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Wendy writes: 

“What was the cost to you for your bankruptcy….that is, your credit cards are gone and you’re starting anew and I’m really happy that you get a do-over… 

But we all hear about folks who file bankruptcy and it sounds like the easy way out.

Surely it isn’t. I would guess the process for people is a lot like rehabilitating themselves from drugs. But folks with a chemical dependency, for example, will live with the re-building of their personal lives, relationships and often physical body.

So I’m asking…show me your scars. What’s stopping me from charging up storm on the $100,000 in credit I have with a plan to file and make it all magically go away.”

For me, the upfront cost was $2,500 for my attorney retainer, credit counseling courses and filing fee. 

Life without credit cards is not carefree.  My car transmission melted down last Saturday, and I have to borrow another $2,800 from my sister to have it rebuilt (yes, I have a plan to pay it back).  I HATE asking others for financial help, but I have no other alternative.  If I had a credit card, I could have charged it and paid it down.

Yes, that could be a down payment on a new car, but I am broke and have damaged credit at the moment, so that’s not an option.  My credit will improve after I responsibly use a secured credit card for a year or so, but even then the lenders would look at the BK on my record, sharpen their knives and charge me Shylockian interest rates.  I MUST keep my 22-year-old car running, which runs up the stress whenever I have to take it in for repairs and hope it can be fixed for a reasonable amount.  If my car completely dies, I’m f’ed.  

I have to stay in my apartment at all costs, as well, because landlords are reluctant to rent to people with bankruptcies on their records.  In my case, this isn’t so bad – I live in a rent control apartment five blocks from the beach.  Even so, this adds another financial razor’s edge to my life. Read the rest of this entry »

My attorney’s copy of my Chapter 7 debt discharge letter arrived in my mail Jan. 17.

The miles of pacing around the neighborhood and up and down the beach, the mental and emotional turmoil, the fear of creditors coming after me, all of it was brought to an end with one matter-of-fact, anti-climactic sentence:

“It appearing that the debtor is entitled to a discharge, IT IS ORDERED: The debtor is granted a discharge under section 727 of title 11, United States Code, (the Bankruptcy Code).” 

“This document is proof that you have been discharged from all of your dischargeable debts held prior to your filing of the case,” my attorney said in his cover letter. 

Translation: my credit card debt was gone.

I had been waiting for this for months.  Actually, I had been dreaming of being debt free for years.  I just didn’t think I’d declare bankruptcy to get there.  Now, it was done. 

I had it all planned.

I poured an extra, big glass of my favorite wine (La Boca Malbec, $2.99 at my local Trader Joe’s). 

I opened iTunes.  I will dictate in my will that one piece of music be played at my memorial service. “Flamenco Sketches” from Miles Davis’ “Kind of Blue.”

Miles’ slow, bittersweet, muted trumpet filled the room.  I opened Quicken and brought up my account list. 

I opened each credit account, entered “bankruptcy discharge” in the last payee/category field and the account balance in the payment field, zeroing it out.  Then I went to each account’s edit window, zeroed out the credit limit and checked “hide in lists.” 

Where I once had 11 accounts listed, I now had two, my checking and savings.  I have never felt so relieved.

I played two more songs.  

PBS ran a Josh Groban special one night last June. 

I hadn’t worked since January.  I was facing bankruptcy.  I hate asking for financial help, and I was about to ask my sister for a bridge loan to retain my attorney.   

Groban sang “You Are Loved (Don’t Give Up).”  A year before, I would’ve dismissed this song as a piece of pop sentimentality.  On that summer night, I thought of the family and friends I knew would stand by me, and it moved me to tears. 

Six months later, I had made it to the other side. 

I have been a hardcore Frank Zappa fan since high school.  “Peaches En Regalia” is the quintessential Zappa song, intricate, edgy, way ahead of its time.  It’s also triumphant, the kind of song you play when you’ve left one phase of your life behind and are embarking upon another.

For your listening pleasure:

 

To get credit, you have to use credit.  For those of us coming out of bankruptcy, this means putting down a couple of hundred dollars for a secured credit card.  Use no more than 30 percent of your credit and pay it down every month and you will eventually be deemed worthy of an unsecured credit card like all of the other grownups have.  

My goal is ONE unsecured card with no more than a $5,000 limit.  No more $49,000 credit lines for me, and all 4 percent APR courtesy checks will be  shredded with extreme prejudice.

Bankrate is a good place to look for good deals on secured credit cards.   Liz Pulliam Weston of MSN Money lists three criteria to look for:

  • No application fee and reasonable annual fee. Some secured cards tack huge upfront and annual charges onto their accounts; you don’t need to pay these to build your credit.
  • Reports to the major credit bureaus. You’re not doing your credit score any good unless your payment history is being reported to the three major bureaus: Equifax, Experian and TransUnion. Before you apply for a card, call and ask if the issuer regularly reports to all three.
  • Converts to an unsecured card after 12-18 months of on-time payments. Good behavior should get you upgraded to a regular credit card within a year or two.
  • The US House of Representatives is scheduled to vote Thursday on a bill that will enable homeowners to modify their mortgages in chapter 13 bankruptcy.

    These mortgage modifications are known by the more vernacular term, “cram downs.”  Under the proposed law, a bankruptcy judge could reduce the balance of a first mortgage to fair market value and re-amortize it, reducing the monthly payments and making it easier for financially distressed homeowners to keep their homes.  Chip Parker of Bankruptcy Law Network explains in detail here.

    This legislation would help stem the tide of foreclosures by encouraging lenders to cram down mortgages out of court on terms they negotiate with the homeowner rather than having a bankruptcy judge impose them. 

    Either way, fewer economically strapped homeowners would lose their homes and house prices in neighborhoods decimated by foreclosures would have a chance to stabilize.

    Members of the mortgage industry are rattling the bars of their playpens in protest.  Permitting chapter 13 mortgage cram downs would have long-term regulatory side effects, as described in “Just Say Yes To Cram Downs” by the late, great Tanta of Calculated Risk:

    In fact, I have some sympathy with the view that mortgage lenders “perform a valuable social service through their loans.” That’s why, when they stop doing that and become predators, equity strippers, and bubble-blowers instead of valuable social service providers, I like seeing BK judges slap them around. Everybody talks a lot about moral hazard, and the reality is that you’re a lot less likely to put a borrower with a weak credit history, whose income you did not verify and whose debt ratios are absurd, into a 100% financed home purchase loan on terms that are “affordable” only for a year or two, if you face having that loan restructured in Chapter 13. 

    The photo of my burning credit cards is symbolic on several levels.

    I burned them after I received my Chapter 7 debt discharge letter, which finalized the death of my old credit lines.  The cards were completely useless.  It was time for them to go. 

    Burning my cards symbolically cleansed my irresponsible financial habits and started a new life of living within my means.

    It is symbolic of our culture of easy credit and instant financial gratification going up in flames. 

    What rises from the ashes will be up to us.    

    From Bloomberg:

    I beat Lehman Brothers to bankruptcy court by five days last September.  My path to BK began in 1994, when I triumphantly paid off $15,000 in credit card debt I had accumulated during the dry spells in my career as a freelance Hollywood assistant sound editor. 

    Did I learn my lesson and resolve to stringently budget myself and never live off my credit cards again?

    No.

    I went through an ongoing cycle of hot work years followed by cold ones.  My plan (if I even had one) was to dip into my credit to get by in the cold years and pay it down in the hot ones.  My last weekly salary was $1900 a week.  If I worked eight or so months a year for three or four years straight, I could bring my debt under control.

    My debt began to grow as the cold years multiplied (1996, 1997, 2002, 2005, 2007, 2008) and I went back to using credit cards to pay my rent, basic expenses, and other credit card bills.

    I confess.  I did it.  There were way too many beers, breakfasts, dinners and glasses of wine in restaurants where you pay up for the privilege of sitting in a chair two blocks from the beach.  There were plane tickets to visit family and friends and charges for concert tickets, weekend kayak trips, books, CDs and whatever else my impulses led me to buy. Read the rest of this entry »

    • Avoid bankruptcy if you can.  A BK will stay on your credit reports for seven to 10 years, and any decent person hates going back on his or her word.  Still, ask yourself if you’re trying to avoid bankruptcy for purely egocentric/ethical reasons.   

    From MSN Money’s Liz Pulliam Weston:

    If, despite your best efforts, it would take more than five years to pay off your credit cards and medical bills, or you would need to use assets that would otherwise be protected in bankruptcy — like retirement accounts and home equity — then you should at least consult with a bankruptcy attorney about your options.

    I wouldn’t recommend bankruptcy any more than I would recommend amputating part of a leg.  But if you have late stage bone cancer and you’ve exhausted every other possible treatment option, you do what you have to do.

    • Don’t max out your credit cards.  Until I had the fortunate moment of clarity that led me find a BK attorney, I thought I’d wait a few months and, if I maxed out, look into bankruptcy then.  This is considered credit card fraud and your creditors can challenge your bankruptcy for it.

    • Your sense of honor may tempt you to pay off a low-balance card or two before you file.  Don’t.  When your debts are discharged, you will lose all of your credit cards regardless of your account balances.  Put the money towards hiring a good attorney.

    • If you have a credit card or credit line with your current bank, open checking and savings accounts with another bank and shift your money over before you file.  Otherwise, the banks may freeze your money once they are notified you have filed your BK.  If you don’t owe your bank any money, you’ll probably be fine. 

    • Hire an attorney.  Yes, you can get the petition forms online and do it yourself.  Thanks to the so-called bankruptcy “reform” legislation of 2005, filing a BK is a complicated maze of income requirements and other regulatory hoops.  You’re better off having an attorney lead you through the process and prepare your petition.  Otherwise, you risk having to return for another trustee meeting to correct your petition’s mistakes and you are naked and defenseless if your creditors come after you.  Read the rest of this entry »

    About half of all bankruptcies in this country are the result of high, unpayable medical bills.  A television commercial ran during the fall election season that featured interviews of people who were hit with unexpected health emergencies and weren’t adequately covered by their health insurance, if they had any at all.  Two of them said something like, “I’m embarrassed to say this, but I had to file for bankruptcy.” 

    Go to Europe or Canada and ask people on the street if anybody in their country goes bankrupt due to high medical bills and they will look for the psych ward ID bracelet on your wrist.  Here in the US we twice elected president a man so delusional he thought “people could just go to emergency rooms” if they didn’t have health insurance, as if emergency rooms dispensed chemotherapy, kidney transplants and triple-bypass surgery.  

    From “Anatomy Of A Medical Bankruptcy” courtesy of the EconoWhiner:

    But the most important thing that happened during that meeting was this: Before we had even been there 10 minutes, part way through her intake interview with us, the lawyer set her pen down, folded her hands on top of her desk, and looked at my husband. ”Listen to me, and listen very carefully,” she said. “This is not your fault. Let me say that again: This is not your fault.”