Is the general public "paying" for my BK?!

[bethgould]

Someone in a social networking site I belong to wrote this a few minutes ago:
" Well, good luck I guess and your welcome.. for the rest of us are now paying off your debt.. :\ "
Is this true?

[Faust]

In a very indirect way, yes.

[OhioFiler]

If the db wants to pay off your debt so you can avoid filing bankruptcy more power to him. Otherwise, he is not in any way shape or form paying your debts. Ask him to explain how everyone else is paying your debt for you.

[Faust]

If the db wants to pay off your debt so you can avoid filing bankruptcy more power to him. Otherwise, he is not in any way shape or form paying your debts. Ask him to explain how everyone else is paying your debt for you.

I'm sure they mean through higher interest rates and increased banking fees. Crap like that.

[LSUTiger32]

First of all I feel bad for you but I would not put stuff like filing BK on your personal networking site. That said, tell whoever it is to go pound sand.

[bethgould]

Most of my debt was not credit card-related. I did have an auto loan & surrendered my car, but it was a 25% APR loan for terrible credit risks. That % can't legally go any higher, LOL!

I'm sure they mean through higher interest rates and increased banking fees. Crap like that.

[HHM]

In only the most round about way, if at all.

But in any practical sense, NO. The general public does not really absorb the cost of BK.

[bethgould]

The website I refer to is one just for moms, and is just a social thing. I don't actually "know" anyone on it. I'm going to challenge that mom who said that, to lay out exactly how my bk affects her.

First of all I feel bad for you but I would not put stuff like filing BK on your personal networking site. That said, tell whoever it is to go pound sand.

[flyinbroke]

I'm sure they mean through higher interest rates and increased banking fees. Crap like that.

I don't buy this for a second. Banks were doing this LONG before the influx of BK hit with this recession...I was getting ratejacked five years ago and had a score in the high 700s! They were looking for any way to increase those record profits...if you haven't noticed, banks had no problem giving out billions in bonuses this year and a couple had huge earnings yet again. BK is not hurting them like the ignorant claim it is.

And I am usually polite on this board, but I would tell the networking contact to FOAD. He ain't payin' your rent or any of your bills. He should be more pissed at those who choose to reproduce over and over with no jobs because they get more gov't money. Those are the ones sucking up the taxes.

[BCA2009]

In general it would be the stockholders of the company that you defaulted on that would be taking the hit. The bank has less income so the stockholder gits smaller dividends, or the stock price goes down, or both. Other consumers also offset the loses thru higher interest rates and fees from that Bank. But keep in mind that during the good times they also had a premium on the interest rates to cover potential defaults. So they made extra money for years when the interest rates more than covered the defaults.

I said "In general " above, because lately with the governement bailing out some of the banks, the general public is subsidizing these banks. But that is because of stupid decisions by our elected leaders. These banks (and there stockholders) should be taking the hit for making the risky loans.

IMHO, no company is too large to fail. If you can't run a profitible company someone else will.

[Faust]

I don't buy this for a second. Banks were doing this LONG before the influx of BK hit with this recession...I was getting ratejacked five years ago and had a score in the high 700s! They were looking for any way to increase those record profits...if you haven't noticed, banks had no problem giving out billions in bonuses this year and a couple had huge earnings yet again. BK is not hurting them like the ignorant claim it is.

I know, I'm interpreting what the poster probably means. Not that it's right in any way.

[OhioFiler]

In general it would be the stockholders of the company that you defaulted on that would be taking the hit. The bank has less income so the stockholder gits smaller dividends, or the stock price goes down, or both. Other consumers also offset the loses thru higher interest rates and fees from that Bank. But keep in mind that during the good times they also had a premium on the interest rates to cover potential defaults. So they made extra money for years when the interest rates more than covered the defaults.

I said "In general " above, because lately with the governement bailing out some of the banks, the general public is subsidizing these banks. But that is because of stupid decisions by our elected leaders. These banks (and there stockholders) should be taking the hit for making the risky loans.

IMHO, no company is too large to fail. If you can't run a profitible company someone else will.

Not quite true either. The banks expect a certain default rate and actually accrue a liability for this event. When the bank writes off a loan it has no direct effect on the income statement of the bank. The write-off is applied to the reserve.

What everyone is paying for is the gambling that the Wall Street investors did.

[mtbc]

The lenders knew they wouldn't be getting all the loans repaid and factored that in to their lending decisions in the first place. It was a business gamble for them, not a moral compact. At every point in the system, a bit of due diligence would have made the risks apparent, they chose to do that and greedily live with it, or just not bother, same for the risk that their shareholders took in buying their stock. Their ire shouldn't be directed at you, it should be directed at the voters (including themselves) letting their elected representatives let the banks get "too big to fail" and way overleveraged and then using enormous amount of public money to bail them out.

[BCA2009]

Not quite true either. The banks expect a certain default rate and actually accrue a liability for this event. When the bank writes off a loan it has no direct effect on the income statement of the bank. The write-off is applied to the reserve.

What everyone is paying for is the gambling that the Wall Street investors did.

How do you think the accrued liability is created? Debit an expense ("Losses due to defaults"). Credit the liability (Reserve for Defaults).

When they debit the expense to create the reserve, they are increasing expense and lowering income. This is absolutely an income statement effect. If they only make high quality loans the reserve created is smaller. If they have high risk activity, they have to create a larger reserve (acrued liability) and take a larger loss on the income statement.

By creating the reserve they are trying to take the expected loss over a longer period, usually a year. Rather than taking the hits when they actually occur. If they over accrue and have less actual loses than they expected, they will lower the estimated accrual the following year. And if the accruals were not large enough for the current year, most likely they will increase in the next year. All of these accruals are calculated by actuaries, based on historical data and expectations for the future.

If a bank hasn't accrued enough cost to cover the actual defaults they will also have to make a "catch up" charge to expense for the difference, at the end of the reporting period. Usually at the end of the quarter or year.

But the end result is that the banks do take an income statement hit for loses from defaults.

Unless of course the government gives them money.

[Dst1]

I do think in a round about way we do all pay for it. But the proper response is that if that is true then we all should have done a better job of establishing your creditworthiness.

The thing that bugs me the most about some people's attitude is that they pretend there is a default without a loan. But every default presumes a loan. Which presumes a judgment about the creditworthiness of the debtor.

The next time someone says something like to you just respond with "thanks to your own bad judgment." Because if the debt is collective so is the poor judgment.