WIPING THE SLATE CLEAN

More and more people these days are finding themselves in debt over their heads, and personal bankruptcies are near an all-time high. While going bankrupt can wipe the slate clean and allow consumers to make a fresh start, it can also seriously affect all credit for a period of seven to ten years. It has also become common for prospective employers to check credit records before hiring a new employee -- and for landlords to run credit checks before offering a lease. Needless to say, bankruptcy can seriously impact purchase power for major items like cars and houses. Are bankruptcies worth the black mark on a person's credit? Or are there better ways to crawl out of the black hole of debt?

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jkahn: There are several alternatives that should be considered before the comparatively drastic Automatic Stay of Bankruptcy is chosen: Assignment of Debt; Composition/Workout agreements; Sale & Leaseback.

journeyman: I think in this country it is far too easy to buck responsibility -- claiming bankruptcy is one very good example of this. It is an indirect form of welfare, for we all pay for the mistakes of a few irresponsible people. I agree that there are a few legitimate cases, but for most it is FAR TOO EASY to avoid the pain. Credit checks will restore some of that responsibility and therefore are a good idea. Plan your life and know your weaknesses before you sign on for that credit card with the $10,000 limit!

VLemley: People get into bankruptcy situations mainly because of slovenly personal accounting and bad economic practices. The unwarranted use of personal credit, in the form of a credit card, is at an all-time high. Using plastic is only smart if you pay the bill in full at the end of each month. Too many of us don't have that kind of income, so we carry a balance (at 20 percent interest or more). I see this all the time in department stores and, believe it or not, supermarkets (buying food on credit is DUMBER THAN DIRT).

Bankruptcy (the easy way out) is not the best answer. It tells anyone with access to the credit rating agencies that you are a financial leper. And for the young person (20 or so), you're looking for virtual exclusion from the major purchases and many higher-paying jobs for what amounts to HALF A LIFETIME.

There are better ways out.

First-- Stop using plastic for ANYTHING.
Second -- Find out how much you owe!
Third -- After the shock wears off, make a budget, and stick to it (you may need help for this).
Fourth -- Get ahold of your creditors and see about terms. Most of them will be very understanding and help you; even collection companies will listen if you have a plan.
Fifth -- Reward yourself with a small party or family get-together when each card is paid off. Personally, what I did was place each card in a tasteful position on a foil-covered cookie sheet, bake them at 350 degrees for 1 hour, then frame and mount them on a wall I look at every day -- as a reminder of bad times. It does wonders for a person's ego (not to mention credit rating) to have weathered such a crisis.

caffine: I agree with all the comments made so far. I know far too many people who have debt from college and university, way beyond tuition, etc. -- mainly from getting one or two credit cards, and then choosing to live a lifestyle far beyond their means. They say, "I can always declare bankruptcy." But, realistically speaking, one day you may need that good credit rating for an emergency such as a health-realted issue, etc... Then all that decadence you accumulated and lost won't be worth squat...

So, if you have debt and need a reality check, do this:

1. Make lists of EVERYTHING in catagories.
2. See which of these items has proved "necessary" or fruitful in your life to date.
3. Cry over your foolishness.
4. Cut-up your cards, except the one with the highest rate of interest. Pay it off first. Then lock it in a vault, or such, for emergencies.
5. Make a budget, forget pleasure of the moment.
6. Live within your means.

neelvk: Bankruptcy is a way out for some people who may have ended up in dire circumstances due to no fault of their own. However, most people seem to be declaring themselves broke just to get away from the bills. If only people would learn fiscal resposibility things would be much better. Still, the giant corporations that run this country are not too keen on such education. After all, if everyone lived within their means, there would be no credit card debt. Just look at the GE credit card department that wants to charge people who do not carry balances.

Brumfieg: When America achieved independence from England, one of the things we changed was the treatment of defaulted debtors. At the time, members of the working class who could not pay their debts were imprisoned until their debts were paid, creating hardship for their families. America came up with bankruptcy for individuals to protect them from loss of job, serious illness, or other causes of inability to repay debt. Here and now in modern times, along with downsizing and outsourcing the working class has to contend with NAFTA and GATT which make it more profitable for corporations to move manufacturing operations out of the country, while eliminating American jobs. Yet these same corporations want to extend credit to their disenfranchised ex-workers to purchase their (now foreign-made) products. And these same corporations scream when their ex-workers are unable to find jobs and are forced to file bankruptcy. Henry Ford learned many years ago that if he wanted to sell Model T automobiles, he would have to pay his workers well.

Nesron: From what most are saying, my guess is that a lot of the above people work for collection agencies. It is quite possible to be in financial trouble quicker that you can imagine. It just takes loosing a job. I am annoyed by the attitude of many of the people who have responded so far.

My response is less vicious. First, remember this your self-worth is not your credit rating. Credit is extended to just about anyone, and many of us will have problems with it. My own problem was right at the end of my college days. I lost a job, had a roommate steal $1000s from me, and my extended family also was out of work. There was literally nothing I could do to pay. I called the credit card agencies. Instead of working out a payment they all demanded immeadiate payment. Do not believe that they are on your side for a moment.

Take stock of you situation. Can you really pay? If you can't pay, do you really have any assets? Most states have quite a bit that is exempt from ceditors. If you have less than what you can legally exempt, you are untouchable. Credit card companies will not tell you what they are limited in doing. They will threaten, itimidate, and generally bully you. If you have nothing and cannot pay, just ignore them. Do not declare bankruptcy -- you gain nothing but 3 years more bad credit. Realize you will not be using credit for seven years, but that is what the problem was in the first place.

If you are in trouble, consult all the agencies that are there to help you. Don't rush into bankruptcy unless it really improves your situation. Life is possible with bad credit.

herbalist: I filed 3 years ago after not using my head during a divorce. In retrospect, I never would have had to go bankrupt if I had gotten my ego and fear out of the way. No matter how far in debt you are, there are hundreds of alternatives to going bankrupt. The risk of bankruptcy far outweighs the rewards. I have zero debts but also have zero credit. I know this reactive behavior on my part will follow me for the rest of my life. If you think you need to file, I would suggest finding wise counsel, legal and financial, to explore the alternatives. I didn't do it and will always regret it.

Ken_Kurson: I'm offended by the question! Chapter 11 is for corporations (TWA) and celebrities (Burt Reynolds). Regular folks who simply abuse their credit cards ought to consider Chapter 7. Or, heaven forfend, actually paying their bills.

kaf: Easy way out? Yeah, right. Financial irresponsibility? Sure. When you come out to find your car tires flattened by sabotage, or your insurance won't cover certain bills, or the car keeps breaking down...then you might be able to see just how easy it is to get into debt. There are no fancy cars, no big screen TV's. Just the essentials to get to work, and come home. You try going to college, yet have to stop because your car won't even get out of the driveway. And there is no public transit....

Most of the people who comment have never been in the trenches. They are armchair quarterbacks. If they had to take their advice, they would choke. It is so easy to make suggestions when the problem is not yours. Has anyone tried calling a credit card company to negotiate anything? A brick wall is more responsive and forgiving.

Anyway, I am in a similar mess. I am looking at my options. And Chapter 7 with it's 7 years of credit loss is better than spending 4+ years in a downward spiral that can cause one to lose everything. I've already moved back home. I have cut expenses. I use 'Net access from work. One can only cut so much. Consumer credit counseling is just a front for the credit card companies. They know if you file bankruptcy, they won't get much. With CCCS, they recover something, if not all of it. Walk into CCCS sometime. These people have no idea what it's like in the real world. They are insulated from the trenches, and are clueless.

Anyway, the point is -- don't be so quick to lay down judgements. Until you know all the details, it is wise to stay silent and observe. Then with ALL the facts...things might come out a lot different. And sometimes it's better to cut your losses and move on. Life is short, and very precious. With that in mind....my choice is clear. File, wipe the slate clean, and get on with life.