the case *for* bankruptcy?

iVillage Member
Registered: 09-23-2004
the case *for* bankruptcy?
21
Thu, 09-23-2004 - 2:33pm
I'm trying to help my sister make a painful decision. I see the light at the end of the tunnel for myself, but I struggled with the spectre of bankruptcy several times. Now she's considering bankruptcy, and I'm trying to help her get past the shame of even saying the word. Honestly, since I read an article on MSN Money and saw a past roommate positively *enjoy* the effects of Ch. 7, I'm gung ho! Read on for her situation, but I'm pretty sure that Ch. 7 is good fit and appropriate for her, not an escape or enabling. But what would happen if she didn't declare? What could the credit card companies do to her? Sue? Garnish her wages? She needs to know what "the worst" is, because she has only vague fears and threats, not *facts*. (And frankly, I want to know, too.)

She's already been to every credit counseling service out there and they've all painted horrible pictures for her of bankruptcy -- but their solutions are no better. She owns nothing -- no car, no house (rents), is single, owns only secondhand furniture and clothes, has no 401(k)/savings/life insurance -- nothing, she has absolutely *nothing*, and is terrified that bankruptcy would involve someone coming to her house and taking away her beaten-up shoes and thrift-store blender because "You're not allowed to have them." She only makes $31K, owes $35K on credit cards (all at 29.99% interest), and has $60K in student loans.

Here's the problem: The student loans are cosigned by our parents, whose horrific money management and credit woes have ruined her carefully balanced finances. She was scraping along OK, making every single payment, living within her means... when they defaulted on something and WHAM. Up went every credit card, and now she can't afford even the minimum payments on those cards. Every time she opens a statement, it gets worse. She can't get rid of the student loans and hence, the disastrous financial link to our parents. But if she could end the nightmare of the credit cards, she'd be able to live again -- and of course, keep paying on her student loans.

I just can't get a good reason from anyone why she *shouldn't* declare bankruptcy. She's in therapy and working on the reasons she racked up credit card debt in the first place (making ends meet while she was unemployed), has resolved firmly *never* to get tangled up with those awful companies again, has a budget -- everything except the ability to get past her shame. It just kills me to see her struggling under this massive weight and the credit card companies making it harder and harder for her. I know she signed the agreements -- but she was 18, in college, and in a family where debt was abused like alcohol. She's in recovery, and wants to end this nightmare. And I can't think of a reason that bankruptcy couldn't be that answer.

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iVillage Member
Registered: 04-30-2003
Thu, 09-23-2004 - 5:55pm

Not an answer, but a question for whomever reads this.


How can the sister be affected by the parents bad credit on something OTHER THAN the school loan? I figured, as long as the loan wasn't defaulted on or late, then the sister should be affected.


Cuz for me, that's like saying if my 1xh defaulted on something, although we're not married, we still have a joint cc, that my credit can be affected. I don't think that's how it works.


Seems kinda fishy to me. Although if it can, then BK won't help her, as her loan will STILL be connected to your folks, and if their credit is bad, and getting worse, then so shall hers. (I still don't think it works liek that though).


ANyone?

~Cher




my pet!

iVillage Member
Registered: 08-06-2003
Thu, 09-23-2004 - 6:01pm


Many credit card companies have started monitoring their clients' credit reports on a regular basis; and they now will jack up your rates for anything they feel makes you a bigger "risk," even if you're 100% current on everything you owe *them.* Currently, it's legal, though I've heard talk that Kerry wants to change that.

SO, basically, if you are late on *any* one item that shows up on your credit report, ALL of your other accounts can automatically hike you up to the "default" rate if they so choose. It stinks.

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iVillage Member
Registered: 04-30-2003
Thu, 09-23-2004 - 6:49pm
Even if it was the parents account?




my pet!

iVillage Member
Registered: 09-23-2004
Fri, 09-24-2004 - 8:54am
Call your credit card company RIGHT NOW and find out -- because what the last poster described is *exactly* what happened to my sister. The credit card company said that because her loan cosigners had defaulted on that cosigned loan -- even though it was a college loan for parents and she was not responsible for the primary payments -- her risk factor was higher and therefore she would have the maximum credit rating, just as if she *herself* had defaulted on the loan in question.

It is just an absolute horror what these *&%$#$^ companies can do -- bending the laws of time and space must be easy for them if they can get away with this garbage.

I cannot encourage you strongly enough to do this. And why on earth would you still share any kind of account with an ex-husband? That's just asking for trouble, no matter how trustworthy he is. Because your name is still on the account, you most likely still are responsible for all transactions on the account, whether you personally make them or not. So if something happens to him -- unemployment, a spending spree, theft of the card -- the company can come after *you*. And because you're on this board, I'm assuming you have issues already with money. Don't leave this loose thread hanging -- you never know what will unravel your finances!!!!!

So, back to my original question: How could bankruptcy be any worse than the life sentence of having to struggle under the weight of this debt? She would be crushed by the repayment longer than by having the bankruptcy on her credit report, and in addition would be able to start saving money (or at least paying back her student loans more quickly and thus dissolving the financial connection to our diastrous parents) and building a life instead of feeling like life isn't worth living.

iVillage Member
Registered: 08-06-2003
Fri, 09-24-2004 - 8:57am


If her parents co-signed on the account, then it would be on *both* their credit reports, and anything that happened to that one account could affect everything - and Yes, if you and your XH are both responsible for one credit card (and you're not *just* an authorized user), then any mistakes on that one account can mess everything else up, too. That's pretty much what happened to Me; I was late one month with one payment to one card, and next thing I know, they all jump the interest rates up to the default rate, 24-27%, and I can't even make the minimums anymore. Ugh.

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iVillage Member
Registered: 06-18-2004
Fri, 09-24-2004 - 10:16am
I don't have any advice on the cosigner issue--but I do know that cosigning make both parties responsible for the account and if one party is late, it CAN and WILL effect the other party. If you are an authorized user on a cc, then your credit won't be effected but the person whose card it is will be.

As far as the bankruptcy issue, I am a huge fan of Suze Orman (I watch her show every week) and her take on bankruptcy is if you owe more than you make in a year (and in this situation that is true) then you are already bankrupt and filing for it just makes it official.

Sorry your sister is in this situation, but declaring bankruptcy doesn't make her a bad person.

Good luck on helping her.

Kellie

iVillage Member
Registered: 08-06-2003
Fri, 09-24-2004 - 10:46am


I'd never heard that particular rationalization; what I've always heard is if you can't find a way to pay it off within five years, you should seriously consider bankruptcy.

IMO, anything and everything possible should be done *before* bankruptcy should be filed, because it's not so much whether or not it's the financially beneficial thing to do - it's the moral issue. The way I see it is that if I *can* pay it off, I will, no matter how long it takes me, or how much I sacrifice along the way; but if the calculations show that I will never get it paid off, then I'd consider bk. It's a last resort. Necessary sometimes, but something that shouldn't be used unless there is NO other way.

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iVillage Member
Registered: 03-20-2004
Fri, 09-24-2004 - 11:08am
Yes your credit can be affected by someone else's bad credit. The same thing happeneded to me regarding one of my student loans that my father cosigned because I was a minor. I am responsible for this loan and it's pretty big (about $45K). When I was 16 my father didn't have good credit, but he was able to get a the student loan for me (Federal Direct PLUS Parent Loan). In the next few years he began "abusing credit like alcohol" and began ignoring all of his bills. The student loan bills got thrown away with the rest of his bills, so I thought the loan was in a period of differment until I graduated (didn't live at home). He didn't even bother to open them when they came in the mail. When I went to apply for loans for the next year, I couldn't because my father (not me) defaulted on his loan. Later that year he filed for a Chapter 7. My credit cards all suddenly shot up to like 29%....I didn't default on any of those or any other loan for that matter.....the reason was because of the default on the student loan, that was in my father's name.....

I've been making regualar payments on it now so that situation is over with, and hopefully it will help rebuild my dad's credit....

iVillage Member
Registered: 06-17-2003
Fri, 09-24-2004 - 6:56pm
Let me try to answer your original question based on my experience with struggling to avoid bankruptcy and ultimately giving in and doing it. What happens when you don't file--they call you and harass you endlessly, they call your friends, family sometimes your job. They send piles of increasingly nasty letters (I quit opening them, I could spot them instantly and they turned my stomach). In the end they can sue you, get a judgement which they can enforce by garnishing her wages. Although she owns nothing now she does have a job and if they know or find out where she's working they will not hesitate to garnish.

As you know, the student loans are here to stay. $60,000 is nothing to sneeze at but it's surmountable. Losing the $35K in unsecured debt will be a great relief. If she owes $35K at 29.995 interest and assuming a minimum monthly payment of 3%, she will be paying this off for the next 6 years at $1050 per month. If she's making $31K a year she probably bringing home a little under $2,000 a month after taxes. Half of your net pay to creddit cards is ridiculous, not even considering her student loans.

I filed Chapter 7 in 1997. Not the happiest day of my life but nor does it make me an evil person. But I learned from it. I have never had another late payment in the last seven years. I put money aside for foreseeable "emergencies" like new tires & dental bills. I have a 401K and I pay off any credit card debt monthly. My credit cards are at 18 and 19% interest but it hardly matters if I never carry a balance. When I bought my van I paid 21% interest (!) but I paid it off in a year. To some extent debt still terrifies me. I went without eating to try to pay my debts and it was to no good end, I still got sued by creditors who felt CCC wasn't paying them fast enough. But I bought a house 2 years after I filed and I will be debt free by the time my oldest graduates from high school in 7 years. I'm not sure if all this will help but I guess I would want your sister to know that sometimes it can be the best way to go and it isn't the end of the world.

iVillage Member
Registered: 09-23-2004
Fri, 09-24-2004 - 10:01pm
katarina1966, I can't thank you enough -- that is *exactly* the information I was looking for. I am so sorry you had to go through that experience, but it sounds like you definitely are better for it -- and you've just used it to help two people for sure, maybe more! Thank you, thank you, thank you, all success and joy to you and your family.

I am going to talk to my sister again tomorrow about this. She has been looking for this kind of real-life scenario for a while. Thank you most of all for the warning about CCC -- she and I each have visited them and their entire cohort for years, trying to find someone there that we trusted and didn't think was just a glorified salesperson, all the while being more frightened by the horror stories about bankruptcy that are part of their "sales pitch." I'm glad to know our instincts were right.

I recently read an article on MSN Money that started me thinking about bankruptcy as a positive option instead of the nightmare. It described how people who tried to pay off their debts -- I think another poster called it a "moral responsibility" -- were actually penalized *more* than folks who declared bankruptcy. I believe that the credit card companies have reneged on their end of the bargain by tripping up cardholders with red tape and aggressive business practices, and believe that they have nullified their end of the social contract by creating a situation that makes it impossible for you to repay that debt and fulfill your "moral obligation."

I mean, I have an excellent credit rating... and just got a letter from my credit card company of 12 years telling me that they were raising my interest rate to 21.99%. I called to ask why -- whether it was something I'd done -- and they said no, that all customers who were members of my program were being switched the higher rate. When I said that I felt like I was being penalized for doing business with the company, the customer service rep had no answer... but asked if I might like to switch to another program, one that they've tried to get me to join for years, at a lower rate, but with higher fees and an even worse cardholder agreement. Nope, no moral obligation to an abusive business entity.

Anyway, thank you again for all your help. This board is terrific.

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