Sunday, January 25, 2009

Tell All Tuesday on Sunday-Bankrupt Street-How I Got There Part III

Here is the part III of how I became Bankrupt and it's not pretty!  In previous posts, you read about my personal history and my relationship with money.  In this post I'll elaborate a bit what led me to finally filing the Bankruptcy.

I previously posted about the Universal Default clause that oh so many credit card companies have as part of their Consumer agreement.  I can truthfully say, that the Universal Default is the most consumer unfriendly fiscal invention ever created.  

One of my fiscal issues was my slowly depleting savings account.  Part of the joy of home ownership is being responsible for the repairs and maintenance on the home itself.  I knew my house had some issues, but my home inspection did not turn up any major projects that needed doing.  Enter my insurance company.  First they wanted me to get a new roof.  Why? The roof I had was fine, about 12 years old and fine.  The insurance company said their inspection deemed the roof old and past it's shelf life.  Five quotes and four roofing contractors telling me the roof had at least another 5 years left in it,  I had the roof redone.  Two years later, the insurance company wanted me to paint my house.  Yes, I did have some peeling paint, but it was not that bad, in fact, I had put new siding on one part of the house and was slowly planning on working my way around the house, new siding and new windows.  Painting seemed to me to be a waste of someones time and my money, but the same deal, if I did not paint, I would be cancelled. So I got the house painted.  (and got a new insurance company after the fact too). All that came out of my small savings account and I did not replenish that savings account. 

Being underemployed played a big part in my fiscal downfall. I had a reduced salary and reduced benefits. I had to pick up part of the cost of my medical insurance, which later came back to bite me.  I also agreed to a new salary structure (and did not get it in writing-BIG MISTAKE) which eventually did not pan out.

As I stated earlier, I stopped using my credit cards.  I had 5 credit cards. Yup 5.  I was close to being maxed out on two, had plenty of credit on 2 of them and one was an AmEx. I would use the Am Ex because I had to pay it off each month.  I could not give up the plastic entirely, but I was managing. I still spent money, I just used my debit card. I was paying my bills and still "having a life". 

In 2005 I hit a streak of really bad luck and as I say, even with good research and carefully sought out advice, I started having huge money issues and the Universal Default started to rear it's ugly head. In no particular order the following things happened. My job, job description and pay scale changed, I tried to start a new part time business with someone, I made some bad investments with part of my retirement account, I started going through some relationship issues, and I just made some bad, bad decisions with my money. This is where I really wish I had found the world of Personal Finance and PF bloggers.  At this point, I may have been able to salvage myself.  May have been.

The Universal Default started to kick in a couple months after one of my car payments went missing in the mail. I got a late notice from the loan company, checked my bank account, saw the check never cleared and sent off a new check. No ding yet. A few months later I just totally forgot to pay my car loan. Nobodies fault but my own.  Paid the current and past due and had the 30 day late charge.  A few months later I open my credit credit card and was stunned to see the minimum amount due was like double what it had been the month before.  My first thought was 'Damm the payment did not make it", but I looked on the statement and yes, the payment had made it with room to spare, but my interest rate had been increased.  Up until this point I never had a late payment to my credit cards. I paid on line so that the payment hit the day before the due date or mailed it so that it arrived before the due date. I was not using my credit cards-How could this happen to me?  I called the company and the slightly apologetic lady told me that one reason my interest rate went up was because of my late payments.  To which I replied-"What late payments?" I'm looking at the past 18 months of statements and not one late payment.  

This is when she told me that the company could and did, exercise it's option to raise my interest rate because of my payment history with another lender.  Universal Default.  Guess what, I had no recourse to this Universal Default clause either.

To say that things snowballed is to put it mildly.  If you are reading this, then you have lived my story.  One credit card after another started increasing not only the interest rate, but one bank also upped the minimum due.  It was a double whammy.  Where I was making slow and steady progress in paying down the debt , I now could barely keep up with the payments.  Instead of seeing my amount owed decrease each month, it stayed pretty constant, only dropping literally a few dollars like 2 or 3.  Calls to have the percentage rate dropped fell on deaf ears, and one card holder also then decreased the credit limit as well.  They did this since I was not using the card (duh-I'm paying it off!) and my repayment history with other lenders was not good. I was denied even the chance of playing the balance transfer game. 

So here I am, with a non existent savings account, credit card payments that were manageable now through the roof, a change in my job pay scale (which in hindsight was STUPID, STUPID, STUPID), a several bad fiscal decisions, topped off by me having personal issues that just totally crapped out my year. I felt like someone had put a hex on me for 2005,  I really did.  

2006 did not start of much better, in fact, it got worse.  I was relying on promised bonuses to help with the credit card crunch I was in.  Because of the new job description and a change in the company (ie my boss did not want to pay out the new bonuses when he realized how much was going to employees and not him), our bonus structure got changed and guess what? I did not get the bonus I had been anticipating.  Talk about being screwed.... but let's face it, I did not plan well and relied far to much on that supposed bonus. 

In mid 2006 I switched jobs to a new company (the one I work for now), better pay, closer to home, but my credit situation was not improving. In fact, it was still spiraling out of control. I started missing payments on my credit cards, I spent money  I should have put towards my credit cards, I honored some personal obligations that cost me more money, I just made bad decisions.  To stop the hemorrhaging I took money out of my 401K, early withdrawal penalty be dammed.  It helped somewhat but did not stop the problem.  I still could not get out of my own way to improve my situation. No matter what I did, things just got worse. 

At this point, I had paid off my car loan, had put my student loan in deferment (again), and was trying to see if I could reverse the damage done.  Quite simply, I could not. I was paying more in debt repayments that I was taking in income.  My part time business partnership went no where and cost me money, I was having health issues that I had to cover payments out of pocket because of my high deductible plan (about $3,500 worth of bills, my deductible was $5,000). I had some minor car repairs to my old car, but it all added up.  

I started to do even more stupid things. I was ignoring the phone calls and letters from the credit card companies that may have been able to put me on a more reasonable repayment plan.  I did not seek out help. I just got totally overwhelmed.  One credit card company did "catch up" with me and I did set up a repayment plan, reduced interest rate, I got to pick the payment date, etc.  

What stuck out in my mind was the comment from the representative setting up the repayment schedule.  "Ms. B, you have been a customer of this bank for 10 years and never a late payment. In fact, up until this past year, you have been a great customer"  what happened?  All I could respond was that Life took a bad turn and I just never got back on the right street."    

After this conversation, I got up the belated courage to try and contact the other companies to see if I could work out a similar repayment plan.  No such luck.  I was a "day late and more than a dollar short". 

What eventually drove me to the Bankruptcy was being slapped with a judgement by one of the credit card companies. I was being taken to court for my credit card debt.  I was already napping on my couch when the Marshall came to my door to hand me the summons, but that put me to bed at 6:30 PM not to get out of bed until 8:00 AM the next day. I felt totally shattered that day, just shattered, run over and out of ideas as to what to do. 

I called my attorney to ask about what they hell I was supposed to do with this summons. He referred me to his partner who specialized in debt collection and bankruptcies and strongly suggested I make an appointment to see his Partner.   With great reluctance I made the appointment and brought all my documents as requested by his paralegal.  He reviewed my documents and said I was a candidate for Chapter 7 Bankruptcy. I asked why not Chapter 13?  In my mind, I had collected these debts and I should repay them. If my creditors did not accept my plan for repayment, they would accept the courts and I could repay my debts. 

My attorney said the success rate of C13's was far less than C7's. In fact, C13's were harder to get than C7's, or so said he. We talked about me and my situation.  He gave me a bunch of paperwork to read and told me to think about it over the weekend and to call back on Monday.

I took the paperwork home and did not look at it for two days.  I was in denial about the whole surreal process, I really was.  Bankruptcy was a dirty word.  Only slimy people filed bankruptcy, the negative connotations were all swirling around in my head. People are going to read about me in the paper!  Me Bankrupt? I could just not fathom it all.   I spent a lot of time that weekend feeling  terrible and detached from myself.   I reread all the papers given to me and I did some internet research.  I went to bed one night still unsure of what to do.

I woke up the next morning and my decision was made, I would start the Bankruptcy process.  I was feeling beat up and I was tired. I called the law office and made a follow up appointment to start the paperwork. As they say, the rest is history, I became Bankrupt Betty that day.

Part IV- I'm Bankrupt Now What and how I'm getting off of Bankruptcy Street.


Shevy said...

I really think a significant percentage of people are just 2 or 3 missteps (either bad luck or errors in judgement) away from your position. I've actually been pretty darn close myself prior to selling the condo.

Now, I'm cash-poor (my net worth is tied up in our fully paid-for rural place and the investment I made in my daughter's home, where we also live) but I'm quite desperate to get out of credit card debt again (and this time to STAY out).

The downturn in the housing market means that taking my money out of my daughter's house would be difficult and could cost a few grand in penalties. This wasn't supposed to be the way it worked. We were supposed to refinance in a year or so and just take out my share with no problem.

Luckily, their interest rate keeps dropping (while their payment stays the same) so they are paying down the house a little faster than anticipated. It just isn't appreciating in value anymore.

Debtfree2009 said...

Thanks for posting this. I am always interested to see how people end up in bankruptcy.

Miss M said...

Thank you for sharing your story, it seems like one or two little mistakes snowballed out of control. I don't think most people realize how close to the edge they are.

Dawn said...

Bad decisions are like drinking alcohol. Once you have a couple, it is awfully easy to keep on going. It looks like you hit a really bad patch in there, but I am really impressed with all that you have done afterward to "bounce back!"

Anonymous said...

thanks for posting this.

although the details are different, the overall picture in my situation was quite similar: a lenghty series of setbacks, underearning, and less than optimal money decisions. When I finally realized the mess I was in, I was about to be sued and saw no alternative to bankruptcy.

Reading your post makes me realize that my own situtation is not unique, and makes me more hopeful about eventually "bouncing back" myself.


Its tuff comming back from the brink.