settle debts, then you should be settling all or most of them, not just a single account.”
Are you foolish to pay your bills?
Borrowers who are in over their heads with debt often struggle with the morality of filing for bankruptcy. But should you feel guilty if there’s really no other logical option?
Related topics: debt, debt reduction, bankruptcy, bills, credit counseling
People who think there’s no longer a stigma attached to bankruptcy or foreclosure need to come sit in my chair.
Every day, it seems, I hear from yet another borrower struggling with massive debt — credit card bills, an unaffordable mortgage or both — who absolutely refuses to throw in the towel. These people don’t want to be deadbeats. They want to pay what they owe.
They certainly don’t want to hear what I have to say, which is that the train has already left that particular station. Much of the time, they’re in too deep to dig themselves out. They have more credit card debt than they have annual income, or they’ve been out of work for months, or their mortgage payments on their “underwater” homes are eating them alive, with no relief in sight.
The only logical option is to hit the reset button and salvage what’s left of their financial lives.
Financially shortsighted
But people in debt often aren’t the most logical creatures. They’ll do desperate, foolish things, like drain a retirement account to pay credit card bills or try to save a home.
Liz Weston
Most of the people whom bankruptcy attorney Stephen Elias counsels these days have long since spent their retirement money in a futile attempt to pay their mountains of debt. These are funds that would have been protected from creditors, and emptying the accounts hasn’t done any good: The borrowers are in bankruptcy and foreclosure anyway, plus now they face fat tax bills and the prospect of impoverished retirement. Every $10,000 pulled from a retirement fund can cost you $100,000 or more in lost future income.
“It’s so sad,” said Elias, the author of “The Foreclosure Survival Guide.” “I almost never talk to people until after it’s done, when it’s too late. I don’t know why people don’t talk to a lawyer before they drain their retirement.”
Even thinking of tapping your retirement funds to pay bills is such “a big red flag,” as debt expert Gerri Detweiler puts it, that you need to consult a bankruptcy attorney.
“Another similar problem I see is that consumers will scrape together all their available cash to pay off or settle a balance with one creditor, but they don’t have a plan for paying other creditors,” said Detweiler, a personal-finance expert for Credit.com. “The other creditors may still aggressively try to collect and force the consumer into bankruptcy. If you have limited funds to settle debts, then you should be settling all or most of them, not just a single account.”
Should you really feel guilty?
So why do people take financially shortsighted actions? They’re often trying to do the right thing without really understanding the consequences. They’re so driven by guilt that they throw every available dollar at their problem, not realizing they’re making matters worse.
“Most people I talk with feel an enormous amount of shame when contemplating bankruptcy or walking away from a house,” Detweiler explained. “They feel like they will be branded as bankrupt or a deadbeat, but, ultimately, these days it’s often a difficult financial decision more than a moral one. I say that because many people who file bankruptcy or give up their home have done everything they can do to avoid it, and there are simply no other options left.”
I’ve said that people in debt aren’t the most logical creatures. Of course, people who are not in debt can be pretty illogical, as well. They’ll condemn those who don’t repay their debt as thieves, which is absurd. Theft is a crime, but owing money typically isn’t. Neither is owing money fraud, unless you borrowed knowing you couldn’t repay the loan. Most people go into debt fully intending to pay back what they owe.
I must protest. Terrible column, every time I read it I get a little more ticked off, followed by a multitude of equally terrible responses.
Whatever happened to personal responsibility in this country? Oh I don’t have to pay my bills because the bankers are bad people. Oh I should get everything free because politicians are mean.
NEWSFLASH, bankers and politicians have ALWAYS been mean and corrupt. This is nothing new but it does not give you an excuse to be a jerk. Pay your bills, be part of the solution not the danged problem. Tools!
It’s like this…sometimes it’s just dumb to be moral. this is cold, high stakes business. The credit card companies, no matter what they say, are protected from risk- that whole line of making you suffer because some deadbeat didn’t pay is false. That is less than 10% of thier revenue stream. The money was fake money- it never existed!!!! it was a credit made out of thin air- a credit they had made real money out of in interest, reselling the debt, tax write offs, merchant fees and insurance and you give them real money earned by your labor. So they don’t need your help in defending them. If I loan someone money and they don’t pay me back- im a fool out of all my money- I have to let it go and not do that again, do I go and charge someone who IS paying me back extra because i choose to risk it on someone likely to not pay me back?? Unless I can back that up with a gun, I don’t see that happening. The banks get thier money back one way or another.- from you from the feds from what i stated above. What other business enjoys no risk gambling and still convinces you that you need to socially pressure those who dont play the game thier way? They dont need your fricken help. They are laughing in dough- your dough. If you have to pay more- it’s because YOU are the fool who still owes them money- not someone else.
SImply put, It’s just plain stupid to throw good money after bad- Trump doesn’t do that- no business alive would do that- it would cease to exist as you may cease to exist without food. A bear isnt nice in the woods. A lion isnt nice on the prarie. It’s called kill or be eaten. I don’t plan to be eaten, I don’t plan on making the same mistakes again- i vow never to pay interest and be part of this ponzi scheme ever again. Business in it’s nature isnt moral, it’s defies ethics- if someone knows their product is shoddy but they’ll starve if they don’t sell it to you- they’ll do just that. When food and gas is on the line- morality goes out the window real quick and you need to get of some of your high horses and stop judging others because you dont know what thier journey was. I plan on treating my card companies as cut throat as they treated me and you don’t come into it. I can be smart and eat, or poor and moral. I’ll be smart and eat. And for that lady who says she’s gonna hit me with her cane- bring it- i know just where I’ll return that cain to you.
Thanks MSN for the article. Everyone should stop paying their credit cards. There is no shame in falling behind on you debt. Wall St. and the Banks did it and got bailed out.
Each person in America should have been given $25,000 instead of the Banks. They are hoarding the money American people would have been spending that $25,000 and got this economy back on track. They would have been buying cars, appliances, furniture, taking trips and paying back their credit cards. I’m sure the politicians and the Banks that own them will find another way to screw the disappearing middle class. Soon we’ll be like Mexico. Rich and poor only that’s what they want. People should to Egypt on them. City Bank eat a big one.
You know what I picture? Ever-responsible Me in a nursing home forty years from now, listening to the other residence describe all the trips they went on and all the money they spent in they heydey. Fun times that I missed out on because I’ve lived within my means my WHOLE LIFE. When I ask if they ever declared bankruptcy, and you know most of them are going to say yes, I am going to whack the heck out of them with my cane. At that point, whadda I got to lose?
I do have some sympathy for those caught up in the housing bubble, but you folks with credit card debt not related to health issues: You’ve had your day in the sun! All those concerts, all those expensive dinners you splurged on…That was IT for you. You shouldn’t be able to walk away from those debts. Now it’s time to pay up. You seem oblivious to how much sacrifice we responsible people engage in on a day-to-day basis. I’ve been brown bagging my lunch MY WHOLE LIFE. It’s called delayed gratification. It used to be perfectly normal to be that conservative. Now we’re all supposed to feel like suckers. I do get some of those arguments. But come on; do you really not see that your lack of morals has led to all these national problems? A lot of us did absolutely nothing wrong. You can’t just blame the big guys in charge because they’re bigger than you. You didn’t need all that stuff when you charged it.
Maybe I’ll start using that cane sooner than expected…
the sad truth of the matter is that most people simply put themselves in these situations
most people buy cars they cannot afford: if you cant pay cash for the car then you CANNOT afford it. why buy a car on credit when it looses its value faster than you can make the payments.
they buy houses they cannot afford: first off to accept a varible intrest rate on anything much less a house is just insane and asking to be screwed over by the banks.ALWAYS DEMAND A FIXED INTEREST RATE or do not buy that house.
also if you cant put at least 20 to 25% down on a house then you cannot afford it..your grand parents would have never believed that you could buy a house for 0 down,,that was unheard of
then they do even worse and get credit cards…any smart person would NEVER get a credit card,,,they prey on the ignorance of the young and uneducated.
i have had card companies call me to tell me they want to give me a card,,and when i ask what the interest rate is i have been told at times 33% or more,,i ask the person if THEY would accept a card with that kind of rate and every time they tell me NO,,and i say “then how do you expect me to take it then,,its just crazy
you would be surprised at how few people actually ask that question before accepting the card and charging things like clothes without knowing the ramifications.
buy 1 pair of jeans for $25 dollars and make only the minimum payment and not only will you NEVER pay off the card but you will end up paying thousands of dollars for a $25 pair of pants.
these things they dont teach you in school,and you see so many collage students end up swimming in debt that they will never be able to repay because noone taught them to make better choices or noone taught them how the system works and to not get caught up in that system in the first place
i think in the end its called “living within your means” and “save for the things you want”
can you REALLY not live without the $500 video gaming system?
do you really need the $600 new Iphone? when a simple regular phone works to make a call.
it seems that people forgot how to simply live without needing to have rooms full of crap they simply DO NOT NEED.
Move to Wisconsin, then you can legally dump all your debt on your spouse. That’s what my husband did. Only recourse for me is bankruptcy. While I saved, planned, paid off debt I knew we had so we could retire comfortably, he opened credit card after credit card without my knowledge, off and online. But in Wisconsin, statutes say it’s my job to repay. I won’t. And I won’t refinance the house. And I won’t dip into retirement savings. I didn’t run up the debt. But the credit card companies WROTE THE STATUTES in this regard, covering their back and front sides, making the spouse liable for WHAT THE SPOUSE DIDN’T KNOW WAS GOING ON. Check it out.
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