Amy said I ought to write about this, and I shied away at first because of the stigma still attached to declaring bankruptcy, but then I saw this article in tomorrow's NY Times and I figured I'd respond to it, because there's some similarities to my situations, and some very real differences as well. Also, there's not much in the way of blogging on the subject that I've found, outside of some faux-blogs put up by law firms hoping to drum up some business, so I'll give as much of the broke guy's perspective as I can.
Let me begin with the article. I'm willing to bet right now that the response to the article on the Letters page is going to be "these people are the reason we need even tougher bankruptcy laws." They're a couple who got themselves into a lot of high interest debt in various ways, and they haven't been the most conscientious about paying their bills on time.
Behind closed doors, the decisions families like the Moellerings make about their debt — when to pay it off, when to shuffle it to lower-interest sources and when to let it revolve and build — can determine how much their salaries are worth. Like many others, the Moellerings have run up avoidable penalties and occasionally spent themselves into more debt or higher interest rates, even as they have tried to juggle other balances to bring down their monthly payments....
On March 27, Mr. Moellering used a debit card rather than a credit card to make nine purchases, ranging from $5.38 to $48, hoping to avoid finance charges. But he miscalculated their checking account balance. Each purchase incurred an overdraft charge of $32, or a total of $288 in penalties, more than the $221.82 cost of the purchases. (After some pleading, the bank, National City, forgave four of the charges, leaving the Moellerings with $160 in penalties, plus interest on both the fees and the principal.)
Every two or three months they send in a payment late, running up a late fee of $30 or more.
So yes, there's a lot of personal fault here for this couple, no question, but let's look briefly at the whole situation. Between the two of them, they earn about $66K a year gross, along with about another $21,200 they receive as foster parents. $87,000 a year for a family of four ought to make for a comfortable living. And from the looks of the article, they're living okay despite this level of debt. It causes them stress, but they also have some luxuries, like a 42 inch television.
But as the article mentions (almost in passing), this is hardly the only way to get one's self in crushing debt. “One [friend] was off his insurance for a couple weeks and he broke his arm, and they’re out 25 or 30 thousand." And medical expenses are the primary reason for bankruptcies in the US.
Which brings us to my situation. I went through credit hell during my marriage and afterward. My ex and I were at the point where we were borrowing from finance companies, but we paid them off and after I finished my undergraduate degree (by which time I was divorced), I'd qualified for a low-line, high interest Visa card.
I moved to Arkansas, started grad school, and my credit improved. I was making regular payments, staying within a budget, and using student loans to supplement my meager TA income. Side note: I will not denigrate the student loan program, as they offer low fixed rates and if they're used wisely, can improve your future earnings immensely. I wouldn't have my current job without them. Plus, they helped me support my daughter while she lived with me and kept me from picking up a job outside school.
Here's where the problems started. My credit lines started getting high, often without my request for them to do so, until only abut 18 months after beginning graduate school, I had more in unsecured credit than I made in a year. I didn't own a house, and I drove a beater (a 1990 Ford Taurus SHO with major suspension problems), but somehow I qualified for five figures in credit card lines. But I kept them current and didn't max them out. I even managed, over the course of the next 2 years, to pay a couple of them off.
Then I moved to San Francisco for the Stegner Fellowship, and that was a step up in expensive living. Even though I worked outside the fellowship, and Amy supplemented our income with her own student loans and worked too, I still started falling behind. I was making minimum payments now, and a couple of the card companies started dropping my credit lines. I guess they sensed the problems.
And then the health problem started. It was my teeth. Years of numbing the pain with whiskey (because I couldn't afford dental care) caught up with me, and I spent the better part of a year in the care of a student dentist. That had to be financed as well, and even at the lower prices of a dental school, the work eventually cost more than $4,000. And that was the clincher. I could either make the payments on my tooth pain or on my credit cards, and the choice was easy. The cards got dumped, and I resigned myself to another 7 years of credit hell, calls from companies looking to get something out of me, and another rebuilding project.
And now today. South Florida isn't quite as expensive to live in as San Francisco as far as housing goes, but other things more than make up for it. For instance, in Florida, I have to have a car. That means insurance, gas and upkeep, not to mention the one time expense of buying one (because financing one isn't an option)--in The City, I spent less on a Muni Fast Pass than I do on insurance on a 1999 Hyundai Accent here. Food is pricier, as there aren't any local bodegas where you can buy produce by the metric ton for five bucks. So even though I have a good job, earning more than I did in San Francisco, my expenses are nearly the same, which means no money for paying back those other debts.
But why bankruptcy? Simple. I got sued and now have a judgment against me. So it's the bankruptcy route for me now. Most of the extra money I'll earn this summer for picking up an extra class will go to a bankruptcy lawyer to clean my slate as much as it can be cleaned (including some of that debt for my teeth). The seven year clock will crank up again sometime late this year or early next year when this all gets finalized.
I have hopes this time will be better, because of two factors. I have a better, more stable source of income, and no plans to move again any time soon, which is a massive expense that tax deductions help with, but don't really make up for. And I have insurance now, including dental as an option. As long as that holds up, I should recover, but I focus on the should. There are no guarantees on this.
So far (and if you're still reading at this point, bless you), I've learned this about bankruptcy. You need to keep copies of everything. If I didn't bank online and get my pay stubs the same way, this would be far more difficult. And bankruptcy is expensive. It'll cost me nearly $2000 to get this done. If I weren't working this summer, I don't know what I'd do to make it happen, and the truth is, it probably wouldn't. I'm certainly not the first person to simply look at the situation and consign myself to never owning a house or buying a new car. The new bankruptcy laws have made this chance to start over more difficult--the couple mentioned in the above piece almost certainly wouldn't qualify for Chapter 7, as I'd imagine they make above the median income in their state for a married couple.
Anyway, I've only started the process, and I'll update this as the process moves along.