your credit score, etc.

  9. Interesting topic and discussion. Someone left a comment on my blog once about how it was great that I didn’t file for bankruptcy and was paying my debts. It kind of shocked me, because although I might have had a fleeting thought about it when wanting to get past the pain as quickly as possible, I never gave it any serious consideration. Why?
    #1 We weren’t destitute
    #2 It didn’t feel right
    #3 The stigma associated with it
    #4 The damage to our credit rating seemed too significant (in hindsight, since it is taking us about 6 years to get out of debt, this probably would not be such an issue if I had stopped to research it)
    #5 I didn’t think we would be eligible due to my income level, and thought we might be forced to sell our home to recover money for debts

    I may be the fool, and maybe it is something I should have looked into further. Psychologically speaking, maybe I would be in better shape (this debt payment is hard) but maybe not. It is what it is. On we go.

    1. Debs, You have such a great attitude about this. I’m glad you decided not to pursue bankruptcy and these seem like all pretty good reasons NOT to go through it. Yes, it would’ve been “faster” than paying off your debts for 6 years, but in the end you will be an even stronger person and you will have learned a lot about living on a budget so you don’t ever find yourself in such a situation again.

  10. I completely agree with previous comments about us not knowing the full story. I personally think something is very broken with our healthcare system, when people actually have insurance, yet can go bankrupt from medical bills. (But that’s a whole other topic.)

    So, yes, I agree that we shouldn’t judge without the full story, but your reactions also seem completely understandable to me. I, too, am working to dig out of a lot of consumer debt, but unless something major were to happen to our income, I would never consider bankruptcy. Chase didn’t force me to use their cards, so I owe them the money I borrowed. It’s not pretty, but I know it’s true.

    1. I’m glad you have the attitude that you have to pay back your debt since you are able and it’s not from an emergency or other alike situation. That’s how I feel too. It’s frustrating because I do think there are a lot of people who don’t take time to analyze if they really could change their spending habits and adopt a budget that would allow them to get out of debt on their own without bankruptcy.

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