Is Bankruptcy too easy these days? (pay, debts, rate, vehicle)
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I know the laws made it more difficult for higher income people but what about low income? I know someone who is gearing up to declare BK for the 2nd time, same story, ran up the credit cards and now he can't pay but acts like it's no big deal. He said his score will be in the mid 600s within a year and in the 700s within 2-3 years and he gets to discharge all his debt and start the process of debt all over again, that is quite shocking! Btw, I believe he earns a lower income, somewhere in the $35-40k/yr range.
BK should be easy and accessible at a low cost to everyone.
No, it should be hard as hell and expensive.
Personal responsibility in paying your debts is easy and accessible to everyone. Anything other than that should be a pain in the butt to accomplish.
I work with two ladies that have filed bankruptcy numerous times and they continue to drive new cars and spend on credit knowing they will file again once they are eligible. The last time she proudly announced "I'm going to get a new car tonight because I'm filing bankruptcy next week" and she came the next day in a new 2018 Mustang.
If you earn below the median income in your state, you're eligible to file Chapter 7. If you're above the median, you take a means test to calculate "disposable income." If you "fail" the test, meaning your disposable income is above a certain threshold, you cannot file for Chapter 7, only Chapter 13. If you "pass" the test, meaning your disposable income is below a certain threshold, you can file Chapter 7.
For the "run of the mill" bankruptcy, most people are going to want to file Chapter 7. That wipes the slate completely clean, and they start over. I dated a woman who ended up filing Chapter 7 a few years ago. The car had severe negative equity and was repossessed, but most of the rest of the debt was medical and store credit cards. Thousands at Penney's and Kohl's. There was other "zombie debt" she had no idea of.
She worked front desk at a medical office, so it had no impact on her job. She had a low credit score and was approved for her apartment, though this was in a low demand, Rust Belt town in Indiana. Once the car was repossessed, she bought another car at a "buy here, pay here" lot, but the interest rate was not much higher and the monthly payment was lower, since there wasn't any negative equity. Once the BK is discharged, you will start getting offers for credit cards, though they won't be anything good. You're locked out of the mortgage market for two or three years.
Chapter 13 ties up your disposable income for years in paying back your creditors. It's just a much more difficult way to get financial relief.
The people that really get screwed are above average income people who bit off more than they could chew or high earners who have had a dramatic income cut, but are above the median. They won't qualify for Chapter 7 and Chapter 13 probably won't be enough help.
Quote:
Originally Posted by LBTRS
No, it should be hard as hell and expensive.
Personal responsibility in paying your debts is easy and accessible to everyone. Anything other than that should be a pain in the butt to accomplish.
I work with two ladies that have filed bankruptcy numerous times and they continue to drive new cars and spend on credit knowing they will file again once they are eligible. The last time she proudly announced "I'm going to get a new car tonight because I'm filing bankruptcy next week" and she came the next day in a new 2018 Mustang.
This is incorrect. In order to not lose the car, they'd have to:
1) have positive equity in the vehicle. Chapter 7 usually allows for some level of equity exemption in the vehicle. If they have negative equity and cannot get to positive equity, they're probably going to let the vehicle go.
The thing is that if someone is filing Chapter 7, they're probably in bad financial shape and may have serious negative equity as it is.
In my mind, the Bankruptcy courts are like disability or Handicap stickers for cars. There will always be a parasitic segment of the population that views everything with a predatory lens. That doesn't mean that we should make people on crutches hobble through hoops to get a sticker.
Similarly, just because there are some people that abuse it, I don't think it does anyone any good to encumber Joe the Plumber, who after getting badly injured at work shortly after his wife filed for divorce, is in a whole he can't get out of.
Those that I know have gone through a BK aren't proud of it and certainly didn't enjoy it and don't care to go back through it. The one who seems oblivious to the whole thing was, in my mind, a sociopath anyway.
The same is true of those that I know on disability; they don't have a life I envy and I can promise their life on the disability check isn't as nice as the one they had when they were working.
I know the laws made it more difficult for higher income people but what about low income? I know someone who is gearing up to declare BK for the 2nd time, same story, ran up the credit cards and now he can't pay but acts like it's no big deal. He said his score will be in the mid 600s within a year and in the 700s within 2-3 years and he gets to discharge all his debt and start the process of debt all over again, that is quite shocking! Btw, I believe he earns a lower income, somewhere in the $35-40k/yr range.
Chapter 7 Bankruptcies can only be filed every 8 years (formerly 7 years), from date of discharge to date of new filing.
To qualify for a Chapter 7, your income must be less than the median income for your State. There are published tables stating the median income for each State, based on size of household.
If you do not qualify for a Chapter 7, your only option is a Chapter 13, where you will make a fixed monthly payment of 60 months (5 years) and then the balance of your debt will be discharged.
It is possible that his credit score was in the mid 600s and then in the 700s 2-3 years after he filed his first bankruptcy, but he'll be in for a bit of shock this time.
Bankruptcies are reported for 10 years, so for probably at least 18 months, his credit report will show two bankruptcies, instead of one, which will negatively impact his score.
If you earn below the median income in your state, you're eligible to file Chapter 7. If you're above the median, you take a means test to calculate "disposable income." If you "fail" the test, meaning your disposable income is above a certain threshold, you cannot file for Chapter 7, only Chapter 13. If you "pass" the test, meaning your disposable income is below a certain threshold, you can file Chapter 7.
For the "run of the mill" bankruptcy, most people are going to want to file Chapter 7. That wipes the slate completely clean, and they start over. I dated a woman who ended up filing Chapter 7 a few years ago. The car had severe negative equity and was repossessed, but most of the rest of the debt was medical and store credit cards. Thousands at Penney's and Kohl's. There was other "zombie debt" she had no idea of.
She worked front desk at a medical office, so it had no impact on her job. She had a low credit score and was approved for her apartment, though this was in a low demand, Rust Belt town in Indiana. Once the car was repossessed, she bought another car at a "buy here, pay here" lot, but the interest rate was not much higher and the monthly payment was lower, since there wasn't any negative equity. Once the BK is discharged, you will start getting offers for credit cards, though they won't be anything good. You're locked out of the mortgage market for two or three years.
Chapter 13 ties up your disposable income for years in paying back your creditors. It's just a much more difficult way to get financial relief.
The people that really get screwed are above average income people who bit off more than they could chew or high earners who have had a dramatic income cut, but are above the median. They won't qualify for Chapter 7 and Chapter 13 probably won't be enough help.
This is incorrect. In order to not lose the car, they'd have to:
1) have positive equity in the vehicle. Chapter 7 usually allows for some level of equity exemption in the vehicle. If they have negative equity and cannot get to positive equity, they're probably going to let the vehicle go.
The thing is that if someone is filing Chapter 7, they're probably in bad financial shape and may have serious negative equity as it is.
2) reaffirm the debt through the BK.
Last bit about the cars isn't true in my state at least. I know because I went through bankruptcy about a year ago. I'd just had to get a vehicle, mine had died a few months prior, so I got a sensible van, nothing extravagant. But at the time I got it I was in a bit of a bind, I needed a drivable vehicle to get to work the next day, and the dealership had me right where they wanted me. I felt like maybe I could have gotten a better price. I felt rushed and pressured. And of course, after the stress of a day with an unexpected vehicle failure I was kept waiting for hours and hours until it was nearly 11PM and I was like, "can we just get this over with?" Nice tactics there jerky dealership. I was less than thrilled with my situation, and unsure about whether I really wanted to keep the vehicle I wound up with, when I was sitting with my lawyer a few months later.
Obviously there was negative equity in it, I'd just got this used car. Not a huge amount but certainly a few thousand between KBB and the loan.
My lawyer advised me not to reaffirm it, given that I was not feeling 100% on keeping it. Said that so long as I continued to make the payments on time, it would not be repossessed. I called the lender and talked to them, they said the same, but that I would stop receiving bills since they could no longer "collect" on the loan, but I could call in my payment (fee free thank goodness) every month nonetheless. Lawyer also told me that if I ever chose to wash my hands of this van, I could just stop paying and let them repo it. I have since gotten somewhat more comfortable with the van and decided I'll probably keep it. I've been making payments, and there has been no issue.
I don't know if bankruptcy should be easier or harder or not. I did not want to do it, but my divorce left me in serious financial trouble, drowning in debt. My ex had run up a lot of it in the last year or so before we split. I could have fought in divorce court for a better deal, but it would not have done me much good since his employment and income are sporadic, he has no assets to speak of (he destroyed a lot of that) and besides I was afraid of him. Did not want to antagonize. So I took a bad deal over a possible bullet.
It also was not exactly cheap, for someone in my situation. Nearly 2K to the lawyer IIRC. I had to sell my collectibles to pay him, but I considered it worth it and was just thankful I had stuff left to sell after already doing what I could to get out of my ex's house.
Thing is, I am an accounting nerd, I'm meticulous, and I'm generally pretty frugal. But when you are dealing with severely difficult life situations like a crazy person who wants to kill you, or a death in the family, or some kind of a disaster...it's nice to know there's an escape hatch. I'd worked hard to build excellent credit, which I had prior to my ex's breakdown. I HATED to destroy it like this. Hated it. Things just got out of my control, and it happened so fast.
People who go on some kind of shopping sprees and just run up debt being irresponsible...yeah, I don't know. Maybe some folks should be court ordered into a more extensive form of financial education than the little online video-course they make you do to get a bankruptcy.
Personal responsibility in paying your debts is easy and accessible to everyone. Anything other than that should be a pain in the butt to accomplish.
I work with two ladies that have filed bankruptcy numerous times and they continue to drive new cars and spend on credit knowing they will file again once they are eligible. The last time she proudly announced "I'm going to get a new car tonight because I'm filing bankruptcy next week" and she came the next day in a new 2018 Mustang.
Nope. Sorry, I don't care about your random anecdote. BK is easily available for corporations and partnerships etc. I don't know what the obsession is with shifting all the responsibility to the individuals with the least resources.
How about the responsibility being with the damn bank that underwrote the credit? they have unlimited resources and made a bad decision. why does the legal system have to be skewed towards favoring them and not the individual?
Consumer rights are being eroded. You can't sue - you have to arbitrate. You can't declare BK, while corporations can do it at will. You have to focus on reading the fine print written by $500 per hour attorneys. Everything is done with the idea of giving more power to large entities and to jam the small guys
Yet, people like you are nodding approvingly under the guise of personal responsibility. But that only applies to the poor individuals.
How about personal responsibility for the loan officer for sucking at his job at underwriting credit? how about personal responsibility for the bank manager for hiring him/her? How about personal responsibility for the bank underwriting crappy business?
Nope. Sorry, I don't care about your random anecdote. BK is easily available for corporations and partnerships etc. I don't know what the obsession is with shifting all the responsibility to the individuals with the least resources.
How about the responsibility being with the damn bank that underwrote the credit? they have unlimited resources and made a bad decision. why does the legal system have to be skewed towards favoring them and not the individual?
Consumer rights are being eroded. You can't sue - you have to arbitrate. You can't declare BK, while corporations can do it at will. You have to focus on reading the fine print written by $500 per hour attorneys. Everything is done with the idea of giving more power to large entities and to jam the small guys
Yet, people like you are nodding approvingly under the guise of personal responsibility. But that only applies to the poor individuals.
How about personal responsibility for the loan officer for sucking at his job at underwriting credit? how about personal responsibility for the bank manager for hiring him/her? How about personal responsibility for the bank underwriting crappy business?
Businesses don't declare bankruptcy to get out of paying their debts. They use it to save their business and get some breathing room until they can recover.
If all the underwriters did a better job of evaluating the creditworthiness of individuals, most people would be denied. That opens a whole new can of worms about discrimination and profiling.
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