The Biggest Losers (of Debt): How a Family Shed $106,000 in Debt

[frogger]

And another amen from me too!

[hereforinfo]

So as your harping on perusal responsibility where does my responsibility lie to BoA for arbitrarily jacking the rate on two credit cards from 9.9% and 12.9% to 32.9%....

If you're referring to me, then maybe you should go back and read so you can comprehend that I was talking about the personal responsibility of THE PERSON IN THE ARTICLE. As for your situation, obviously the banks should definitely share the blame, but you weren't some innocent bystander who was forced to borrow very large sums of money. You have to admit you played a role in your situation. You made choices.

And regarding your comment about me not blaming banks, if you weren't too busy playing the victim you could find a reply I made yesterday about the banks' role in all of this.

[Ifonly]

And since you want to talk mortgage meltdown, go learn what credit default swaps are, those are what caused your mortgage meltdown. Only people that have no understanding of the credit markets want to blame your neighbor and fantasize your paying for my "mistakes". Your not paying for my mistakes, your paying for the pure greed of the people that caused this mess and it wasn't your neighbor. It so sad so many people are so clueless.

It is no different than the person I listened to the other day on the news talking about health care who said "why should I have to pay out of my pocket the premiums for people who eat the wrong foods and don't exercise or take care of themselves". I guess for the same reason when you get anal cancer from having your head up your butt so long, I don't think I should have to pay for that either, but I will.

You're my hero

[onwards]

Suze has a very bad record of getting bankruptcy related facts correct, just google "orman bankruptcy" and you will find lots of criticism. Using real data [googled and not vetted, this is a hobby research project I do work for real money if you are interested ;)] resulted in a 10% rate of filing a 13 in a lifetime. The rate for someone with a first bankruptcy filling again is 13%.

So, a rough estimate says that you are 3% more likely to file if you have before. Certainly not a case of most of fillers refiling like you said in your first comment.

I am NOT entering the discussion here, but just wanted to point out that means it's 30% more likely, not 3%.

[BCA2009]

"Responsible, moral people pay back their debt" is only part of the equation. Lenders have brainwashed us to believe that statement is 100% true. But they leave out their own responsibility. They are making money off of the lending and this is very important to the "Moral" part of the equation.

For example if your family or friend loaned you money with no interest, just to help you out, then I believe you have a moral obligation to repay the loan.

But it is very different if someone wants to loan you money so that they can make a profit. They are making a calculated decision that you are credit worthy enough to be trusted to repay the loan. And they set interest rates at an amount that includes a premium to cover expected defaults. If they set that amount too low (more defaults occur than estimated) then they made a bad business decision. But we all know that historically banks and credit card companies have been profitable, so they obviously have set the rates high enough to benefit them over the consumer.

Now, what about the borrower? The borrower made a decision to borrow the money at the agreed terms (sometimes uneducated decisions). Generally you think about those terms that benefit the lender (interest rates, late penalties, etc). There also terms related to defaults. Therefore a term of the loan agreement (possible outcome) is nonpayment. The penalty to the borrower for non payment is loss of collateral, chance of being sued, decreased credit rating, garnishment, etc.

Where the problem comes in is that the lenders have stacked the deck in there favor. They not only charge interest rates to cover the defaults, but they have payed off lawmakers to enact laws that are in also there favor if the borrower defaults.

In a true capitalistic market (no laws in favor of one group or the other), everything would all work out fine, because a lendor would only lend you money if you had enough collateral to cover the loan if you defaulted. Unsecured loans would be very rare and only to very credit worthy individuals.

I have used a whole lot of words to repeat, what has already been said. It is a "business decision" to default and file BK (or not file BK).

[Mi Bankruptcy]

"Responsible, moral people pay back their debt" is only part of the equation. Lenders have brainwashed us to believe that statement is 100% true. But they leave out their own responsibility. They are making money off of the lending and this is very important to the "Moral" part of the equation.

For example if your family or friend loaned you money with no interest, just to help you out, then I believe you have a moral obligation to repay the loan.

But it is very different if someone wants to loan you money so that they can make a profit. They are making a calculated decision that you are credit worthy enough to be trusted to repay the loan. And they set interest rates at an amount that includes a premium to cover expected defaults. If they set that amount too low (more defaults occur than estimated) then they made a bad business decision. But we all know that historically banks and credit card companies have been profitable, so they obviously have set the rates high enough to benefit them over the consumer.

Now, what about the borrower? The borrower made a decision to borrow the money at the agreed terms (sometimes uneducated decisions). Generally you think about those terms that benefit the lender (interest rates, late penalties, etc). There also terms related to defaults. Therefore a term of the loan agreement (possible outcome) is nonpayment. The penalty to the borrower for non payment is loss of collateral, chance of being sued, decreased credit rating, garnishment, etc.

Where the problem comes in is that the lenders have stacked the deck in there favor. They not only charge interest rates to cover the defaults, but they have payed off lawmakers to enact laws that are in also there favor if the borrower defaults.

In a true capitalistic market (no laws in favor of one group or the other), everything would all work out fine, because a lendor would only lend you money if you had enough collateral to cover the loan if you defaulted. Unsecured loans would be very rare and only to very credit worthy individuals.

I have used a whole lot of words to repeat, what has already been said. It is a "business decision" to default and file BK (or not file BK).

Exactly! A calculated business decision. I probably could have paid off my debts in 30 years. However, I looked at it realistically and said no one will be there to take take care of me or my wife when I have to retire. So.. I swallowed my pride ( a sin) and filed bankruptcy. I was not behind on either of my cars or ever late on my home. However, I had medical bills and it would only take not working for a week for my whole deck of cards to come falling down. Credit cards were more than medical but it was significant

My wife is also a stay at home mom. I started working two jobs to pay off my bills and was losing out on the lives of my young kids. I swallowed my pride and told my wife we were filing. She didn't want to.. but we did. You better believe I will be teaching my kids about managing money and the dangers of credit. I can do that by filing bankruptcy and not leaving my wife alone to feed,school and raise the kids ( my kids are not home schooled).

We each make choices.. The parents no doubt met a tuff hurdle and worked through it together and will probably be happy for the rest of their lives. However, the dad has lost 5 years of his kids lives. to each their own

[onwards]

I posted the following in a different forum, but I think it's worth repeating.

==================
Here is the beginning of chapter 6, page 35, in Brent White's excellent Underwater and not Walking Away:



I have attempted to make this point repeatedly to my lenders, wish this article was available then. This point is amazingly important yet seems lost in the whole discussion; in the end lenders behaved even more irresponsibly than borrowers did, which is what caused the bubble to inflate in the first place. Put another way, as a consumer I know very little about high finance or financial risk management; if I put my trust in multiple parties that know better - my agent, broker and banker - and they all say in concert that the loan I'm taking makes sense, then I have no reason to disbelieve them when there is no obvious method for me to figure it out. They, on the other hand, have risk departments whose entire reason for existence is to make sure collateralized loans are securitized soundly. They failed, big time. They need to pay the price. I am entirely on the side of Prof White.

[BCA2009]

Lets take this a step farther, just to emphasize how it works in the business world. If a company wants/needs to borrow money to grow or maintain the business, the bank will require adequate collateral. It could be equipment, accounts receivable, and frequently all assets of the company. Banks are alot more stringent with commercial loans because they know that if the comapny defaults it will be hard to recover the money (unless there is very good collateral).

But lets say a large publically traded company defaults on a large credit facility (loan). What happens? If there is not enough collateral, the company usually files for bankruptcy.

Who actually owns the Company? The stockholders do! How many times have you heard that the stockholders have a "moral obligation" to write a check to pay off the loans that the company they own incurred? My guess is that you have never heard that. Rather, you hear them complain about how they lost everything they had invested. Poor Them (bad business decision)!

Everyone just accepts this a normal operating procedure.

So my challenge is this: Should owners of large corporations have less liability and "moral obligations" repay debts of the businesses they own or the guy trying to take care of his family?

[JackBondLove]

Basically the family made a moral decision that it was better to make the time, health and financial (i.e., going forward) sacrifices so that the stockholders and executives of the creditor companies would get a better return or bonus, etc. Of course the creditors say that such a family should be honored - it's in their best interest! The costs of this decision is the less emotional well-being of the family, especially the children, and of course the stress level of the father, who probably has done damage to his body that will cause him to go the grave earlier.

I, OTOH, made the selfish decision to try and walk away in as good a financial position as possible going forward from my BK, such that I avoided trying to find work (some thing that is not hard at all in this economy!) such that my health, emotional and financial (i.e., going forward) well-being was optimized. For this, I'm sure the creditor media considers me to be a "dead beat". Like I give a s---.

[jst4f]

This is a great thread. Thanks to everyone for contributing to this thread and site. I agree that the banks did this to themselves with their eyes and pocketbooks wide open. They got relief from Congress via their lobbyist and political donations. We have the BK process. Comparing the two solutions I have no sympathy for the banks and if the 0.75% value is correct, they are getting odd cheap.

[IamOld]

Well said as always JackBond!!!

Basically the family made a moral decision that it was better to make the time, health and financial (i.e., going forward) sacrifices so that the stockholders and executives of the creditor companies would get a better return or bonus, etc. Of course the creditors say that such a family should be honored - it's in their best interest! The costs of this decision is the less emotional well-being of the family, especially the children, and of course the stress level of the father, who probably has done damage to his body that will cause him to go the grave earlier.

I, OTOH, made the selfish decision to try and walk away in as good a financial position as possible going forward from my BK, such that I avoided trying to find work (some thing that is not hard at all in this economy!) such that my health, emotional and financial (i.e., going forward) well-being was optimized. For this, I'm sure the creditor media considers me to be a "dead beat". Like I give a s---.

[Billssuck]

I personnally think they were lucky to have made it 54 months with one income and nothing major interrupting their plan to pay off their debts. However, the time spent away from the family can never be replaced.

I have $107,000 in debt that will be discharged within the next 9 months or so through BK. But...before that...I too saught CCCS and they recommended we seek the advice of a lawyer. Reason: income to debt ratio too high. I assume the couple in the above story had a higher income than we did so they were able to make that ratio. Secondly, I worked three jobs before we even went to CCCS to try to help make a dent in our debt, changed our lifestyle so much (shopping second hand stores, etc.) but it wasn't enough. Plus, I had a baby at home less than one year old that I missed out on part of his first year of life. Anyway, we also sold our best vehicle, a tractor, a four-wheeler, lawn mower, and many personal items in hopes that I would soon get a large promotion at my primary job to help pay our debt without BK...that hasn't happened yet! Anyway, what I'm saying is that we tried everything just like them and it just wasn't enough to make it work and in their situation, they must have had a better means to make it work.

So...we filed BK and are moving on with our lives. What made us decide to do this really was the fact that I could never see us being able to retire with our debt load even if promotions came. I am very happy with our decision although we had a huge bump in our BK journey when my husband lost his job 5 months after filing. We then modified our ch13 to surrender our house as well because we finanically could not afford it any longer.

Anyway, we are now 5 months from finishing our final payments on the ch13 and our future is so much brighter and I get to see the smiling face of my now 4 year old every night. The only debt that will survive the ch13 will be a $6K student loan and guess what...that promotion is coming the Spring of 2012. The weight of the world doesn't sit on my shoulders anymore. Life is good!

I applaud the couple in the story and the sequence of events worked well for them although for many people is doesn't go that way. Were they stupid? I don't think so but am I glad for my course of financial relief with my situation? Yes.

[Resigned2BK]

Amen to that, Bills. Same thing happened to us, we went in to a credit counseling service a little over a year ago and amusedly gave this guy ALL of our information of what we spend on this and that. And he plugged it all in, looked at the result, blinked several times and told us there was no way in heck we'd ever be able to pay it off and -- to quote him -- to get a "J-O-B", give up our house, and then file BK soon after. Well, economy such as it is, getting a J-O-B that is FT with benes and such is extremely difficult. A little over a year later we might finally be ready to file at last. Clearly the folks in the article had a good enough income to start with and enough discretionary expenses that could be chopped for them to get someone like our counselor to draw up a 5 year plan!

I do think it's rather stupid for the parents in the family to do that. I mean, for one thing, did they stop tithing? That was never mentioned, just simply that they tithed 10% among all the other typical costs. And given the homeschool dedication, I get the impression that much of their actions were very influenced on their interpretation of living true to their religion. And I don't think it's particularly admirable what they did either -- rather just shows they are extremely stubborn prideful people exhibiting one of those 7 deadly sins they probably think they virtuously avoid. I do not mean to offend as I do believe there are very good people out there of every religion nor do I think homeschooling is bad, but at the same time those people who have castigated me the most upon hearing of my impending BK and/or general poverty issues are people who tend to homeschool for religious reasons. Maybe I just know weird people.