Why Bankruptcy Won’t Kill You. A Brief Primer on the Art of Financial Rehab.
The number blinked at me off my computer screen: 842. Eight hundred forty two, out of a possible 850 credit rating.
No. Fucking. Shit, Sherlock.
It would be fair to say that back in 1998, when I was living in Spokane and the only two times I was famous enough to get my name in the local news rag were for my divorce and medical bankruptcy, this feat was unlikely.
At the time, hounded by creditors, sick as shit and completely overwhelmed by debt created by far too many forces to list here, I had to scream Uncle.
My father, who taught me early to keep my financial nose clean, would have been utterly horrified. I sure was.
As someone who has forever been brutally responsible about bill paying, paying on time and paying everything off, the idea that I had to dump my debt onto my creditors without so much as a by-your-leave was appalling. I took it personally, as a statement of character (or lack thereof).
Here are some sobering stats:
In the 12-year span from October 1, 2005 to September 30, 2017, about 12.8 million consumer bankruptcy petitions were filed in the federal courts. Of those, 8.7 million–68 percent–were filed under Chapter 7, and 4.1 million– 32 percent–were filed under Chapter 13.
Like mine, nearly 67% of those are medical in nature. I couldn’t get my VA disability payments in time to get on a payment plan. That to me would have been preferable to be branded bankrupt, have a car repossessed, and feel as though everyone who looked at me knew damned good and well I was a financial reprobate.
However, let’s be clear about what purpose a bankruptcy serves. It’s not there to fix your lousy spending habits, your compulsive buying Jones, your addiction to (whatever). Before granting you relief from your creditors, the courts will look hard at you, your habits, and your discipline (or lack thereof). When I filed, I had a perfect picket fence 35 years long of paid-on-time bills, until I couldn’t. It was monumentally clear as to why. A bankruptcy isn’t a get-out-of-debt free ruling. It’s a fix for folks who have found themselves in deep shit, often not of their own design. And frankly, speaking from personal experience, until we sort out health care costs in this country, medical bankruptcies are likely to continue to balloon just as the for-profit medical industry CEO’s salaries put on lard.
But I digress.
Capital One, which can have some pretty good deals and sometimes pretty bad interest rates, had a card that I was able to get as long as I threw some cash on the barrel head first. Which I did.
It was a long time coming. But those first shame-filled steps of earning the right to wield a credit card were worth it.
My friend Stephanie filed bankrupcty some years ago. She no longer carries a credit card. She pays cash or uses checks or debit cards. She swears by this, but she doesn’t live my travel lifestyle. You cannot do what I do without cards, and especially cards without high limits. Sometimes car companies overseas can charge you breathtaking deposits (too many drunk college kids), and you have to have the room.
It took some years. However, every time an upgrade was available, Capital One expanded my limit based on good behavior. I took out small loans at my bank, paid them back on time for no other reason than to simply prove my credit worthiness.
I didn’t need the money. I needed my reputation back.
This article explains much of what I did to rebuild, albeit I had no co-signor. In the months after I had to file, I was able to push through my VA disability, which gave me a steady income. I can’t work full time (not with up to twenty serious migraines a month) so the steady income source allowed for continuity. I have spoken to many other veterans who, like me, did their level best to make it full time with major corporations while managing a difficult disability. Working with the VA to get your benefits takes decades. Endless appeals, massive amounts of paperwork, endless hearings, endless denials.
And, as in my case, a bankruptcy, because in the meantime you’re paying for whatever your issues are, and insurance companies at the time wouldn’t cover pre-existing conditions. As a hemophiliac, trust me, AIG would take one look at invite me out the door. Too much risk. Long history of migraines? Haveaniceday, lady.
As for migraines? Here’s what Imitrex costs, and then multiply that times 20 or more headaches a month, plus the risk of stroke, and you can see why I had to file. I took a job as a bank vice president to get health care, which was disastrous, because I was ill so often that my VP fired me. That’s an EEOC violation. I filed a lawsuit. Won it. The feds took the settlement when I had to file for bankruptcy.
Shit happens, man. Sometimes you cannot win certain battles.
However, I won the war.
The bankruptcy was discharged ten years later, and then I had to battle the credit card reporting agencies to ensure that my records were clean.
Suddenly- and you know what’s coming- I got inundated with card offers.
Turned down most. Kept one or two, paid them off religiously, kept my nose clean.
Since 1998, I haven’t missed a single payment for any reason. Don’t bounce checks or misuse my bank privileges.
Paid off, too.
Twenty one years after the double-whammy of a divorce and bankruptcy, the red-faced shame of having your car towed out of your driveway (LOSER) while your neighbors whispered, I am eight points from a perfect score.
Here’s what that looks like:
Here’s what Experian has to say about it (I wouldn’t trust them much, but still). Bottom line, you will survive a bankruptcy, but not if you haul off and spend indiscriminately when you get new cards. The average American has about a 675 rating, which is driven in part by consumer spending, high mortgages and a great deal more. Missed payments are major no-nos, which is why I pre-pay my CCs before I go on travel, or set up auto payments.
Why is this important? Look, in my case, it’s not about bragging rights, or lookit me. Because of what I do (lots of adventure travel) the benefits offered by the high-end cards like Chase Sapphire and Barclay’s make my life so much easier. I have run into problems overseas and the help I get is superb. I’ve earned it…back.
Even United Airlines, after I defaulted badly on one of their cards, is quite happy for me to be carrying two of their cards right now, earning miles, paying for all my business and personal expenses.
Bankruptcy is a gift- while it sure doesn’t feel like it at the time- for those of us who find ourselves in dire straits. While it doesn’t excuse lousy business practices (Trump, anyone), for everyday folks who are living on the knife edge of making things work, one busted arm, one exploded appendix can mean disaster. Homelessness.
I’ve been there. I’m also massively fortunate that I also won my VA battle, which far too many of my veteran peeps do not, and that has allowed me to pull myself up by the proverbial bootstraps as well as get another business underway.
I have no trust fund. No savings. No plan B financial plan. Like many Americans I have to keep my expenses under control, and negotiate sweetheart deals to be able to do what I do. For example, there is no way I could afford to fly all over the world if it weren’t for the miles I earn on my cards. I can’t get those miles if I don’t have good credit cards. You can see where I’m going here. All of it takes work, responsibility, and respect for the system.
Got debt? Avoid fly-by-night consolidators. Do all you can to manage it. But if you can’t, a bankruptcy won’t kill you. If anything, the discipline to scratch and claw your way back might teach you better buying habits. Nothing right now can do much about the horrific issue of medical expenses, but at least some breathing room might give you a chance to start over. Whatever you do, should you decide to file, do your due diligence on attorneys. As with all things, they are not equal.
Above all, be patient. I was actually quite surprised how quickly credit companies were willing to give me a second chance. Each baby step back to financial legitimacy is worth it.
And about that five thousand dollar jacket winking at you the Neiman Marcus showroom?
Might wanna pass on that.