Do What I Say, Not What I Do (or did)....

This next blog will usher in a discussion of our ultimate decision to file for a Chapter 13 bankruptcy. However, before I start, I think it's important for me to say that this was our journey and these are the steps we followed which led to this decision. We do not endorse or recommend any financial decision that one may make. My hope is that by outlining some of our considerations (and mistakes) you'll be armed with additional tools as you wade through some of the same issues.

We ultimately chose to file for Chapter 13 for two reasons; 1) it was the only remaining viable option for us 2) it provided a way for us to pay back all of our creditors (which was critically important to us).

Long before we were faced with this decision, we made dozens of poor decisions along the way - all of which led to our current situation. Therefore, I've titled this blog, "Do what I say, not what I do". This list is comprised of stupid things we actually did and ones that appear to be pretty popular by most Americans.

LIST OF DUMB FINANCIAL CHOICES
1) Buy a home too early and out of desperation - We had plenty of help with this one! There was a steady stream of realtors, lenders, appraisers and escrow officers lined up to support us in our effort to buy a home (even though we should never have been considered). There are 100's of loan programs out there to support any financial condition and we were happy to participate in the worst of them - including 100% financed loans, loans with balloon payments or 1st and 2nd loans at interest rates no one in their right mind would consider. Clearly, we were not in our right mind. Seek wise counsel, save up for your down payment, protect your credit rating and wait for the right opportunity. You are the only one who TRULY cares about your financial health - don't put it in the hands of these vendors who claim to have your best interest in mind.

2) Withdraw funds from your 401k plan - This is a mighty tasty prospect when faced with financial stress. One statement from your 401k plan documenting a nice balance and you could be tempted to cash it all in to rescue yourself from debt. Don't do it! You will lose at least 40% of your investment and it will take years, if ever, to recapture those funds. Ask yourself if you would be willing to open a credit card account with a 40% interest rate. If the answer is no, don't steal from your 401k plan. (I would also say that this is true about the equity in your home - leave it alone).

3) Borrow from friends or family - This is a touchy subject for some of you but if you ever find yourself in our shoes, you will dearly regret having done this. In the case of our Bankruptcy, all of our creditors ultimately get repaid. However, all unsecured loans are dead last. Therefore, your family and friends will have to wait 4 or 5 years before seeing a penny of the money they loaned. This is sad, regrettable and preventable. Don't borrow from family or friends. Larry and I have adopted the same policy with our loved ones concerning making loans. If we want to help a friend or family, we'll give a gift and plan on never seeing the money again. It's far better to feel good about giving than resent the borrower when they can't pay you back.

4) Lease cars - This is another tempting offer that we happily accepted. Car companies LOVE leases. They are designed to make money over and over. You get the privelege of paying them a hefty fee to drive their car, only to return it to them at the end of the lease with nothing to show for it. And, if you are like 90% of the people that lease cars, you will exceed the allowable mileage plan or exceed acceptable wear and tear on the vehicle and be left with an unexpected balance at the return of the lease. We were wise enough to do this TWICE! The first time, we were offered to buy the car at the end of the lease (for 30% more than it was worth) and the second time, we were so upside down that we had to roll the balance in to a new car purchase! We are STILL paying for that originally leased vehicle as part of our Bankruptcy plan.

5) Put off paying your taxes - This is not as likely for those of you who have your taxes taken out by your employers. However, for the self-employed this is another area for potential danger. Pay your quarterly returns - EACH QUARTER. IRS debt was what ultimately buried us. They don't mess around with penalties, fines and interest rates. And, contrary to what you may hear, they are not likely to negotiate with you. By the time we filed for Bankruptcy, our minimum payments to the IRS resulted in the principal balance INCREASING each month. We ran an amortization calculation on the IRS debt and at age 96, we were still in debt to them. It was evident that we would never catch up.

6) Accept introductory 0% offers for credit - This is a trap and one that millions of Americans step in to on a daily basis. The reason that these offers are so popular is that the majority of people don't comply with the terms of the offer and end up with a large interest rate and fat balance. Another creditor in our Bankruptcy plan is the result of one of these offers. We purchased a bed six years ago as part of one of these offers with the intent to pay it off before the rate changed. As circumstances arose, we were unable to do it. For five years, we are sleeping on that mistake and probably will for the next 20! We also learned the nasty trick of creditors that is played when you are late on a payment or you exceed your balance. Once that creditor raises your interest rate, the credit reporting agency notifies all creditors and, in turn, they all raise your rates. Unless you have money set aside to pay off that 0% introductory rate card before the promotion expires, don't do it. In fact, we have adopted the belief that we are all better off without credit cards at all.

7) Finally, and probably most important, living without a budget - the best analogy I can give here is starting a trip without a destination in mind. You'll drive for days and never arrive! The time you invest in preparing a well thought out and prayed over budget (and sticking to it) will save you years of pain and stress. Read my earlier blog on Freedom Accounts for one idea as to how one plan really works. There are many out there to choose from - the point is chose one and stick with it.

Our confession to you is that we always believed life would continue as it had. We were both very high income earners, talented in our professions and living in an economically strong environment. We had bought the lie 'it really was all about us and we DESERVED to be happy'. It didn't take long for us to learn that by continually seeking what we 'deserved', we were absolutely miserable.

Tomorrow's blog will discuss the seven debt recovery options available for those of you who followed our pattern of mistakes including; Debt Settlement, Debt Consolidation, Credit Counseling, Bankruptcy and more.

See you tomorrow!