4 Reasons Why I Will Not File For Bankruptcy

By //  by 

Most of the people who I talk to have debt. Debt is one of the major reasons behind this country’s economic growth over the past 40 or 50 years. Many people use credit cards to buy gas, computers, clothing, and a host of other items. On top of that, many people will borrow money to buy furniture, education, cars, and houses at some point in their life. It has pretty much become a way of life in this country, and I am no different.

When counseling clients (or just speaking with friends & acquaintances) about their finances, I will sometimes mention that I am currently paying off over $100,000 in debt. Oftentimes, the topic of bankruptcy will come up. They want to know why someone who doesn’t own a home, or other expensive assets, wouldn’t simply file for bankruptcy and get a “fresh start”.

Why I Will Not File For Bankruptcy

There are four basic reasons that I have for choosing not to file for bankruptcy (for the record, my wife agrees with this decision, but I will just speak of myself in this article)…

Integrity (I Gave My Word)

The main reason why I won’t file for bankruptcy is because of my word. When I signed up for all of those loans, I not only received the money (or line of credit), but I also received an obligation to repay that money according to the terms of the various agreements!

All of those agreements have a few things in common. I asked (sometimes begged) for money, they said ‘yes’ as long as I agreed to pay the money back, I gave them my word by signing a contract, I gladly spent the money, and now I’ve been paying it back every since.

By signing those agreements I put my word and integrity on the line. If I try to get out of those obligations, I will fail to keep my word and end up dishonoring God in the process!

To me, that is the strongest argument against filing for bankruptcy. I knew exactly what I was getting into when I signed those agreements, and I have an obligation to pay them back. It really bothers me when I see people trying to weasel their way out of an arrangement which they not only agreed to, but from which they also greatly benefited! They enjoyed all of the benefits of the arrangement, but when it came time to “pay the piper”, they claim that they should not be held responsible to keep their word! I don’t want to be one of those people if I can help it.

Protection Against Making The Same Mistakes

I have known plenty of people who have either filed for bankruptcy or have taken out debt consolidation loans, and have gone right back to their old habits once their credit cards were cleared. It takes time for most people to change their horrible money habits, and taking the time to pay off debt in a more conventional manner can give one a chance to develop good financial practices.

By not taking the easy way out, I have been forced to develop and revise a budget, look for ways to reduce my expenses, try to develop other streams of income, and set guidelines for evaluating purchases. Had I been given a clean slate directly after feeling the full weight of my debt, I may not have acknowledged and changed my horrible financial habits, which got me into this mess in the first place (most of our debt is from student loans, but we made some bad decisions along the way as well).

This concept not only works with finances, but it also works with our health, and even our ability to learn. Going on a quick, fad diet may help us drop weight pretty quickly, but it is usually harder to maintain the weight loss once you return to a more normal way of life. Likewise, it is much more beneficial to study a subject over time in order to let the foundational topics sink into our thinking, and then build upon that. If we decide to cram a day or two before we need to use the information, it will be much harder to incorporate it into our normal thought process.

So, by forcing myself to take the hard way out, I not only can identify what I did wrong, but I get a chance to develop a system that will benefit my family for decades after we become debt free!

Satisfaction (I Love A Challenge)

As I think about it, I think that even if I wasn’t convinced of my obligation to repay the loans, I would still choose to pay them back. I love a challenge, and having to pay off over $100k in debt is definitely a challenge!

I want the satisfaction of being able to look back over time and seeing the amount of progress that I have made. This is the same reason why I would never have surgery to lose weight (besides the very serious health risks) – I want to get into shape through discipline and making wise choices!

I want to pay off debt by making sacrifices, exercising discipline, making wise choices, and honoring all of my commitments. Since it won’t be easy to pay off this much debt – especially with one income – I feel that it is more of a challenge than if I only owed $10k or so.

To Serve As An Example

I also feel that I can point to my own situation to be an example for others in my situation. I managed to pay off a huge chunk of debt when I was younger (and making a little more than minimum wage), and I can look to that experience to give me confidence that I can do it again.

I want others (especially some of my clients) to see that I was able to overcome a mountain of debt, and avoid filing for bankruptcy to do it, and have them be able to use a small part of my experience as motivation. If I am telling them not to take the easy way out, I want to be able to assure them that it is worth it!

For some reason we humans are better able to take advice from someone if they have been through what we are currently going through. So if I want to convince someone that bankruptcy isn’t the answer, I need to be able to show them that the alternatives work!

Is This The Only “Right” Decision?

Keep in mind that this article is more about expressing my views on the subject, rather than giving a generic, one-size-fits-all piece of financial advice. Every situation is different, but for the most part, bankruptcy is a quick fix with a huge downside.

Of course there are people who are so crippled by their debt, that bankruptcy seems to be the only option to stop them from being homeless. Each case is different, but please be sure to make this decision with a lot of prayer, reflection, and wise counsel.

I plan to take a more detailed look at the subject of bankruptcy, from a biblical point of view in the near future. You may be surprised by how much the bible has to say about this topic, even though the actual word is never used.

Reader Questions

  1. Have you even been in a situation where filing for bankruptcy seemed to be the best solution?
  2. If you refused to file, what was your reason?
  3. Have you ever declared bankruptcy? If so, was it a struggle to make that decision?
  4. Also, how long was it before you recovered financially?

photo courtesy of FreeDigitalPhotos.net

Considering Bankruptcy To Pay Off Your Debt? Here Are Some Other Options

By //  by 

The topics of debt and bankruptcy are often highly debated issues, with “experts” on both ends of the spectrum. Some will tell you that if you ever have a small amount of trouble paying off debt, then bankruptcy is your answer! On the other hand, there are some who say that bankruptcy is equivalent to theft and should never be allowed.

As with most things, the answer lies somewhere in between. However, there are plenty of things that one can do before choosing to file for bankruptcy…

Cut Out All Unnecessary Expenses

If you are contemplating bankruptcy, the first thing that you need to do is evaluate your expenses. I have talked to many people over the years who are thinking about filing for bankruptcy, while at the same time enjoying many of the luxuries of life.

If you are in such a desperate situation that you are willing to turn your back on the agreements that you have made in the past, then you should first be willing to strip all of the extras out of your life.

To have a $200/month cable bill, $350/month dining out, paying tons of money for your kids to learn every instrument and sport known to man, and new(ish) cars for everyone in the household, and then claim to be too broke to make minimum payments is a joke!

Cut your budget down to the bare essentials and then attack your debt with everything that you have. This method takes sacrifice, but it will also help you to see what is really important in your life.

Sell Your Assets

If you are in a situation where your debts are growing, and it seems like you have no way out, take a financial inventory. When you want to know how to pay off debt fast, you need to look at all avenues!

Check to see if there are any accounts which you can liquidate – you may want to include your emergency fund in that analysis as well. Also, if you own property or other things of value, you may consider selling them in order to pay off a huge chunk of debt at one time.

It may be hard to sell your home or other treasured possessions, but this may provide the shot in the arm that your debt repayment plan desperately needs. Of course, if your asset is serving as collateral for a loan, you have to see how much you will get after paying off this obligation.

Earn More Money

This is another weapon in your debt repayment arsenal, which is often overlooked. You can first try to earn more money on your current job. Ask for a raise, or try to work overtime. If those options don’t work, then it may be time to search for a higher paying job!

Also, try to use your skills, hobbies, and passions to make money. You can sell the things that you design (I know several people who make good money by designing and selling jewelry), give lessons, or even start a website/blog devoted to your passions!

Talk to Your Creditors

In many cases your creditors would rather get some of the money that you owe them, rather than nothing! Therefore, they are usually willing to work out an agreement with you in order to get your debt paid. This normally happens in one of two ways.

Debt Settlement

This is an option where your creditors agree to accept a reduced amount – this can sometimes be 50% or less of the original amount due. If there is no chance that, given your current financial situation, that you can pay off the full amount that is due, this may be a viable option for both parties, then debt and bankruptcy will be a thing of the past.

Hardship Program

Many creditors have some sort of “hardship program”, which they offer to consumers who are facing financial difficulties. If, based on your overall financial situation, you can pay off your debt – but you just need a temporary break – your creditor may choose to lower your minimum payments and/or your interest rate for a certain amount of time.

For installment loans, sometimes the bank will take a few of the payments that are currently due (or due over the next few months), and add them to the end of the loan period. If you are behind on your payments at the time, this will allow you to be current in their system. Sometimes, they will actually structure these payments so that you are given a couple of months of breathing room.

These temporary hardship programs – if offered by each creditor – may be enough to allow you to take control of your finances and avoid bankruptcy.

Bankruptcy As A Last Resort

After considering and trying all of these methods, you may still be in a position where it is impossible to pay off your debts. Many times this is due to the debt that remains after a series of medical emergencies, or even when an irresponsible spouse leaves their partner with hundreds of thousands of dollars in debt! In these cases, bankruptcy may be the only way to have a normal life.

Unfortunately, it is impossible to make general statements on an issue this important and complex. Therefore, you must consider your specific financial situation with an expert before making any decisions.

photo by digitalart

What Debt Solutions Are Available?

By //  by 

The following is a sponsored post on behalf of Debt Advisory Centre, exploring three debt solutions available to you (depending on your financial situation).

What debt solutions are available?

If you’re in debt, and you’re wondering what help is available, you may be glad to know that there are a variety of flexible solutions tailored to meet your needs.

Each debt solution is different, and would be appropriate for people dealing with different levels of debt. Here, we’re going to take a look at just three of the debt solutions available.

Debt Management Plan

This may be right for someone who cannot afford to keep up with their debt repayments as they agreed to in the first place, but who can repay their debts within a reasonable time frame (under different terms though).

A debt management plan works by asking an individual’s unsecured creditors to agree to changes to the original repayment plans – they may agree to accept reduced monthly payments and they may agree to freeze/reduce interest and charges on the borrower’s debt. It’s important a borrower is aware, though, that their creditors aren’t obliged to agree to any changes to the original repayment agreements.

What’s more, if they arrange to repay their debts over a longer period of time, they may pay more in the long run.

IVA (Individual Voluntary Arrangement)

This is a formal debt solution between a borrower and their unsecured creditors. It’s only available to people who cannot afford their repayments as they stand and can’t afford to repay their debt within a reasonable period of time.

A borrower must be able to commit to making regular reduced payments for the duration of the agreement (usually five years) before it can go ahead. If they can do this and the IVA goes ahead, their creditors will agree to write off the part of the debt the borrower can’t afford to pay back once the IVA reaches a successful conclusion.

An IVA will affect an individual’s credit rating – which could have an impact on the cost and/or availability of credit for six years. If the borrower is a homeowner, they may be required to release equity during the final year of the agreement. This money will be used to repay more of their debt.

Debt Consolidation Loan

This involves taking out a new loan and using it to repay your existing unsecured debts (in one go). This can make a borrower’s finances easier to manage and make it easier for them to keep on top of their repayments. If you’re thinking of taking out a debt consolidation loan, you may wish to arrange to repay it over a longer timeframe than your original debts – which can lower the amount you are required to spend each month.

[editor’s note: this is a popular item when it comes to student loan repayments]

Just bear in mind that repaying a debt more slowly can add to the overall cost, due to interest. A debt consolidation loan wouldn’t be appropriate for a borrower who can’t consolidate all their unsecured debts and/or has an erratic income.

Please bear in mind…

This article is not designed to provide a comprehensive guide to an individual’s options when it comes to clearing their debts. If you’re thinking of entering a debt solution, you should speak to a professional debt adviser before committing to anything.

Any debt solution comes with disadvantages alongside its advantages – it could affect your credit rating, for example – so it’s important you are aware of these before taking the next big step to becoming debt free.

photo by jscreationzs