2/4/2011 12:31 PM ET|
Are you foolish to pay your bills?
Borrowers who are in over their heads with debt often struggle with the morality of filing for bankruptcy. But should you feel guilty if there's really no other logical option?
People who think there's no longer a stigma attached to bankruptcy or foreclosure need to come sit in my chair.
Every day, it seems, I hear from yet another borrower struggling with massive debt -- credit card bills, an unaffordable mortgage or both -- who absolutely refuses to throw in the towel. These people don't want to be deadbeats. They want to pay what they owe.
They certainly don't want to hear what I have to say, which is that the train has already left that particular station. Much of the time, they're in too deep to dig themselves out. They have more credit card debt than they have annual income, or they've been out of work for months, or their mortgage payments on their "underwater" homes are eating them alive, with no relief in sight.
The only logical option is to hit the reset button and salvage what's left of their financial lives.
But people in debt often aren't the most logical creatures. They'll do desperate, foolish things, like drain a retirement account to pay credit card bills or try to save a home.
Most of the people whom bankruptcy attorney Stephen Elias counsels these days have long since spent their retirement money in a futile attempt to pay their mountains of debt. These are funds that would have been protected from creditors, and emptying the accounts hasn't done any good: The borrowers are in bankruptcy and foreclosure anyway, plus now they face fat tax bills and the prospect of impoverished retirement. Every $10,000 pulled from a retirement fund can cost you $100,000 or more in lost future income.
"It's so sad," said Elias, the author of "The Foreclosure Survival Guide." "I almost never talk to people until after it's done, when it's too late. I don't know why people don't talk to a lawyer before they drain their retirement."
Even thinking of tapping your retirement funds to pay bills is such "a big red flag," as debt expert Gerri Detweiler puts it, that you need to consult a bankruptcy attorney.
"Another similar problem I see is that consumers will scrape together all their available cash to pay off or settle a balance with one creditor, but they don't have a plan for paying other creditors," said Detweiler, a personal-finance expert for Credit.com. "The other creditors may still aggressively try to collect and force the consumer into bankruptcy. If you have limited funds to settle debts, then you should be settling all or most of them, not just a single account."
Should you really feel guilty?
So why do people take financially shortsighted actions? They're often trying to do the right thing without really understanding the consequences. They're so driven by guilt that they throw every available dollar at their problem, not realizing they're making matters worse.
"Most people I talk with feel an enormous amount of shame when contemplating bankruptcy or walking away from a house," Detweiler explained. "They feel like they will be branded as bankrupt or a deadbeat, but, ultimately, these days it's often a difficult financial decision more than a moral one. I say that because many people who file bankruptcy or give up their home have done everything they can do to avoid it, and there are simply no other options left."
I've said that people in debt aren't the most logical creatures. Of course, people who are not in debt can be pretty illogical, as well. They'll condemn those who don't repay their debt as thieves, which is absurd. Theft is a crime, but owing money typically isn't. Neither is owing money fraud, unless you borrowed knowing you couldn't repay the loan. Most people go into debt fully intending to pay back what they owe.
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Wow! I am seriously appalled by some of these comments and at how uneducated people really are with the current financial situation. Not too long ago there were working folks taking out a loans for homes with the PROPER down payments, excellent credit scores, kept up their homes, paid astronomical amounts of taxes w/o complaining about it and their bills on time, etc. so they could have their American dream. YET AT THE SAME TIME paying for every single Tom, Dick and Harry who is on SSI, Welfare, free educations, illegal's, free health care (the list can go on and on and on) are NOW being ridiculed for filing bankruptcy and foreclosure because of losing their jobs, losing the over 30% plus of the market value on their homes (mostly due to all of the 100% loan foreclosures. Sometimes 2 loans - 1 for the down payment and the other for the home that were given by the banks), banks raising credit card interest rates whenever they felt like it, losing their business's, taxes still continuing to rise, being refused loan modification's, medical bills, refusal of any aid at all, etc.. These are the people who did not and still do not qualify for any aid at all even though for the last 25 years they are the ones how supplied the funds for aid! Seriously people - GET A REALITY CHECK AND the facts of what your talking about!! Wow what a bunch of mean spirited- immature people...If you want to take your anger out on someone, take it out on the people who have never paid a dime in taxes and have collected aid for wayyyyyyyyyyyyyyy toooo long! Don't aim your anger at the people who have paid and paid and paid and paid and paid. The well is now dry.............
Businesses can file for bankruptcy and no one seems to think worse of them? Anyone here not flying on northwest, delta, frontier, united, air canada and others because they went bankrupt? Anyone not driving a new GM or Chrylser because of their bankruptcies? Both had increased sales last month.
It's a business decision, period.
It does have ramifications for sure but it is a business decision. You might feel bad for doing it if the numbers don't work, they don't work. If you have judgments that have led to garnishments, get some protection from the courts.
At some point you have to throw your hands up in the air and say, "I need to start again." You feel bad but you move one. 4 things you should take care of first each month with your money first are Food, Shelter, Clothing & Transportation. Everything else comes secondary to those items.
Start over, follow Dave Ramsey's teachings so you don't have to get in this pickle again.
Sorry, but I am totally with Barry here. I will grant there are people who have been beaten up by horrid circumstances beyond their control: expensive and rare illnesses that incapacitate but do not kill, industries that totally fail without warning, fraud by family members or experienced cons...all of these happen. I would guess, however, that these causes for debt and foreclosure account for less than 15 % of those in financial holes now. And they have my sympathy and support.
Everyone else, though? Living beyond one's means; no planning for the future "rainy day" ; no attempt to learn a different career when your current line of work is non-tenable; non-insured or underinsured for health, disability, and death; adult "toys" and a general sense that tomorrow will never come, and the piper will never demand payment for the dance.
I have heard and read the horror stories, and most have a single true note that rings throughout them...poor choices, immaturity, and a deep sense of being "entitled" to "IT"....whatever "it" is. A huge house, designer labels, eating out daily, vacations, private schools, new vehicles, the latest electronic toy on the market...coupled with leisure time, lots of leisure time.
People should feel guilty about running up debts and then running away..it IS theft of goods and property, and sugar coating it doesn't change the reality. Even more infuriating is those who fail to learn from cheating others and go on to declare themselves bankrupt MORE THAN ONCE! Zero sympathy here.
are you guys shutting me???? by getting a credit card you are giving your word to pay for the goods that you are receiving. you are promising to pay later for something you are receiving today.
Did you live in that house? did you eat that food? did you enjoy that HD TV? did you get to drive around in that car? Did you enjoy those goods that you "purchased?" If yes, then you need to pay your debt.
You signed on the dotted line. You promised to pay what you owe. It does not matter if the credit card companies are "evil." You promised to pay what youu owe. If yo bought it, you need to pay for it. If you can't, then you need to suffer. Live in a faking box for all I care. You promised to pay for something. Now pay for it.
My point is that you shouldn't be so quick to judge and label everyone in this predicament as irresponsible, lazy thieves only out to take advantage of others who have money. My experience has taught me that you can find greedy people within all socio-economic levels. My experience has also taught me that whoever has the most money "wins". Money IS power, and unfortunately, that power is usually used for selfish gain. I know this from working in commercial real estate for the past ten years in various administrative assistant roles (which also explains why I was laid off). Capitalism does have its down sides.
My mother worked for a bankruptcy attorney, Yes, there certainly were may who sickenly abused it, but for the most part, she said medical bills, loss of job, illness resulting in disability, accounted for most of those having to file. Those people would cry and felt so guility, as they all had always paid their bills. . As for bankruptcy attorneys getting rich? My mothers attorney charged 1100.00 and there was a lot of work involved. . My mother earned 9.00 an hour and lived in an expensive area of California. For those so critical in their comments, I hope the following presents another side to what is happening everywhere, and I truly hope you never have to go through job loss, debilitating illness, bankruptcy and/or foreclosure. I know many people struggling, I know six families, who's either husband or wife lost their job or became disabled. Several were self employed and worked really hard to build their businesses. They have all been responsible, hard working people for 20 plus years. They bought their homes in California. Several of them paying three to 4 times what they are worth now.None of them bought fancy homes, in fact most were built before 1980. They did not buy fancy expensive cars. A couple had nice trucks they used for their tile and construction businesses. None have taken a vacation in more than 3 years. . Unexpected illness and/or job loss happened. The economic downturn really hurt the self employed. Three of them are now walking away from their homes. They tried for a year to work something out with Bank of America, as they wanted to pay and keep their homes. Where else are they going to live?.
Bank of America has failed miserably to work with them . It is frustrating, especially if you read enough, to see the real low down dirty of Wall Street and Banks. I read all of Matt Taibbi's articles (look them up on the Internet). He exposes so much corruption and dirty dealings, that most people don't even begin to know about this mortgage mess. After you read his articles, there will be no ounce of pity for the Big Banks, Wallstreet and credit card companies (saw a documentary on college kids committing suicide, because they were given credit cards with little or no income by these big credit card companies, and were to afraid to tell their parents they had run up debt (average about $1500.00) After I learned all this, I actually was able to sleep again. We felt so guilty for over a year, as I got very ill and lost my job. Several credit card companies refused to work with us, and our stellar credit went to hell. I paid off the one that worked with us, but we finally have to consider bankruptcy, since these other two call morning noon and night constantly and our credit is now ruined. All I wanted was to pay half of my monthly payment till the balance was paid, so I could pay my medical bills after insurance, and afford my medications. Times are hard, but we are making our house payment (we live in another state, so our house did not lose the kind of value my friends did although it is 75K below what we purchased it for at the height of the housing bubble.)until Social Security disability manages to kick in, as it takes several years to get, no matter how sick you are. Everyone that I have known most of my life, and I am over 50, have worked hard, been responsible and not bought all the latest greatest electronics, fancy clothes, etc, just have fallen on hard times. Even though I have read horror stories about banks and credit card companies, I along with several of my friends still feel guilty for our situations. I, nor my friends ever imagined we would end up like this. Several of us with debilitating illnesses would give anything to be well, return to work and pay our debts. I truly understand the meaning of bible verse "judge ye not, lest ye be judged 10 times over" . I will never judge anyone unless I have walked in their shoes.
Credit card debt ? How about acting responsibly and saving toward what you want ? If you haven't the money....DON'T SPEND it !! How is this so complicated ? You are an adult....ACT like it. And please....please, do them a favor ..... don't teach your children your habits
Oh, I forgot it's the first Monday of the month. While I go off to work what line will you be standing in...?
Btw...I have been there and have chosen not to let an enabler (government) confuse my morality.
48% of the United States people are now on some sort of government aid. Do you really believe all of them are above reproach? What happens when it becomes 55%, 60%, 70%? How much will the working class tolerate?
If everyone lives off of the state then whose tax dollars will support these programs?
"Please do not insult those in our Military by making rash remarks! You apparently know NOTHING about the subject above." Know more than I am willing to share with you...you're just not worth it!
Thanks MSN for the article. Everyone should stop paying their credit cards. There is no shame in falling behind on you debt. Wall St. and the Banks did it and got bailed out.
Each person in America should have been given $25,000 instead of the Banks. They are hoarding the money American people would have been spending that $25,000 and got this economy back on track. They would have been buying cars, appliances, furniture, taking trips and paying back their credit cards. I'm sure the politicians and the Banks that own them will find another way to screw the disappearing middle class. Soon we'll be like Mexico. Rich and poor only that's what they want. People should to Egypt on them. City Bank eat a big one.
In my mind, the morality line is whether or not interest is charged. If a friend or relative lends me money with no interest , I am morally obligated. If someone charges interest , that is a buisiness relationship. In fact, interest rates are adjusted to reflect the risk of the money being repaid. Higher risk borrowers pay higher interest. Creditors want to charge for risk but remove the risk by saying the person is morally obligated. I don't think so!
It is true that there are a lot of people who live beyond there means and then whine about what they owe. That is wrong; but the solution is to make credit tougher to get. Period. The reality is that would cut into financial companies profits and they don't want that.. Even in the mortgage meltdown, a lot of people made a lot of money. We, the taxpayers, were the real losers.
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