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7 Why? Because they don’t understand their rights. As the story about Sears showed (chapter 6), creditors routinely bully bankrupt families by threatening to repossess the family’s possessions. Except for the house or the car, this is nearly always an empty threat. Creditors almost never repossess, because it is just not worth their time and money. It typically costs a creditor at least $350 to send a truck to your house and cart something away, and even more to clean it up and resell it. 8 Are your used goods actually worth that much?
Another favorite tactic is to warn families that no one will ever issue them another credit card after they file for bankruptcy. Many creditors hire agents to patrol the waiting rooms in the bankruptcy courts, typically friendly older ladies who make seemingly generous offers: “The company is willing to extend you a line of credit, if you’ll agree to repay the balance on your credit card.” But think again before you sign. These agents may seem like nice people, but they are peddling poison. Not only will you get stuck paying a bill you no longer owe, the effective interest rate on that new line of credit may be as high as 1,000 percent! 9
How will you get a new credit card if you forfeit your old one? By opening your mail. Within six months of filing for bankruptcy, 84 percent of families had already received unsolicited offers for new credit. 10 Half of bankrupt families received more than thirty offers! You may find that after filing for bankruptcy you are more popular
with credit card companies than ever before. Lenders know that you cannot declare bankruptcy again for six years, and they believe you may still be under enough financial strain that you will soon end up carrying a balance and making minimum monthly payments—rocketing you to number one on their list of favorite customers. So don’t worry, there is life after bankruptcy. You will have a lot more credit at your disposal than you need (and probably a lot more than you should use). So just hang tough, and don’t let yourself be bullied or threatened. The creditor is not your friend, and you should not sign away your future before the ink is dry on your bankruptcy petition.
We hear the chorus of self-blame and guilt tuning up. These companies lent you money, so aren’t you obligated to pay them back? Yes, you are—up to a point. But you are also obligated to keep a roof over your children’s head, to put food in their mouths, and to get them the medical care they need. Children take precedence over creditors.
Besides, most of those lenders knew you would have a tough time paying them back. They had your credit reports. They knew how much money you earned, and they knew how much you owed. They took a calculated risk . If everyone had stayed healthy and you hadn’t lost your job, you would have paid your debts and your creditors would have made a handsome profit. But that didn’t happen. Whenever a bank makes a loan, it hopes to make money, but lenders know that there is some chance that the money will never be repaid. The interest charges and penalty fees are designed to cover those risks, and the banks are doing just fine, even when they lose from time to time.
Think like a businessperson. Do you imagine the CEO of United Airlines and the president of K-Mart were wracked with guilt when their companies filed for bankruptcy? We doubt it. They did what they thought best for their shareholders and customers, and if that meant that some creditors ended up with the short end of the stick, then so be it. They saw it as simply a matter of business. When your family’s welfare is at stake, so should you.
Stay Home?
Should you (or your spouse) quit your job and stay home so you won’t be in any danger of falling into the Two-Income Trap? If you are like millions of parents, you are already up to your eyeballs in mortgage payments and tuition bills, and pulling out of the workforce will only make things worse. For
Another favorite tactic is to warn families that no one will ever issue them another credit card after they file for bankruptcy. Many creditors hire agents to patrol the waiting rooms in the bankruptcy courts, typically friendly older ladies who make seemingly generous offers: “The company is willing to extend you a line of credit, if you’ll agree to repay the balance on your credit card.” But think again before you sign. These agents may seem like nice people, but they are peddling poison. Not only will you get stuck paying a bill you no longer owe, the effective interest rate on that new line of credit may be as high as 1,000 percent! 9
How will you get a new credit card if you forfeit your old one? By opening your mail. Within six months of filing for bankruptcy, 84 percent of families had already received unsolicited offers for new credit. 10 Half of bankrupt families received more than thirty offers! You may find that after filing for bankruptcy you are more popular
with credit card companies than ever before. Lenders know that you cannot declare bankruptcy again for six years, and they believe you may still be under enough financial strain that you will soon end up carrying a balance and making minimum monthly payments—rocketing you to number one on their list of favorite customers. So don’t worry, there is life after bankruptcy. You will have a lot more credit at your disposal than you need (and probably a lot more than you should use). So just hang tough, and don’t let yourself be bullied or threatened. The creditor is not your friend, and you should not sign away your future before the ink is dry on your bankruptcy petition.
We hear the chorus of self-blame and guilt tuning up. These companies lent you money, so aren’t you obligated to pay them back? Yes, you are—up to a point. But you are also obligated to keep a roof over your children’s head, to put food in their mouths, and to get them the medical care they need. Children take precedence over creditors.
Besides, most of those lenders knew you would have a tough time paying them back. They had your credit reports. They knew how much money you earned, and they knew how much you owed. They took a calculated risk . If everyone had stayed healthy and you hadn’t lost your job, you would have paid your debts and your creditors would have made a handsome profit. But that didn’t happen. Whenever a bank makes a loan, it hopes to make money, but lenders know that there is some chance that the money will never be repaid. The interest charges and penalty fees are designed to cover those risks, and the banks are doing just fine, even when they lose from time to time.
Think like a businessperson. Do you imagine the CEO of United Airlines and the president of K-Mart were wracked with guilt when their companies filed for bankruptcy? We doubt it. They did what they thought best for their shareholders and customers, and if that meant that some creditors ended up with the short end of the stick, then so be it. They saw it as simply a matter of business. When your family’s welfare is at stake, so should you.
Stay Home?
Should you (or your spouse) quit your job and stay home so you won’t be in any danger of falling into the Two-Income Trap? If you are like millions of parents, you are already up to your eyeballs in mortgage payments and tuition bills, and pulling out of the workforce will only make things worse. For
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