Over the past holiday weekend my family stopped by my wife’s parents house for a quick visit. We had a dinner and were able to catch up a little. One of the things that was brought up was that the neighbor girl (who was my wife’s childhood friend) and her husband had just declared bankruptcy.
Actually they declared bankruptcy back in February, but the family just found out about it now. And while it’s not newsworthy that a couple declares bankruptcy, that happens all the time. What makes this case a bit odd in my book is that it seems that it was planned out. They maxed out their credit cards and bought a SUV right before they declared.
Again this type of thing probably happens more often than I think it does (heck, my Dad declared bankruptcy twice). But what I found surprising was that my Mother-in-Law thought it was a good idea.
She views bankruptcy as an easy way to get a clean slate.
My wife and I tried to tell her that it’s not that simple, but when she quizzed us, we didn’t really know what to tell her. She didn’t mind wearing the scarlet “B” on her credit report and future job/loan applications.
“So what?” was her reply.
Here I thought it was common knowledge that bankruptcy was a last resort, not a get out of jail free card. But according to my Mother-in-law (her info is usually quite suspect), this couple is glad they did it. They lost their debt and got to keep their stuff.
So as soon as I got home, I did a google search and wouldn’t you know it, an article by Dave Ramsey came up on the first page:
“Myth: I’ll just file bankruptcy and start over; it seems so easy.
Truth: Bankruptcy is a gut-wrenching, life-changing event that causes lifelong damage.”
Those of you who have read Total Money Makeover will recognize his advice on the subject because it’s taken word for word from the book. The article is fine, but it doesn’t really cover the damage bankruptcy causes.
Another hit on the first page on the search brought up www.bankrupcyinformation.com:
“The stated goal of federal bankruptcy law is to provide the honest debtor with a fresh start.”
Hmmm, I’m starting to see why my Mother-in-law thinks the way she does. I guess I don’t know what to tell her. In a way it is a fresh start, and for certain situations it IS the best option. But there must be some pitfalls to declaring bankruptcy, right?
I know there has to be a Happy Rock reader who can educate me (and the rest of us) on the nitty gritty of bankruptcy. Either with a first hand story, or an account of someone you know who is going/went though bankruptcy.
Is it a clean slate? How has it affected future financial dealings?
Until next time,
P.S. I know that this might be a painful topic for some people and I understand if you don’t want to share. It’s just that a lot of people are feeling the pinch of the credit crunch and will probably be exploring bankruptcy as an option. So reading some real-life examples might be helpful with this decision.