Tuesday, November 03, 2009

On Bankruptcy

I have been hesitant to write on this subject, because to do so opens me up to criticism and because it is a personal decision that people seem to feel the right to require your justification. Also it was so incredibly painful that I really didn't want my open wounds to show. But probably the biggest reason is that in my family no one talked about money. Money was even more private than sex. We were warned that you didn't talk about it, you didn't ask questions, that the entire subject was off-limits. It was considered rude. As a result I was so spectacularly uneducated about money (terribly frugal, but uneducated) that when my husband was making $24,000/year with two little kids and me as a stay-at-home mom, I couldn't understand why we were struggling financially. After all, $24,000 is a lot of money, right?

I was reading a financial blog that I subscribe to and the author made a comment about bankruptcy and the people who file it. He commented that he thought it should be both harder to file and have harsher consequences. As someone who used to feel this way myself, I felt I must respond, which I did in a private email to the author.

Harsher penalties for bankruptcy? So spectacular business failure, enormous shame, losing one's home and often one's health, etc. isn't enough?

There comes a point at which bankruptcy is the only thing that keeps a person from driving off of a bridge.

Predatory and harassing collection practices that have some creditors call up to 50 times a day can increase the stress level of the one in debt to the breaking point.

If you think bankruptcy is a free pass, think again. One of the reasons people get into debt and cannot get out is that the inability to pay a series of bills, say medical bills, reduces your credit score. Everything you do costs more after that. Insurance costs more, the used car you buy to get to work costs more, and if you tap into the equity you've built up in your home for years to pay off these mounting bills, now your house costs more.

If you think bankruptcy is a free pass, think of the financial pain that still continues. And yes, there are some people who seem to have figured out how to play the system, but for most it is an option only slightly favorable to death.

I talked to a bankruptcy attorney that I know about this very thing. This is one of those attorneys that is such a decent upstanding guy that I couldn't figure out why he had specialized in bankruptcy. He told me that most people who come to him waited far too long, trying to work things out on their own. Often by the time they come to him their health has suffered dramatically and they have endured absolute hell trying to make things right. For some, bankruptcy's primary function isn't debt relief, it is to stop the calls and to alleviate some of the stress that is so destructive.

I know a guy working three jobs. His wife, though suffering from debilitating health problems, nonetheless works full-time. They cannot make ends meet. It isn't that they've been foolish, it's that what was a profitable industry has turned on him, and the jobs he has been able to find in no way replace the income he was once able to count on.

After years of this, they are drowning, yet still he works three jobs, keeps looking for better and works harder than most anyone I know, but it is to no avail. Walking into their home is a sad thing now. They have sold off nearly everything they own to keep the lights on and food on the table (which, so far, they have been able to keep), but they cannot keep the wolves at bay. They have had their house on the market for a long time, given up their cars and now drive the beat-up cars that friends have given to them, trying to keep them running to get back and forth to work. Bankruptcy isn't an easy answer for these people, but it may be the only thing that keeps them out of the Red Cross Shelter.

There are many who seem to be unaffected by the difficulties of these times. I'm happy for them, but our compassion for those that are pushing a huge boulder up a hill only to have it roll back on top of them over and over again can be lacking.

Between the two of us, over the last 2 years my husband and I have both been unemployed, me for 11 months now, and my husband was unemployed for 8 months. He earns twice what I earned, so his was by far the most devastating, but we had no contingency for this moment. All our emergency savings are gone. Even when my husband found work it was out of state and so we were trying to support two households. Think its easy to sell in this market? How about when you are caring for elderly parents in your home?

We are not alone in this situation. And we weren't out buying toys and gadgets, nor were we spending frivolously, unless you consider food and utilities frivolous and unnecessary.

Unfortunately, bankruptcy is seen this way by most people. It is seen as benefiting the undisciplined masses who don't work hard, buy too many toys and are just trying to take advantage of the situation.

Perhaps some would like to bring back slavery as an option or perhaps would like to see the poor farms reopened. One of the horrors of my childhood was driving past the "poor farm" where indebted people and their families were forced to farm huge plots of land and live in this dark, dingy depressing hulk of a building as they atoned for the crime of being poor. Even years after it closed it still maintained its air of abject misery.

Predatory lending practices abound, and it is perfectly legal to take advantage of the poor. Payday loan places are an example of this. The poor do not have access to a friendly banker who will assist them with a short-term loan to fix that transmission, nor do they have access to a vast emergency fund to cover the expenses of unexpected illness, broken down vehicle, etc. When they turn to the payday loan places (because they must have the medication, they must fix their car to get to work, or the have run out of groceries) they are charged 600% interest or more. Of course I add into this figure the so-called fees, which are charged every two weeks.

So a person taking out a loan for two weeks (the maximum time allotted) will pay $60 for a $300 loan. On his/her next payday, it is unlikely that they can spare the $360 to pay off the debt in it's entirety, so they will continue the loan by paying the $60. Another $60 will come due in 2 weeks, and so on and so on. What was a one-time emergency has now become a $120/month drain on income. Add to this the premium this person is paying for deposits on everything, this person is trying to run uphill in the mud.

Try complaining to your congressman about this predatory lending practice. Or your senator. Write to those on the banking committee. You will receive a polite response that these businesses provide a valuable service to the poor.

No. Just like everyone else, these businesses prey on the poor, taking advantage of their poverty and adverse circumstances to make a buck.

And yes, the middle class also has their share of financial woes which lead to bankruptcies. For all your great planning, no one can be fully prepared for every emergency and catastrophe. Illness, a wayward child, natural disasters, unemployment...these things can cripple you and hit you over and over, or coming all at once are a tidal wave that sweeps you under, despite all your planning and saving.

It isn't an easy way out. It isn't a character defect. In fact as a fellow person of faith, I challenge you to read the portions of Deuteronomy that talk about the year of release (KJV). This is what changed my mind about the stigma of bankruptcy. God never intended for a person to be in perpetual debt, in perpetual poverty. Every seven years all debt was to be wiped away. And God never intended for people to lose their homes. He granted lands to his people. It wasn't owned by another or taxed by government (and thus only yours if you can pay the taxes). It belonged to you and to your family forever.

Reading on, puzzling over and meditating on these things has changed my perspective on God's view of debt, poverty, foreclosures, and bankruptcies.

When our business failed, we were in it so deep with receivables that we could not collect, from deep-pocketed contractors whose job in life seemed to be to avoid paying their legitimate debts, deep into it with a contractor who stopped payment after accepting our bid and signing a contract simply because they found someone else who would do the work more cheaply...We had suppliers who over-billed, double-billed and then went around us so that our contractors paid their inflated bills before paying us. We were too small to fight them all. The legal bills would have bankrupted us as quickly as what they did to us.

Did we make mistakes? Certainly. The biggest was in thinking that doing our job, doing it well, professionally and with excellence was enough. It was not. We were also supposed to be legal experts, contract enforcement experts, and have voluminous resources at our disposal to pay for their projects then fight it out in court.

When it got so bad that I couldn't eat, hadn't eaten in over 30 days without throwing up, had lost over 20 pounds in less than a month, when I could not even answer the phone any more...we started to face the music. This was not a win-able war we were fighting. Our accountant had been telling us that we needed to file for bankruptcy for a while, but we kept fighting on, trying to pay down our debts and beat this through sheer determination and hard work.

We hadn't been paid in two years. The end was in sight, the corner being turned when at the worst possible moment, a contract was pulled after having been signed and paid for, the check canceled just moments after being deposited, and our supplier began double-charging us, not crediting us the refunds we were due, and generally making our lives hell.

Was bankruptcy an easy choice? No. It was horrible. It is humiliating, shameful, and rocked me to the core of my being. I have never felt like a worse person. Suicide is not an option for me. I don't believe in it, and I would not want my kids to have to clean up our financial mess, but what it came down to is this--with my income (I quit the business and found a decent job) I could not pay down off our debts and survive (!) in less than 20 years. As it turns out, I only had that job for one year (long enough for the bankruptcy to go through) before our entire branch closed.

I'm not whining. Just explaining that I don't know how I would have survived it except for the surprising comfort I found in Deuteronomy. Reading that it was not God's intention that his people be in perpetual debt but that he created a safety valve--a release from debt--made me able to once again lift my head.

We aren't on easy street. In spite of the bankruptcy, we are losing our house. Our finances were predicated on being able to keep our jobs at least long enough to fully replenish our emergency funds. Both our industries are in the dumpster right now. We have sold off most of our belongings and I am currently sitting in an apartment far from home, with someone's cast off couch, a cardboard box as an end table, a single lamp I was able to cart across country. We have no credit card debt, and are keeping up with the medical bills--barely.

I'm not complaining. Really. I just think that perhaps you don't know the toll a bankruptcy has on you. It's horrific.