My Observations Concerning Bankruptcy - 2nd Time Around For Me

[kornellred]

My second bankruptcy was confirmed last week - a Chapter 13. My first BK was a Chapter 7 in 1994, which was brought on by divorce. At that time I was carrying 35K unsecured debt, and I was the father of three children. Alimony and child support consumed most of my earnings. There was barely enough left over for me to live on, much less support the credit card debt.

Poof! Unsecured debt gone - just like that. A federal judge declared that the debt no longer exists. Now that's what I call Power.

Around about this time last year, I am 60K in unsecured debt (that should answer any question about getting credit after bankruptcy). The creditors decide that I am a risk since I am just about maxed out on my credit lines, so they decide to boost my APR's into the obscene range. Well that just frosted my gonads if you know what I mean. Like they weren't making a small fortune at my expense already.

So - I decided that one good turn deserved another. No more money for the creditors - except for what they could take from me if push came to shove. I went to see my attorney (the same guy who took care of my 1994 BK and divorce) to find out if my decision to default embodied any liabilities that I had not considered. He explained that lawsuits, money judgments, wage garnishment, bank account seizures, and endless harassment could conceivably put a hurtin' on my peace of mind. A vastly more sensible alternative would be to file for relief under Chapter 13. So I did.

Unrepentant, irresponsible lout that I am - how dare I take it upon myself to pull the rug out from under those nice creditors who forked over all that cash in good faith?

The truth is - I had long since been in way over my head and bankruptcy was inevitable - no sense going into any detail about the whys and wherefores. I actually had a plan to float my debt until the day I died. So much for plans....

My confirmed Chapter 13 payment plan is for 60 months. Unsecured creditor payback percentage is about 25 percent. My payment amount is just pure math. After accounting for my income and subtracting the allowed deductions and exemptions, my disposable income was determined and that is what I must pay. I saw the trustee for 3 minutes at the 341a meeting. He never asked for bank account statements or for any proof of my expenses. I do not own a house and I have no assets and only a single income, so there was no point in the trustee wasting his time trying to find out if I was hiding anything. My case was the ultimate in simplicity. The trustee's only objection was that my attorney tried to justify my plan for 36 months. That delayed confirmation for two months.

I would summarize the bankruptcy experience like this:

1. In situations where bankruptcy is a matter of choice (this is when you realize that you have little, if any, chance of success in dealing with your current financial status - you do not go bankrupt for the hell of it) it is invariably the correct choice.

2. Bankruptcy is completely impersonal. No one within the system cares about why you are filing. Self-righteous family and friends will get used to it.

3. You must be ruthlessly honest and not try to hide or transfer any assets.

4. The 341a meeting is a breeze for no-asset cases and escalates to an inconvenience in complicated cases, but certainly nothing to worry about if you are honest.

5. Standing trustees are scrutinized by the US Trustee and they must live up to certain standards. Some are not as busy as others. I just read a horror story on another BK group by a person in Wyoming who said that the trustee there looks at every financial transaction in detail and often asks for an explanation. It's "the luck of the draw" when it comes to standing trustees.

6. A good BK attorney is a tremendous asset in Chapter 13 cases. Chapter 7 is more clear-cut, so competency is not so much of an issue.

[liz417]

Hi there,
Thank you for listing important facts in bk. As a newbie to this, I am reading more and more posts that say that the 341/bk is all about a business decision...no emotions, just business, that eases my mind.

Good Luck!

[HHM]

You must be ruthlessly honest

I think you need to be ruthlessly honest with yourself; no one forced you to make the decisions you made to end up in debt. I am all for bashing lenders, but with the realization, that ultimately, the responsibility lies with a persons decisions, not with the credit card companies. Veiwing yourself as a victim never really helps in the long run, it is just a way to deflect responsibility.

[kornellred]

I agree with a lot of what HHM says with respect to individual responsibility - my decisions had a lot to do with the mess I found myself in. My first BK was pretty much out of my control, unless you were to argue that my relationship with my spouse was something that I could have controlled. The trauma of the split revoked all matters of choice for many years - I could only do what I was compelled to do for the sake of survival.

We all have our own ideas about why life is the way that it is. I do not feel victimized by either life, or my creditors. I took advantage of the system (so to speak) - banking on outcomes which had a fair chance of developing, but nevertheless failed to materialize. I had actually passed the point of no return long ago - as far as ever having a chance to be debt-free. Perhaps the knowledge that bankruptcy would always be an option caused me to boldly go where the typical person would not. But it's all water over the dam.
Reality is merciful after all. Justice will ultimately prevail. And at age 60 and in declining health - I will most likely never have the opportunity to become so deeply indebted ever again.

[Frogge]

This is good stuff. Thank you, Kornell for your candid thoughts and reflection on your experiences. That is helpful to me.

HHM, thank you for putting it in perspective, so to speak. Also very helpful.

Good stuff indeed.

[ThreadsSnapping]

I think you need to be ruthlessly honest with yourself; no one forced you to make the decisions you made to end up in debt. I am all for bashing lenders, but with the realization, that ultimately, the responsibility lies with a persons decisions, not with the credit card companies. Veiwing yourself as a victim never really helps in the long run, it is just a way to deflect responsibility.

That is true. No one forced us to get into debt but the credit card companies do share some of the blame. We were making good progress paying off our debt and would have been done in less than 2 years and had a comfortable margin of error in our budget for emergencies and other unexpected expenses. But when they decide to take your interest rate from 8% to 30% overnight simply out of pure greed, well then they deserve what they get.

After several of the credit cards raised their rate to 30%, well, it came down to not having a penny extra after paying them their minimums due and if something happened then we were screwed. I wasn't going to keep paying them every month knowing that if there was an emergency we had no money for it and would have to file bk in a year and waste all that money making the credit card companies rich. I could put that money in their pocket or put it into a savings account. We filed about 4 months after they first raised rates.

Yes, I borrowed the money and went into debt. But I did it with an 8% rate and a reasonable plan to pay it off. They got greedy and wanted more money so I got greedy and decided to save my own butt.

They made their business decision, I made mine. We both have a share of the responsibility and the blame. Neither one is innocent or blameless in this matter.

TS

[Frogge]

That is true. No one forced us to get into debt but the credit card companies do share some of the blame. We were making good progress paying off our debt and would have been done in less than 2 years and had a comfortable margin of error in our budget for emergencies and other unexpected expenses. But when they decide to take your interest rate from 8% to 30% overnight simply out of pure greed, well then they deserve what they get.

After several of the credit cards raised their rate to 30%, well, it came down to not having a penny extra after paying them their minimums due and if something happened then we were screwed. I wasn't going to keep paying them every month knowing that if there was an emergency we had no money for it and would have to file bk in a year and waste all that money making the credit card companies rich. I could put that money in their pocket or put it into a savings account. We filed about 4 months after they first raised rates.

Yes, I borrowed the money and went into debt. But I did it with an 8% rate and a reasonable plan to pay it off. They got greedy and wanted more money so I got greedy and decided to save my own butt.

They made their business decision, I made mine. We both have a share of the responsibility and the blame. Neither one is innocent or blameless in this matter.

TS

Why did your rate go from 8% to 30%?

[ThreadsSnapping]

Why did your rate go from 8% to 30%?

I never got a straight answer from them. It was always the account review line. We had no late payments, our balances were going down and there wasn't any unusual activity or usage on the account. We really didn't use them except for an occasional tank of gas or other small purchases mostly when we forgot to go by the ATM to get cash out before hand. If we used a card we paid that off on top of our regular payment. Oh and our credit scores had gone up a little over time. I forgot to mention that they also cut our credit limits so it maxed out our utilization, tanked our scores and we couldn't transfer it anywhere with a half decent rate.

All I can think of is that they weren't making much money off of us and figured that this was a way to do so. Not making much off of us now are they?

As far as I can tell, it was greed on their part, pure and simple.

TS

[nazstar]

same here. I was paying everything on time and then got rate increases because they didn't like my debt to income ratio. even though i always paid on schedule, i saw my interest rates go from 12% to 30%. It was then that i started falling behind.

[Flamingo]

I never got a straight answer from them. It was always the account review line. We had no late payments, our balances were going down and there wasn't any unusual activity or usage on the account. We really didn't use them except for an occasional tank of gas or other small purchases mostly when we forgot to go by the ATM to get cash out before hand. If we used a card we paid that off on top of our regular payment. Oh and our credit scores had gone up a little over time. I forgot to mention that they also cut our credit limits so it maxed out our utilization, tanked our scores and we couldn't transfer it anywhere with a half decent rate.

All I can think of is that they weren't making much money off of us and figured that this was a way to do so. Not making much off of us now are they?

As far as I can tell, it was greed on their part, pure and simple.

TS

What the situation may have been was your other available credit very close to your limit (it is not favorable to have a credit line and go over 30% of that available credit - reduces your score). If you had several cards going top heavy like that, or on that particular card you mention above, and your credit is reviewed, up goes your interest. Anything unfavorable showing on a credit report viewed by another creditor grantor can also up your interest cause it increases your risk. Were you carrying large balances at that time on this card and other cards/loans?

[momof5]

I think you need to be ruthlessly honest with yourself; no one forced you to make the decisions you made to end up in debt. I am all for bashing lenders, but with the realization, that ultimately, the responsibility lies with a persons decisions, not with the credit card companies. Veiwing yourself as a victim never really helps in the long run, it is just a way to deflect responsibility.

I dont blame the creditors. I blame the ex employer! I blame them with every ounce of my soul. Granted they didnt make us use credit cards but they did provide a very nice living for many years and then snap.... right out from under us. Almost no notice. No regard for our children or our lives. It was a business decision I suppose but a rotten one. One that I will never forget for as long as I breathe.

[Frogge]

If my rates go from what they are now (0% to 10%) to 30%, that will send me spriraling fast.

My limits are getting reduced one by one due to the 60 day past due mortgage payments, which doesn't really bother me since I'm not using them.

However, I have been under the assumption that since a lot of creditors stopped the "universal default" practice - the limit reduction is their defense. I am amazed that your rates would rise due to no usage.

[Frogge]

same here. I was paying everything on time and then got rate increases because they didn't like my debt to income ratio. even though i always paid on schedule, i saw my interest rates go from 12% to 30%. It was then that i started falling behind.

nazstar, how did you know that your DTI was the reason for your rate increases? Did they notify you of this?
You had no late payments ever?

[WoodSprite]

$39 fee for paying cc bill too early

nazstar, how did you know that your DTI was the reason for your rate increases? Did they notify you of this?
You had no late payments ever?

Believe it. Here's a PDF of a recent press release from Americans for Fairness in Lending, which quotes a few of the [now over 27,000] comments the Federal Reserve Board has received in response to its invitation to complain about unfair or deceptive credit card practices :

http://www.affil.org/uploads/D_/_l/D...-Responses.pdf

My favorite, at least from this list:

But with 27,000 responses (according to the Federal Reserve board's own site: http://www.federalreserve.gov/genera...=1&ShowAll=Yes, there are probably ever worse tales to tell...

[HHM]

I don't mean to sound harsh, that was not my intention. But the OP's original post came off a little bit like "poor me". I view BK as a financial tool and I don't really care why people file BK, its available for anyone to use it and if the need arises, a person should take advantage of it.

But I think people are too quick to push the blame off on someone else.