It's a matter of attitude. It's not uncommon for an individual who owns a business that goes bankrupt to file for personal bankruptcy as well. The reason is simple -- many business owners guarantee the debts of their businesses, and when their businesses go belly-up, the creditors come after the guarantors. But, unlike many personal filers who have little experience running corporations, an individual who is a business owner often has a different approach to his personal finances. He thinks of his own money and debts in much the same way as he thinks of his business finances -- with objectivity. Every business is a gamble, and banks that lend money to businesses partake of the risk in a cool-headed fashion. And here's the thing, when a bank lends money to an individual, it does so with the same objectivity and assessment of risk employed when lending money to a business. The point I'm making here is that as a society we accept that businesses fail for reasons that have nothing to do with morality. At the same time, many people who find themselves in financial straits and heading towards bankruptcy feel the sting of moral judgment. The reason why business-savvy people suffer far less from this stigma is that they understand the way money works and the way the credit industry works, and are much less susceptible to the psychological manipulation that keeps many decent, hard-working people enslaved to their debt when they don't have to be, even when they've been victimized by predatory lenders.
I am searching for stories -- about your experiences with outrageous debt collection practices, hideous credit card scams (many of them may be legal but they're still scams on the ethical/moral plane), creative ways of recovering from debt, tragic money situations, run-ins with debt service companies that did not serve you, etc. E:mail me at hk@maxedoutgen.com and if your story might benefit others, I'll write about my take on your situation. It won't be legal advice (you need to consult your own attorney or licensed financial advisor, information in this blog cannot be relied upon, blah, blah, blah), but it might lead to some useful, or at least entertaining, conversation. If you have no interesting story, but just want to challenge me on my use of the word "impecuniosity," be my guest. And, of course, I won't mention your real name even if you give it to me.
Speaking of outrageous stories, there's an article by Barbara Ehrenreich (author of the book "Nickel and Dimed: On (Not) Getting By in America") in the February issue of The Progressive magazine titled "Gouging the Poor," about people being arrested for failure to pay hospital debts. One poor guy, a mechanic with diabetes, was sued by a hospital on a debt of $579, and when he failed to show up for a court date (because he had to work), he was arrested. Bail was set at $2,500. Ehrenreich makes the point that, ironically, in jail, at least you get free health care, even if you've committed hideous crimes. So, if you think somehow the system will come through for you if you get sick without health insurance or other means of payment, think again.
This type of information will eventually appear on additional pages of this website. But, since I get alot of questions about credit reports and what debt collectors are allowed to do, I want to recommend two webite pages that can answer many of these questions. One is on the FDIC website: Credit History 101: The ABCs of Credit Reports and Credit Scores. The other is on the FTC website: Fair Debt Collection, which explains what types of actions debt collectors are permitted to take in trying to collect, who they may and may not contact about your debt, what they may and may not say once they do contact you (for instance, they cannot threaten you or make false statements about your debt), and how to report improper debt collection activities.
Unfortunately, there appears to be no rule against general obnoxiousness or against sending letters in pretty yellow envelopes that look like they might contain birthday greetings.
There's alot of information out there on how to manage debt, and if you had time to go through it all, including reading this blog on a regular basis, you might have time for a second job. If you only have time to read one source, I would recommend the NCLC Guide to Surviving Debt. This is published by the National Consumer Law Center, a non-profit organization which provides education to lawyers and consumers on consumer rights issues. It's a comprehensive guide with practical advice on dealing with debt collectors, paying down credit card debt, consolidating student loans, saving your house from foreclosure, and deciding between bankruptcy and non-bankruptcy alternatives. For a detailed description of the book, click on the link above. Even if you're seeking the advice of a lawyer or other professional, it's always good to know what your options are so that you can ask the right questions.
Since it's Friday, I want to lighten it up a bit with a recommendation to another blog that deals with money, only this one has to do with both real money and play money. The blogger is Julian Dibbell, and his blog, called play money, is described as a "Diary of one man's attempt to get rich selling imaginary tchotchkes to online game junkies only slightly more pathetic than himself." The idea arose out of his experience playing Ultima Online, a multi-player role-playing game where players purchase imaginery assets like castles, weapons, armor and I don't know what else on eBay. In that game -- which I've never played -- apparently, you deal in "Britannian gold pieces," the imaginery currency of that virtual world. I never played Dungeons & Dragons either, so I can't really relate to people who actually play this game, but I enjoy reading the blog because it's funny. He periodically reports sales figures as if he's the owner of a corporation, providing the exchange rate (if I understand it correctly, it's $14.58 to one million Britannian gold pieces), his total holdings both in dollars and gold pieces, and his net profits. I wonder if it provides similar thrills to day-trading, only without the enormous risks. Anyway, the blog is hilarious even if you know nothing about the underlying game.
Contrary to what some believe, the great majority of people who file for bankruptcy protection do so out of pure desperation, after all other avenues of repair have been exhausted. It often follows job loss, divorce, illness, or other family tragedy. When you file for bankruptcy, you have to appear at a "meeting of creditors" where a trustee asks specific questions about your debts and assets, after which he invites your creditors to ask equally probing questions. Trustees are not always sympathetic, warm individuals. All of your financial documents filed in the bankruptcy case are public information, and anyone can look them up. Worse, a special investigator from the Department of Justice may decide (sometimes inexplicably) to investigate a particular aspect of your financial life to determine whether you're an honest debtor or someone trying to take advantage of the system. It's a demoralizing process any way you look at it, and no one in his right mind would do it unless it's absolutely the only reasonable way out of a horrible situation.
Now comes bankruptcy reform legislation (actually it's been coming for some time) to make it even worse for people who are suffering as it is. It's a complicated piece of legislation, but if it passes, the upshot for many people who are legitimate candidates for bankruptcy will be that they'll have to meet impossible standards in order to be discharged from debts. Meanwhile, credit card companies will continue to be permitted to use predatory methods for getting our business, which, by the way, makes them a ton of money despite reports that we're defaulting left and right. Yesterday, the Center for American Progress published on its website an article by bankruptcy expert Elizabeth Warren, Kicking the Middle Class When It's Down, pointing out how this legislation seeks to protect the rich and to allow credit card companies to profit from their unethical practices even after bankruptcy.
I don't know if other states have tried this, but legislation has been proposed in Kentucky to restrict credit companies from soliciting students on college campuses. They would be required to obtain parental permission, though the grant of permission wouldn't make the parents liable for the ensuing debt. I'm in favor of this sort of legislation in principle because, God knows, credit card companies aggressively go after vulnerable, cash-poor students. No wonder so many kids come out of college with a mountain of debt, and bags under their eyes to prove it. Something is definitely wrong with a society that allows this to happen. It's like selling cigarettes to elementary school children. It's hard for struggling students to resist the temptation of "free gifts," frequent flyer miles, and borrowing against the promise of lucrative summer jobs. And, of course, there's no education about financial management in high school, so college students are easy prey. They start out in life as tenant farmers to their credit card debt. Rest assured, though, the credit card companies will find a way around such rules.
There's alot of advice out there on how to get out of debt, but sometimes it's hard to tell whether any particular source is reliable. Some debt counseling companies may provide useful information, but since they make money through their debt negotiation services, you have to take that information with a huge grain of salt. The Federal Trade Commission publishes information for consumers on its website. Check out Knee Deep in Debt, which provides a good overview of your options if you're drowning in debt, but also cautions you about what to watch out for in dealing with companies that say they want to help you. To see a full list of FTC publications for consumers, go to the consumer menu on the FTC website.
There are definite advantages to shopping on the internet if you're trying to avoid compulsive purchasing. First of all, you're not as likely to get distracted by all the merchandise that surrounds you in real stores. When you go to a mall, it's difficult not to come out with more than you went in for. Secondly, alot of these sites now have wish lists you can create to save the items you might want to buy later. When I put an item into my wish list, I sort of feel like I already bought it, so I get some gratification with none of the guilt associated with over-spending. But the real eye-opener is that often, when I go back to the wish list, I realize I don't really want what I put in there and even wonder what I was thinking in the first place. Now, if only I could employ the wish list approach to other areas of my life where I've experienced that awful cycle of compulsion and regret -- for instance, with food I shouldn't eat or men I shouldn't date. Then, I wouldn't have to be careful what I wished for because most of the time, the simple act of wishing for it would extinguish my desire to have it.
What’s with Suze Orman’s holier-than-thou approach to giving personal financial advice? It drives me absolutely insane. Yet, there’s a certain set of people who seem to respond to this approach – the finger-pointing, the scolding, the tidbits of advice starting with the words, “I want you to.” Is it all about her? Certainly, she sells a lot of books, and people call in to her television show to be publicly humiliated. I wonder if I’d get more business if I tried a more aggressive, sanctimonious approach with my clients. Come to think of it, there are some who ask the same questions over and over again because the answer I’m giving contains options. When I’m finally backed into a corner and forced to tell them what to do, no ifs, ands, or buts, there’s a palpable sense of relief in the air. For some people, I guess any advice that presents choices or the message that “you’re a good person who deserves respect despite this dilemma” isn’t worthwhile. They want to be told what to do unequivocally, they want the advice to hurt, they want tough love. That’s what Mistress Suze gives them. “Sit in that chair and make a list, bark like a dog, eat dog food until your credit card bills are all paid off and you’ve got money to retire on, you worthless excuse for a human being.” My theory is that the majority of people who are in financial crisis are quiet about it because they have self-respect and don’t want to be berated and put down.
I've noticed two discussion boards that are recommended from time to time by people participating in the money discussion on craigslist. One is at www.creditboards.com and the other is at www.creditnet.com. Creditnet.com is a commercial site and clearly identifies itself as such -- you can apply for credit cards from the site. There's an area for merchants and an area for consumers. I haven't checked the discussion boards on that site yet, but have joined to check it out. Of course, I have a natural inclination to be skeptical of a commercial website that purports to be a community forum. I'm not sure whether creditboards.com is also a commercial site. It doesn't identify itself as such, and from what I can see, there's no identification of ownership at all. Creating a discussion board certainly would be a clever way for credit card companies to gather information about consumer behavior and attitudes. I'm going to follow the discussions on both of these sites and see where they lead, and also do some research to find out about ownership of creditboards.com.
Everyone is familiar with debt consolidation companies and their close cousins, the debt settlement companies (which negotiate your balances down rather than simply consolidating your current balances). If you aren't, you haven't looked at your spam in a very long time. Recently I've noticed another (possibly new) type of service -- debt elimination. I'm looking into it because, unfortunately, even if you can find an honest company, debt consolidation doesn't work for everyone. The monthly payments are high, and you have to pay a service charge on top of your monthly debt payments. With debt settlement, you may lower your balances, but you have to pay the lowered balances in a lump sum or over a short period of time. If you had that kind of money, you probably wouldn't have been in default in the first place.
From what I've gathered so far, companies that purport to provide debt elimination use to their advantage the various laws that protect consumers, like the Fair Debt Collection Practices Act. Certainly, based on the stories I've heard, many people are victimized by unlawful collection practices. It's worth researching. Mainly, I want to know who owns these companies and what interests they're affiliated with, how they operate, and what they charge for their services. More on this later.