It's sad that in the 21st century, some people still believe that bankruptcy is immoral or unethical. And I feel the need to disabuse the belief that filing for bankruptcy is easy. Bankruptcy by the rich may be all of these things, but for working Americans bankruptcy is a difficult option that is made in order to better their lives and the lives of their families. First, bankruptcy is a legal option available to Americans to relieve them of the crushing burden of debt. I volunteered for a couple of years at the Suicide Hotline here in Dallas. The overwhelming reason that most men said they were contemplating suicide was financial. Either their business was failing or they were in such personal financial straits that they believed suicide was their only option. They didn't want to die -- they weren't thinking of killing themselves to run away from their problems. They were thinking of suicide because they thought (1) their families would be better off without them and (2) they were worth more dead than alive (insurance). I'm certain that many of the fatal traffic accidents that occur between midnight and 5:00 a.m. are more suicide than accident. And then there are the thousands of men who die from heart attacks brought on by worry about money. Second, people are loathe to file bankruptcy. Almost all do it as a last resort, trying to save their homes so their families don't become homeless. The sad fact is that most of these families would be better off filing for bankruptcy sooner rather than later. Bankruptcy is nothing to be ashamed of. Bankruptcy was designed to help people in need. People can sometimes get in positions for which there is no other reasonable alternative. Would you prefer that a family go homeless or file for bankruptcy? Most people file for bankruptcy because they have suffered a life-changing event that puts them on homelessness' doorstep. I work in a law office and I can't tell you how many times I've heard this story: a family is living paycheck-to-paycheck (much more prevalent than you think), then there's a car accident and one of the wage-earners can't work. Pretty soon, the bills are piling up, the creditors are hounding them, and suddenly their whole world is turned upside down. In order to save their homes (or to prevent a rash of lawsuits and resulting judgments), the family has to file for bankruptcy. Saving the family home is the number one reason to file for bankruptcy. And sometimes people arrive in this situation because they make terrible decisions -- like getting a 115% mortgage and then not paying off the credit card bills or saving the 15% in an emergency fund. Or sometimes they buy homes with nothing down and on shaky income documentation because they want so desperately to own a home and the federal government has told them that home ownership is available to everybody. There are all kinds of reasons to file for bankruptcy. And every one of those reasons is valid to the family for whom bankruptcy is salvation. Third, it is not easy. Especially since the bankruptcy reforms were put in place. Now, no debt is forgiven -- creditors must be paid. And before a person can even file for bankruptcy, the person must undergo credit counseling. Once you get past all of that, then you have to attend a debtor meeting with the Bankruptcy Trustee. Imagine being sent to the principal's office in high school for doing something you know was wrong -- it's about 1,000 times worse than that. The Bankruptcy Trustee tells you -- in a room of several hundred people in the same boat as you -- that you are pretty much the scum of the earth. I don't know what it is that makes the Bankruptcy Trustee feel that he/she needs to belittle the people in the room, but it happens. Then you may have a meeting with your creditors, where you go into a room and face your creditors one-on-one and explain to them that you can't pay your bills. And after all of that, then you spend years carefully budgeting your money so that you stick to a plan and make your monthly payments to the Bankruptcy Trustee. I know all of this because I went through this myself about ten years ago. It's not easy, and you live with it for all of the ten years that it stays on your credit report, like an albatross around your neck. But in the end, you learn that you can take back control of your life and you learn to prioritize. You learn what you absolutely have to pay (taxes, rent) and you learn the difference between what you want and what you need. There's a reason it is called "bankruptcy protection" -- it is probably the only law in the U.S. that is devoted to helping consumers overcome otherwise insurmountable financial problems. Should every person in financial trouble file for bankruptcy? NO. Should every person in financial trouble at least explore the option of bankruptcy? YES, it is only financially prudent to do so. Now, the reason why I suggested bankruptcy for this person is because he said that he had thousands of dollars in credit card debt that he couldn't begin to pay back. He subsequently said that he didn't want to get a second job because he didn't want to be away from his family and he was counting on a raise he was going to get in about six months. I work in a law firm that deals with big corporations and financial institutions. (Not banks.) I can't give you specifics without violating client confidentiality, but I am telling you right now that the economy is on the brink of disaster. Much of what has fueled the economy since 9/11 has been easy credit -- not credit for the consumer, but credit for companies, investment banks, etc. That easy credit has dried up. There are no IPOs. There are no new securitizations. (Securitizations are specialized sales in which one investment bank or broker will buy up bundles of mortgages to another; the initial sales price gives the seller a profit and the interest payments in the future make the sale profitable to the buyer. Imagine if you had won the lottery (or received a structured settlement in a lawsuit) and you wanted to sell your lottery (or structured settlement) to a company that would give you a lump sum payment; you would get your money now and then the buyer would continue to collect those monthly or annual payments from the lottery, etc.) That kind of activity fueled the economy around the world during the past five years. That money has dried up. It's been my experience that what I see in my office isn't generally seen by the public for about 5-6 months; we're ahead of the curve in our law office. In five or six months, right about the time of the end of the year or the beginning of next year, there is going to be a recession. There's no getting around it. The big question is how deep the recession is going to be (1981? 2002?) and whether it will be global. If it goes global, as many expect it will, then there's a very real possibility we will experience a depression. The signs? Home prices are falling at drastic rates not seen since the 1930s. Government spending on entitlement programs and defense are at such historic highs that we will not be able to reduce taxes. And if we can't reduce taxes, then we can't stimulate consumer spending. The government doesn't have the wherewithal to begin any "New Deal" programs to stimulate the economy and put unemployed people to work. THIS IS NOT A JOKE. THIS IS REAL. My suggestion to the writer is to look real hard at his finances with an objective point of view -- and I hope he has included his wife in all of this. His desire to cling to a raise in six months as the answer to his problems is a dream. It is much more likely that he will be called into his boss's office and told that raises are being deferred for a few months "until the economy picks up." If he refuses, you can bet his will be the first name on the list of those to be laid off. Expect these layoffs to begin just before the end of the year. Christmas sales will be catastrophically poor, and that will make the January unemployment rate skyrocket. For all of you on this board who are trying to figure out what to do to improve your credit, just keep paying your bills but try to sock away some money into an emergency fund. Just like in the 1930s, money will be king. Credit will not be king. Get out of debt now and stay that way. Use your credit cards sparingly, like for gas or groceries, and then pay off the credit card at the end of the month. You just want to keep on using them so the credit card company doesn't close the account, and, as has been said elsewhere on this forum, you can optimize your credit scores by keeping a balance between 1% and 9%. For those of you who may be considering bankruptcy, talk to your children. Be age-specific, but let them know what's going on. You may think you are protecting your children by not telling them how bad things are going, but in reality you run the risk of emotionally scarring them. How is a child supposed to know that the reason you are angry, anxious and out of sorts is because of money and not because of something they have done? Finally, I want to set the record straight about subprime mortgages. Subprime mortgages are not the problem. The problem is falling housing prices. Good luck to you all.
