Things to Consider After Filing Bankruptcy
Having worked since 2006 with individuals and couples going through personal bankruptcy, I know that the vast majority of them are doing their best to fix their finances and, given the choice, would much prefer to pay off their debts on their own. Our statistics indicate that over 40% of them attribute their bankruptcy to job loss, another 19% to excessive medical bills, and 7% to the consequences of a recent divorce. Still, 22% (more than 1 in 5) acknowledge that they’re bankrupt due to overspending and poor credit card management.
To those who go through bankruptcy and work very hard to rebuild their financial lives upon sound money management principles (that many already were using even before their bankruptcy), please know that the following observations are not about you.
That said, there are a few things that individuals and couples who have never gone through bankruptcy (many of whom have considered it but opted otherwise) find financially absurd or unfathomable about those few who “appear” to take their bankruptcy lightly.
- Getting “on hold” music when you call their cell phone
It may only be a few dollars a month (and some plans may include it for free), but you can choose a song that plays for the caller rather than the standard “ringing.”
Why it’s frustrating? Although some cellular providers include this service for “free,” it’s usually part of a more expensive phone plan. Some pay a few dollars a month for the service. When a non-bankruptcy filer feels like they’re picking up the tab of bankruptcy filers through higher consumer prices (due to the increased business loss from bankruptcies), they get upset at the thought that the filer is still spending extra money on frivolous purchases. The frivolous filer thinks of it as just a few extra bucks, but the frugal know that we all have virtually limitless wants like this that are just a “few extra bucks” but that we have to say “no” to regularly.
- The Amount of Non-Mortgage Debt
When we hear about people filing for bankruptcy, we usually think of medical bills and mortgages. Non-mortgage debt, though, is a significant portion of many bankruptcy filings, and it usually involves consumer debts (i.e. credit card debt).
Why it’s frustrating? 4 in 10 of our bankruptcy filers indicate that they have between $20,000 and $50,000 of non-mortgage debt. While that would include car loans (in just 17% of cases), it is mostly credit card debt.
- Serial Bankruptcy Filers
One in five personal bankruptcy filings in the US are at least the 2nd filing for the individual or couple. About one in fifty is a third filing.
Why it’s frustrating? The assumption is that those who file for bankruptcy every few years (federal code tries to limit Chapter 7, or “liquidation,” filings to no more than once every 8 years, but it has its loopholes) haven’t learned their lesson and are reckless spenders. However, non-filers who make this assumption should keep in mind that many of these individuals are likely dealing with chronic illnesses (their own or of a spouse or a child) that involve incredibly high medical expenses.
- Buying a “New to You” Car after Filing
Anyone who has filed a bankruptcy knows that within days of doing so, you are deluged with offers from used car dealerships that will help you rebuild your credit. Most of my bankruptcy students scoff at the notion, but there are many who fall for the temptation.
Why it’s frustrating? The individual or couple has just gone through the process of being discharged by the federal government of their responsibility to pay certain of their debts. Showing up at a family gathering or friend’s party with a “new-to-you” car gives the appearance that the filer is getting themselves right back into debt. This is often the truth, as some car dealers specifically target recent bankruptcy filers for their “special” deals to help them rebuild their credit. Unfortunately, such deals often involve loan interest rates in the 20%, 30% or even 40% range. Now that is unconscionable!
- Applying for and Using New Credit or Store Card Accounts
Like the previous issue, even though bankruptcy filers are flooded with credit card offers within weeks, if not days, of filing (“help rebuild credit”), these accounts often come with exorbitant interest rates.
Why it’s frustrating? Honestly, accepting such offers is a pretty clear sign that the individual has not learned that credit is built slowly and steadily over time, unless they’re willing to pay through the nose for annual fees and high rates on these types of accounts.
- Personal Travel
For a few filers, now that their bankruptcy has freed up their cash flow from the burdens of debt payments, they feel free to “live a little.” Some even head to Europe or a tropical destination for a few weeks.
Why it’s frustrating? It’s hard not to brag on Facebook or other social media sites about a trip to Paradise, but for those who have filed for bankruptcy within the past couple of years or so, such postings will infuriate many of their family and friends who are very aware of the recent bankruptcy filings.
Are non-filers in a position to judge those who have gone through bankruptcy? The reality is that filers are literally judged in federal court and declared to be in a state of insolvency (the inability to pay their financial obligations). The rest of us would probably do well to remember that until we’ve walked in the other’s shoes for a mile or two, we do not fully understand their situation. Although we like to believe that others will be as understanding as we think we are when it comes to evaluating the logic, sanity, and wisdom of our choices, reality often proves that we’re too quick to condemn and not so willing to understand.
That said, here are my two hopes for us with regards to this topic:
- Non-filers need to be less judgmental and condescending towards to the filers. My experience and research would indicate that well over 60% of the US population is only a few missed paychecks away from having to file for bankruptcy.
- The vast majority of filers already know this, but there are a relatively few who fail to learn from the experience. Be a bit more circumspect about purchases and expenses such as those listed above. After all, most non-filers would say, “We can’t afford that, and we’ve not gone through bankruptcy recently!”
Good luck, become and be financially savvy day in and day out, and have a great day!