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3 things I learned from bankruptcy

Even after my debt was discharged, I continued to overspend -- until the real consequences of bankruptcy began to sink in.

By MSN Money Partner Jun 26, 2012 10:57AM

This guest post comes from Andrea Whitmer at So Over Debt.


Image: Woman with paperwork (© Big Cheese Photo/Jupiterimages)I've posted about my experience with Chapter 7 bankruptcy several times, including a detailed explanation of how bankruptcy works. One thing I haven't done, though, is talk much about how that experience affected the way I look at my finances nearly six years later.


I wish I could say that the shame of bankruptcy instantly reformed me and changed my life, but unfortunately that's not quite how it worked out. In fact, it took four more years for me to really come to terms with my spending problem and make lasting changes.


Still, at this point I can look back and see lots of ways that Chapter 7 taught me various financial concepts. It just took a while for the lessons to sink in.


1. Financial problems are more widespread than you'd think. It was beyond humiliating to go tell an attorney that I'd racked up so much debt I couldn't buy groceries. I can't even describe how it felt to see my name in the newspaper under bankruptcies (and this is a small town, so everyone saw it). But I wasn't alone.


When my ex-husband and I went to court for our 341 hearing, we saw several people we knew personally. They were just as surprised to see us as we were to see them. I never would have guessed that those people were in such dire straits. One guy in particular had a VERY nice house and a high-paying job. That didn't make him immune to debt, though.


Today I try very hard not to make assumptions about a person's life (or bank balance) based on outward appearance. I didn't look like the "type" of person who would file for bankruptcy, but that didn't mean I could afford the lifestyle I was living. Bankruptcy can happen to anyone, and it can happen for a lot of different reasons. (Post continues below.)

2. You can keep most of your stuff in bankruptcy. People always have this fear of someone taking all their things away. I know I did! But the exemptions for personal property are more than generous. I didn't have to answer for a single purchase or give up any of the junk I'd bought on credit cards. While that sounds like a great thing, it's really not. It was like holding a "get out of jail free" card.


Don't get me wrong. I'm glad I didn't have to box up my clothes and furniture. I got to keep all the stuff I couldn't afford, AND I didn't have to pay for it! For a spendaholic, it was kind of like Christmas. And it made it all too easy to get more credit cards later, because I still didn't believe there were consequences for my habits. Then I got divorced and had to pay back all that credit card debt on one income, and let's just say it was a lot less fun at that point.


I haven't gone minimalist by any stretch of the imagination, but I do make an effort now to buy only things I need (or things I will use) instead of spending blindly for the five-second high of getting a new shiny object. So many of the things I bought back then have been sold in yard sales, brand new, for a fraction of what I paid for them. I don't ever want to go back to thinking I can have whatever I want.


3. You will never regret paying for something with cash. At the time of my bankruptcy in 2006, it was very rare for me to be able to pay for anything with my debit card. If I did, that usually meant using a credit card later anyway, to make up for what I spent out of my bank account. Even after the bankruptcy was discharged, I immediately started applying for new cards because the concept of living within my means was so foreign.


In late 2010 when I decided I was tired of playing catch-up all the time, I stopped using credit cards cold turkey. I just stopped one day. I was tired of rejoicing every time I had enough available credit to buy something else, then realizing I had no backup plan because all my money went to debt payments.


I do use credit cards occasionally now, but in a totally different way than before. Now I save up for what I want to buy ahead of time. When I have enough money, I buy it with the credit card, then pay the balance off as soon as it hits my card account. Strangely enough, I get as much gratification out of saving for things as I used to get from charging them.


And I spend a lot more time thinking about purchases: Do I really want to keep saving for this item, or should I put the money toward something else I want or need?


The aftermath: Better than I thought

As I said, my behavior really didn't change much at the time of my bankruptcy. The required "credit counseling" was a complete joke, and knowing the right answers didn't mean I was ready to put them into practice. But as the years passed and the real consequences of bankruptcy (ruined credit, limited housing options, worry about what I'd do without high credit limits to fall back on) became more apparent, it's amazing how much I was able to change.

Filing for bankruptcy was a terrible experience, and I never plan to go through it again. But in a lot of ways, it was a good decision for me in the long run. At the time, the only alternative would have been a bailout from my parents or my ex's parents, which would have taught me nothing at all. So I'll take the delayed lessons over a lifetime of debt and overspending any day.


Have you ever learned an important financial lesson way after the fact? What did it take for things to change for you? What do you still need to work on?


More on So Over Debt and MSN Money:

Jun 26, 2012 5:48PM

i filled for chapter 7. basically because my house was scheduled for foreclosure sale in a couple of weeks. even thought the court ultimately rejected and dismissed my case (they claim i did not submitt all the required documents in time), it stopped the foreclosure sale for at least 2 more months. on the down side, the foreclosure attorney charged about $2000 for the delay and extra paperwork they had to do to get the foreclosure back on track.


so i found doing bankruptcy right, even if your case is simple, will require an attorney. even though 'all' the information you need is available for free, no one in the courts is allowed to help you in any way with the paperwork. you will most likely mess something up that will get the case thrown out. so i suggest if you do need to do it, get an attorney to help you.


i never intended to go through with chapter 7, i just used it to stall some to find a buyer for my house rather than have a foreclosure on my credit record.

Jun 29, 2012 6:26PM
Thank your story. It mirrors my feelings exactly. It was a shameful experience and one that I have learned tremedously from. It's nice to know I am not the only one.
Jun 29, 2012 5:41PM

with a bankruptcy on the credit report - many employers do background checks & a bad credit score may mean a lack of self control, plus  lenders charge much higher interest rates for a car, credit cards, and most loans. So there are long term penalty. 

Jun 29, 2012 11:42PM



No one gives a damn about your opinion.Society "PAID" for Her? Who paid for the damn banks that did the same on the BACKS of the American PEOPLE and are STILL on their backs with "SOCIETIES" money millions in  UNDESERVED BONUSES for the same people that got us into this mess. Unapproved FREE gifts on the back of the American people..The US Constitution grants bankruptcy based on the SAME Authorized,King James Holy Bible which God commands that ALL LEGITIMATE debt be EXCUSED every SEVEN years.Even that is NOT done according to GOD."Legitimate" debt.NOT dead beat, conspired,calculated debt.Have no " RESPECT"? Don't tell me.You have loads of RESPECT for corrupt Politicians and crooked Corporate CEO'S."YOUR" turn WILL come to be in the pickle barrell you self righteous,judgemental , limp wristed, hypocrite.I have zero "RESPECT" for YOU.Now chew on that.GREED is the primary problem in this UNGODLY nation that is causing ALL of the multitude of problems in the USA.

Aug 21, 2013 1:59AM
Filling bankruptcy is an important decision, so applicant should be very cautious and should have proper mind to do the same. First of all you must provide all the information and details related to your bankruptcy to the attorney. This independent website has a lot of useful information.

The banks were so eager for high interest on credit cards & loans and their payoff was humungous even after high failure to repay and even today the payoff is hugenormous and that there isn't any real reforms.  The payoff for the banks is still lucrative, they sign up another generation when our guard is down.

This happened in the eighties and became more ludicrous in the 2000's I anticipate more insanity sooner than later.
Jun 29, 2012 11:53PM
BK is a survival mechanism for many. It has been for me. While the debts mounted for my mothers'  health care, and my childrens' education as a single mother...I had also lost my job. I have scraped by working wherever I could to make payments to keep my home... to this day after my BK has been paid mtg. company (mind you 4 years later!) has still not responded to my many,many, request s for  a loan modification. They have been taken to court on a class action because they did not want to deal with people in BK. Unbelievably, I might have to file another BK as I can not continue to pay the bills associated with the inflated mtg. I do not want to do this, I don't believe it is ethical. However, I can not make any forward progress with the banks. I remain between a rock and a hard place  as I live just to make it through another payday with $100 to my name. It isn't right. I work, I budget, I'm a hard disguts me to think that I might have to go through a BK again. I do not see the alternative in the long run.
Jun 26, 2012 12:02PM
"At the time, the only alternative would have been a bailout from my parents or my ex's parents, which would have taught me nothing at all."  So, instead, you let the rest of society pay for it?  This, and the fact that you had no medical bills, job loss, or "catastrophic" life events that caused you to go into debt, ( I suspect that the bankruptcy would have happened even without the divorce)  just  your extraordinary total lack of self-control, is why I can't have any respect for you. 
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