Reader Story: I’m Done with Debt

Why do you continue to post these stories about how people get “out of debt” by declaring bankruptcy. “I was in over my head, but thanks to bankruptcy I am free and you can be too!” Give me a break, I need to send you my story and I will in due time. Until then, start posting stories from honest people that don’t depend on loopholes within financial regulations to dig themselves out.

Shara’s comments at 52 should be highlighted. “Creditors” who lose out from a bankruptcy are not always faceless corporations. And corporations, though perhaps faceless, are collections of actual people. Totally agree that the offensive part of Andrew declaring bankruptcy is his acknowledgment that he earned plenty of money, but just managed it poorly. The idea that he took a trip to Europe just months after discharging his debts, rather than making good to creditors despite the legal discharge, does not indicate to me that he’s turning around. Nevertheless, I wish him all the best and hope his promise to do better is not just wishful thinking.

I also agree with #52. Simply writing off all creditors as faceless is rather like saying that all people who file for bankruptcy are negligent, bad or idiots.

I also started reading this post thinking *sigh* ANOTHER bankruptcy? But I can certainly understand that there are some teachable aspects to this story.

Andrew, good luck. I hope the post script of this story does not include *sigh* another bankruptcy.

I disagree with many of the critics in this column because I don’t see bankruptcy and debt as a moral issue; I simply see it as the rules of the market and I think people should act in their own best interests.

An earlier commenter suggested that nobody forced Andrew to run up the debts on his credit cards. True, but likewise, nobody forced the banks to lend him the money either. If the bank wanted to be certain to get its money back, it could have purchased Treasury Bills. It chose not to, however, because it wanted a higher return on its investment and was willing to assume a greater risk in exchange for this. Therefore, it charged Andrew a higher interest rate to borrow the money in the first place.

We’re a peculiar society that casts figurative stones at individual people who legally discharge their debts, but we’ll mostly give a pass to a perfectly solvent corporation who does the same.

Hi JD,

I agreed with comments that said we had been discussing bankruptcy too much, but when I saw your comment I checked through the stories too. You’re right, it doesn’t come up as frequently as it seems. I think it’s just that we TALK about bankruptcy a lot, in the comments.

Google search: bankruptcy site:getrichslowly.org
http://tinyurl.com/23uy8f5

I have been thinking about the simplistic “Then creditors shouldn’t lend” arguement. And I have a couple general comments, not so much to argue, but to maybe add some depth for people who haven’t thought much about it (sorry up front for the length):

A) Many creditors are reluctantly so. Any service that is provided and billed is done on ‘credit’. If your dentist builds a crown, if your plumber replaces your water heater, if your mechanic fixes your car, and any send you a bill rather than demanding cash at the time of service they are creditors. As I mentioned as a landlord I have been a creditor on more than one occasion. As soon as a tenant is late I file for eviction, but that process can take a number of weeks and often (though thankfully not in my experience) result in malicious, or at least grossly negligent, damage. As I mentioned previously a tenant managed to keep the eviction going from January (date of file) got a stay for our hearing in February, which was lifted in April, reheard three weeks after that, and then we had to wait two weeks on the Sheriff’s docket for the physical eviction. We then had two to three weeks of downtime as repairs were made and the house cleaned up after they left.

B) True creditors (entities that lend cash with the agreement of being paid back) make that decision based often on a single moment in time and with incomplete information. Though many cards update, have you heard the howling when a creditor reduces a limit or increases a rate? My first tenant had a 700+ credit score. He had a 97% recommendation from RentalChex (“One of the best we’ve seen” “People with scores this good don’t usually rent”) and less than a year later he was missing payments. It turned out he was renting after his divorce and it was his wife that was great with money. (btw it is experiences like that that make people say “I’ll never rent to a divorcee again!” Even though it’s illegal the sentiment is often from personal experience and not blind prejudice)

A bank makes a decision to agree to a 30 year loan based on your assets and credit score today. You may look great today but as they say “past behavior is not an indicator of future returns.” That’s why they typically demand a heafty down payment.

C) Everyone I know who has declared bankruptcy has one thing in common: they are awful with money. That doesn’t mean they overleverage. I have known people with the same income and debt profile and one is fine and the other is barely getting by. These skills are intangible and the lenders have no real way of knowing who is who. Sure there are credit scores but they are incomplete, just refer to my previous example of credit after divorce. How many people are barely getting by but say “I’ve never missed a payment”? Many people don’t, until they do, and then things spiral downhill, but it’s often because they don’t have the skills to pick themselves up after they fall. Someone else in the same situation will pack a lunch and eat ramen for a couple months to make ends meet. Goodness knows that when I had to support a vacant house for a year (between the last payment and finally getting a qualified renter) we were eating less steak and more ground meat. I personally know landlords in the same position who have gone under because they wouldn’t give up the steak
(and everything that goes with that metaphore) and expected the perfect tenant to fill out the application tomorrow.

“There but for the grace of God go I” doesn’t hold for me if a person has made bad choices. I never felt sorry for the little pigs who built their houses of straw or sticks.

D) Just because you CAN doesn’t mean you SHOULD. It’s a general rule that all of us should keep close to our hearts. Bankruptcy is legal. Most everyone who has had something negative to say here about bankruptcy has a story you could hand them where they would consider bankruptcy the best of a bad situation. But that doesn’t mean any of us have to like it. Last week the reader story had a controversy about spending $30k on medical bills for a pet, and I said at the time: if I found out a tenant had stiffed me but spent that much on a pet (and filed bankruptcy to absolve the debt to me) I would be pissed. That doesn’t mean that I don’t understand it is a risk of doing business. It doesn’t mean that I disagree with bankruptcy as an option. It doesn’t mean I want a pound of flesh since I can’t have my cash. But I reserve the right to judge. Just because ‘it is a cost of doing business’ doesn’t mean they don’t deserve to be paid back if it is at all possible. I get really tired of the “I know I technically agreed, but I didn’t understand!” The IRS never buys that arguement, so why should the private sector?

and as a final thought: I believe the purpose of the means test is if you can pay back your debt with reasonable payments in five years. Many car loans these days are longer than that. And if you can’t pay it all back you aren’t expected to pay any of it back, just what you have on hand. It sticks to your credit, but as distastful as the statement is Andrew was right, after you are ‘debt free!’

Wow! Talk about a post that spurred some comments! These are the posts I like to read, ones that spur on the comments (though some may have gone a little far in berating the author) and still tell the story of the writer making a change for the better.

I’m in the same boat that J.D. was in back in the 90s. I am trying very hard to pay down my debt and in the beginning I thought bankruptcy might be the answer. Like J.D., it was a sense of pride for me. Bankruptcy is the equivalent of saying “I give up”, at least in my opinion. I wasn’t going to give up, so like Andrew I created a plan and figured a way out. I’m still getting there but with posts like these, I know that I’m not alone and there are many others out there who are willing to help me along the way.

I enjoyed reading this post. To me it is an example of the lack of financial education that we as a society provide. We are allowed plenty of rope to hang ourselves (through easy credit) but unless our parents are good with money, we really get no instruction manual on how to use it properly. Instead of decrying the high rate of bankruptcy how about we get constructive and start teaching personal finance in high schools? Heaven knows the credit card companies don’t want to do it – they make their highest profits from those who don’t pay off their balances every month.

@Tyler:

The problem is, every time someone like this declares bankruptcy and just walks away from their debts, lenders have to raise rates on the rest of us responsible borrowers to make up the shortfall. Then, ignorant people kick and scream about “abusive” interest rates on loans, as if the two weren’t related. “Why do banks charge me 12% on my credit card if the overnight lending rate is only 2%????” they cry, totally ignorant of how completely unrelated the two rates are, and how that 12% has to include the $20,000 in money people like Andrew borrowed from the bank and never repaid.

It takes a lot of guts to put a story like this on paper, much less in front of a critical audience. Kudos to Andrew for looking for a way out, and for going public with his story. With luck, he’ll keep his forward momentum, and maybe inspire someone else to avoid the same kind of mistakes he made.

@ Erica (Poster #32) – I wholeheartedly disagree with your sentiments. The GRS community is thriving and quite dynamic because of the comments not in spite of them. While I am not qualified nor inclined to speak on behalf of every GRS reader, I will say I do not have an aversion to your success but your self-righteous attitude. There are multiple measures of success and business acumen and monetary gains are just two and not necessarily the most important two. You rarely offer anything of substance and most of your comments just peddle your business ventures. Every idea and post presented should be vetted by the community that is GRS. I do agree with one of your contentions, that people tend to not look at the posts holistically, mostly the Reader Stories, and focus on the one kernel of the story that they do not like and rehash that point ad nauseaum.
@Tyler – Prior to sharing your story, your criticism of other GRS content has often been harsh, scathing, and sometimes brutally honest. You should expect a similar treatment of your story, although I think people were vocal but mostly respectful. As far as this ideological “walled garden” where we do not discuss religion or politics at GRS, I think it is appropriate. Everyone is aware that politics exists but there are hosts of other places on the Internet where those topics can be discussed. GRS is about focusing on the things most directly in your control, our daily choices, to optimize your wealth and reshape your relationship with money into something that is healthier and sustainable.
@ Andrew (Original Poster) Thanks for sharing your story, that takes guts. I think a lot of readers, including myself, are recoiling at what appears to be your lackadaisical attitude about your bankruptcy. To refer to it as a process by which you became debt-free, and to then go to Europe with friends months later just screams a lack of accountability and responsibility on your part. In your post, you do not speak of the desperation and humiliation you felt prior to or after filing Bankruptcy – I think that is important to be captured. Did it take away your self-determination? Also, it is a fantastic time to save when you do not have a lot of expenses. You can stockpile money fast that way. All that aside, I wish you the best of luck in your fiscal and personal life in the future!
@JD – You have strived to offer, through the medium of your website, what I believe is an integrated and unified plan to address debt and money issues generally. No magic bullets. No mindless loyalty to a particular methodology. GRS is actually one of the most sophisticated forums on the net; its content is second to none. I think because of this your site attracts a very discriminating audience. I think the most instructive Reader Stories would be those where their solutions were self-contained, not achieving “freedom” through Bankruptcy or writing off their debt, but creative ways to budget, to cut expenses, to re-evaluate faulty money assumptions, addressing knowledge gaps, etc.
My apologies for the length of this post.

Andrew

I do have a question for you. Are you paying your parents to live with them? If not, are you putting aside the money it would cost to live independently so that you have a more accurate idea of what your true costs will be when you once again live on your own?

AS I think about it, if you are not accurately forecasting real living expenses, you won’t be learning how to live in a budget. Please take that into consideration as you plan your savings goals. The point is to not be subsidized and to also be able to save, not just to save when subsidized.

Good luck.

I’m really hoping that Andrew has learned a lot and won’t keep repeating his financial mistakes. Like all of us, he’ll make NEW financial mistakes every once in a while, though.

I’m glad he has a goal of saving $10,000 by the end of the year. But – what is it for? An emergency fund? For investing? Downpayment on a house he can afford on his own? Money works better for you when you have a goal firmly in mind.

I started to write a fairly critical comment (mostly because I’d love a trip to Europe but can’t afford it – I’m building up an emergency fund), but re-read his post and found he’d discovered GRS after his post-bankruptcy European trip. I guess no one in his life had taught Andrew about how to handle his money before.

I’d like to know if his parents have tried to guide him – after all, he’s been a boomerang young adult, moving back in with the folks. But I sincerely would like a follow-up post at the end of the year to see how things went and see how he’s doing with his goals. Good luck, Andrew!

Andrew J.,

While I certainly don’t admire some of your actions, I do appreciate hearing your story. Thanks for sharing it so honestly.

As the recipient of some truly venomous comments on this blog, I continue to read and participate because:

(1) these comments are greatly outweighed in substance and volume by those from an interested and constructive audience;

(2) I trust (hope?) most readers recognize and dismiss the purely vitriolic comments that are almost always made by cowards under the cover of anonymity; and

(3) it’s healthy to have my viewpoints challenged by a diverse and engaged community.

Thanks for reading.

- Mark Gavagan

P.S. Erica (#49) – congratulations on your success and thanks for that interesting post.

I don’t see why everyone is attacking Andrew for the bankruptcy. It sounds like some people might be a little jealous, but honestly, who is in the better position? The person who declared bankruptcy and got off “scott-free”, or the person who paid off his debt on his own? I’d prefer to be the latter of the two, because the second person has been humbled so greatly and become so much stronger of a person. He has realized his full potential and become very knowledgeable about finances and the psychology of the human mind. He has mastered his self.

Poor Andrew is still at the beginning of the road. He can only hope he will follow the best path now, but there is a good chance that he will stray again.

This is coming from someone who paid off his own debt, which was mostly obtained from stupidly overspending for Christmas gifts for his girlfriend one year, living costs from being unemployed, and medical bills. I rarely spend on myself, and I really don’t have anything to show for except that I’m making the best possible decisions I am capable of.

Bankruptcy is something that sometimes happens…like Erin (post #80) sometimes it is the only thing to do, and not necessarily the result of irresponsibility….sometimes life just hits you too hard all at once. My husband and I have had some pretty rough times, when everything seemed to break down at once and big emergencies happened. Since we had no savings at the time, we had to charge things like car repairs and sometimes even groceries. We even put a big medical bill on our credit card once to get them off our back. We were paying only the minimum payment on the credit card and not getting ahead. A few years ago, I got a higher paying job and we were able to start aggressively paying debt down. A few months ago, we finally got rid of all credit card debt, and we have an emergency fund in place. We haven’t charged anything for about 3 years now. While I am thrilled about that, we did just have to purchase a new (well, new to us!) car because our old ones just aren’t reliable anymore. We went with the most economical one we could find, but we still have a car payment now, which we hadn’t had for years. I would really love to be putting that money toward our other debt, but this was a choice we felt we had to make.
We were able to get out of our debt without bankruptcy, but not all people have that luxury. Let’s just hope the author learned enough from his mistakes to avoid doing it again.

Thank you for being willing to share your story, Andrew. I hope that you will continue to learn how to manage your money properly in order to avoid repeating past mistakes. Not everyone is lucky enough to have a natural tendency to save money, nor have parents who teach them how to manage savings and expenses. We should all keep that fact in mind when reading these types of posts. I think the main point that GRS readers should take from this post is not whether Andrew should have avoided bankruptcy, but rather if everything could have been avoided by his taking a financial literacy class in high school. Prevention of a disease is more cost effective than just treating the symptoms, and in this case the disease is debt. Imagine how different Andrew’s story could have been if someone had taken him aside and showed him how to manage his money while he was still in school.

By the way JD, I have been reading this blog almost everyday for the past two years and still find the posts positive, interesting and informative. Keep up the good work.

So creditors have to know there’s risk involved. This is why landlords run credit reports. This is what actuaries are for, when the credit card company gives you money, the interest rate they charge you reflects the fact that they anticipate a certain percentage of people defaulting on their cards. So does your mortgage rate, and anything else. As to the small business ‘reluctant creditors’ that’s something they choose. A plumber could demand cash upfront, but he may find many people less willing to be clients, so it’s a factor that’s being taken into consideration. Be a short term ‘creditor’ in order to get more business overall.

Anyways defaulting or declaring bankruptcy is within the law. If you really think that the law still allows immoral behavior, call your senators and campaign to have it changed. Personally, I think things such as walking away from an underwater mortgage is perfectly acceptable.

Also as a note it’s not like you can charge a big screen TV, declare bankruptcy and keep it. Andrew would have had to give up such things, that is if his girlfriend hadn’t first ran away with them. Also I’m betting living with his parents wasn’t just to save money, it’s rather hard to find landlords willing to accept you under those circumstances.

Wow.. definitely some interesting comments. I don’t really have much new to add, but I guess for those who think Andrew is cheating the system, I’d say yeah it SEEMS like the easy way out, but I sure wouldn’t want to declare bankrupcy. It definitely makes life a lot more difficult, as some folks have pointed out. And it’s not like he did something illegal. Yes, some creditors got screwed over, which isn’t fair, but hopefully they have a cushion for anticipated losses, and other customers don’t have to deal too much with inflated interest rates and so on.

The part that bugs me about this the most isn’t that Andrew decided to delcare bankrupcy… it’s the fact he took a trip right after, which indicates the full magnitude of his situation didn’t quite sink in yet, but hopefully he has learned his lesson now. I shouldn’t judge… but it would be sad if in 1, 2, 5 years’ time he was in the same (or worse) boat.

I sure have made my fair share of mistakes, and the only reason I did not take the “easy way out” (bankrupcy) is because to me it ISN’T the easy way out. If there was a truly easy way out, would I have done it? Oh probably. Yeah, the fact I am almost out of debt now and I did it by working extra and being more frugal makes me feel proud of myself… but snapping my fingers and being debt-free much sooner would have been a lot nicer. I don’t have any regrets, and the lessons I learned while paying off my debts will hopefully be lifelong, as in I won’t screw my finances up ever again, but still.. an “easy” button would have been nice.

@ William
“You talked frequently on my post and now on Andrew’s post about whether or not you can do something is not a reason you should do something and I agree, but I have to ask if you’ve applied that line of thinking to yourself?

If you don’t like being an unwilling creditor then why do you lease housing to others? Surely you did the research beforehand and understood the risk involved as much as you talk about understanding your finances and making wise decisions.”

I’m sure that sounded a lot more coherent to you than it does to me. The logic I was using for bankruptcy was more specifically: just because something is legal doesn’t mean it is ethical or just. But I’m assuming you are asking just because I ‘can’ be a landlord does that mean I ‘should’. I have learned a lot about myself: my tolerance for risk and where on the spectrum I am as far as taking business decisions personally (or not). I agree that just because someone has the means doesn’t mean they have the temperament to be a landlord. If you are following my posting as closely as you imply you notice that I bring up my landlording experience to make a point. Since the same points keep being made I keep rebutting them in the same way. I always make a point of saying that I am not bringing it up in order to complain as I have gone into the business consciously. Though I understand after reading it a couple times it might seem so, I restate for the benefit of people who HAVEN’T seen it before, or once again make the point of evil credit companies who lend too much money like they are the only debtors in bankruptcy. I understood going in what I am risking by handing over such a valuable asset to a person I have barely met. Your implication that I went into it without my eyes open is flat out wrong, though as with most new experiences I have learned plenty as I go. But there is a LOT to know. More than is reasonable before you go into it. The things I have learned about evicting someone in the middle of bankruptcy the management team I hired (they manage a few hundred rentals) didn’t know. I do my best to do my due diligence with background checks etc. But those aren’t infallible and I accept that.

However I’m not sure about the logical leap that when someone walks away from thousands of dollars owed I should just shrug my shoulders and adopt a philosophical attitude of “Oh well, it happens.” As others have said, I have pity for these people who have ruined themselves. I am out a few thousand dollars that thank God I can afford
(if I couldn’t I wouldn’t be a landlord, some of that math done beforehand you were asking about) but I’d rather be me than them and I can say that of everyone who declares bankruptcy, whether they are gaming the system or not. But once again, I’m not sure what bearing that has on the fact that a) I was honestly owed money b) I wasn’t paid and c) It hurts for a small operation to absorb those kind of losses understood as a matter of doing business or not.

I am not sure who you are speaking of your ‘post’, but I’m assuming you’re the William with the cat? I’m sorry if you took my comments personally. At the time I posed a hypothetical on if people would feel differently about the extraordinary expense if you had filed bankruptcy, which I still think was a valid question. I specifically stated that a) you financed it at the time and b) I would be pissed as a landlord not getting rent so you could cover thousands of dollars in cancer treatment for your cat. That is true regardless of my preparedness for covering it. I admit to the flaw of being human as I think most people would agree with me (most don’t speak of ‘robbing Peter to pay Paul’ in a complimentary manner). Sorry about that. But I also believe I gave you kudos for paying it off and doing what needed to be done to do the right thing, even if they weren’t the choices I would have made.

I think there is a correlation to being healthy, eating healthy, and having a sense of being in control.

It’s an interesting relationship that I NEVER thought about until a recent episode of Biggest Loser, where Suze Orman (I think that’s her name), predicted last year’s winner based on their financial stability and credit report. I thought that was kind of crazy, but then I thought about it… there probably is truth to the fact that when you don’t feel very good about yourself, you find unhealthy ways to make yourself feel good. Buying things, going out to eat a lot, etc.

So I think it is reasonable for a person to spend a controlled amount becoming healthy, and it probably contributes to their financial situation in the long run!

(I myself have decided to leave my gym, but invested about $80 in dumbbells, DVDs and a home step up box that I can use at home. I know it’s not always that easy for guys though!)

Andrew,

We have all made mistakes financially, some big, some small. I can cast no stones. I am glad that you have learned from all of this and I wish you the best going forward. The best time to make a mistake is when you are young and there is still time to recover.

@JD:

As a previous guest poster, I’d say that the comments around here to get a little inflammatory around here — a bit more than you might realize.

In my case, I wrote about a wedding I had in Las Vegas, a venue we chose in order to minimize the costs that my fiance and I would incur. In the comments, I got flamed pretty good for “cost shifting” some expenses onto our guests. But in writing the article, I was hoping to launch a general discussion about the financial aspects of wedding planning. Traditionally, the bride’s family pays. Why is that? Is it outdated? If the family can’t/doesn’t want to pay, then what? Run off to the JOP? Sure. But what about the family and close friends who want to see you get married in some sort of ceremony? It would have been nice to have a civil discussion on what weddings really are, their place in present society, and the financial aspects of them. But really, I mostly got flamed. Heck, one poster said she was happy she didn’t marry me, simply because I couldn’t have afforded to provide her the wedding of her dreams. (I bit my tongue on that one and didn’t flame her back. My comment would have been censored anyway.)

As for the current columnist and the BK issue, well, I’ve been in his shoes, although I never filed bankruptcy. I have no shame in admitting that if I didn’t get a parental loan with very generous repayment terms, I would have gone the BK route, too. As one person put it, when the calls just keep on coming, and no amount is enough, and the threats to sue just pile up in the mail, it’s pretty easy to want to make it all just stop.

And the funny thing is, once you account gets sold to a junk debt buyer, the original creditor has already taken the hit. Any agreement or bk filing no longer affects the company who lent you money — the people who take it on the chin have purchased your debt for pennies on the dollar. So I don’t buy into the rhetoric that says a BK actually screwed any deserving party out of any real money. The “screwing” happened the minute the debt stopped being paid.

As for “nameless faceless corporations,” I hold stock in many financial institutions through the mutual funds I purchase through my 401k. When the financial sector takes a hit because people don’t pay the obligations, my stock takes a hit right along with it.

Further, I also lent money on Prosper, and my efforts have earned me a negative return. I have mixed feelings on that. Yes, people should live up to their obligations, but I lent money to people with crappy track records and a history of not meeting their financial obligations. Whose fault is it that I lost money?

So in my short lifetime on this planet, I’ve been the delinquent debtor/defaulter, almost filed for BK, and have become a lender and a shareholder of a nameless faceless financial corporation. Making blanket statements about the morals of those who choose to file BK is very rarely that black and white.