Bankruptcy: another person’s curse, my salvation

Last night, I was watching television and an ad for debt counseling came on, basically telling me bankruptcy should be a last resort because there was a better way.
I’m sure, for some, there might be. But, I can tell you from personal experience that bankruptcy isn’t always as bad as the media, or more importantly, creditors tell you it is. In fact, for many people, like me, it can be a salvation and a way to get their lives on track.

My story:

Since I know many people have a mental picture about the types of people who file for bankruptcy, let me first give you a little detail about myself. I’m a college graduate with a bachelor’s degree in journalism and history. And, with the exception of a couple of months (which will be explained later) I have worked full-time making decent money from the time I graduated. In fact, in late 1999, I not only had all my bills paid on time, I had more than $10,000 in my savings.

But, as you’ll see, things can change pretty quickly.

After I graduated in 1998, I took a job at a small newspaper in Wisconsin, about 30 minutes from my home town. The pay wasn’t the greatest but I didn’t have a whole lot of bills so I lived pretty comfortably in my one-bedroom apartment. However, after a couple of years there, I was getting bored and decided it was time for a change of scenery.

In 2000 found a job at a larger paper in Northern Pennsylvania and spent most of my savings moving out there (the paper didn’t pay moving expenses). When I got there, I discovered everything was slightly more expensive, including taxes. But, I was making more money so it wasn’t much of a problem.

And, the first year there things went really well. Not only was I making good money, I even managed to meet my future wife, who wound up living with me by that summer. Since we now had two incomes, we were even putting money aside for a big wedding the next fall, not knowing that our lives would get much more difficult in just 6 months.

One week before Valentines Day in 2001, I learned the paper I had spent my life savings moving to take a job at was eliminating my job. Realizing unemployment wouldn’t pay me enough and realizing there were no immediate jobs, I ended up taking a sales job at a local telemarketing company just for the paycheck. I was still bringing in money, but about half as much.

My wife had money coming in too, but, even with that, our budget was stretched pretty tight and we needed to use the remainder of our savings, including our wedding money, to get by.

The job I took only lasted a couple of months and, since there were still no decent jobs available, I wound up taking a job at another telemarketing company. I liked that one better, but it paid even less than I was making before. In the mean time, my wife went through several jobs because she seemed to have a run of bad luck in picking companies that wouldn’t downsize or cut hours a few weeks later.

By the end of 2001, we were barely bringing in enough to pay our rent and suddenly had to start using our credit cards to keep our phone and electricity on plus pay the car payments and buy food. In the mean time, my student loans were put on a forbearance collecting interest. And, since we were missing payments on those credit cards, our interest rates were extremely high. My family was 800 miles away and her family wasn’t on good enough financial footing to help us out.

By March of 2002, we gave up. I called my parents and asked them to come get us, since we couldn’t afford to move out on our own. We loaded everything we could into the moving van they brought but left a lot of our furniture behind when we moved back to Wisconsin.

When I moved back, I had thought I would be able to find a job immediately. However, I found it wasn’t as easy as I thought. My wife was able to get employed right away, but every job I looked at wouldn’t even consider me because I was “overqualified.” My parents were great, letting us stay at their house and helping us with the car payment and some of our bills. But, at this point, our credit cards were already maxed out and collecting fines and interest. By the time I finally was able to find a job, in May of 2002, we were roughly $35,000 in debt and had bill collectors calling us daily. On top of it, three days before I started my new job, I ended up in the hospital with kidney stones and, since I didn’t have any insurance, had an additional $3,000 in doctor bills to worry about.

The company I work for has a financial consultant who voluntarily talks to employees. We asked for his help and, after reviewing our situation, recommended bankruptcy. However, we decided against it at the time, thinking that, since we were both working, we might be able to dig ourselves out of our hole.

One of the first things we did was find a credit counselor who worked out a deal that allowed us to pay all but one of our credit cards over a period of 5 years for about $600 a month. Money was tight but we agreed to it, thinking we could finally get caught up with our debts.

It worked for about 3 months. Then the company lost one of our payments (paid by money order) and dropped us, claiming we never sent them the money and telling us we would have to send them another $600 payment, which we didn’t have.

By early 2003, I realized we had used up all our options. Credit counseling didn’t work. Bill collectors were calling us 7 or 8 times a day. And, because one of my wife’s credit cards had won a judgment against her, if we got married, legally combining our incomes, my paychecks would end up garnished and we wouldn’t be able to afford our apartment.

So, we decided enough was enough. I knew bankruptcy would ruin my credit. But, I also knew my credit was lousy to begin with so I was losing nothing in the deal. So, in February of 2003, we went to see an attorney.

Since it would cost us double to file separately, we decided it was time to get married. Having a wedding in the courthouse without her side of the family there wasn’t our dream wedding. But, it was all we could afford to do. And, the following Monday, we had our attorney file our papers.

Almost instantly, the collection calls ceased and, a couple months later, the only thing we owed were my student loans and the final four payments on our car. Within a year, we were financially back on our feet and, in July of 2004, roughly one year after the bankruptcy was discharged, we had the baby daughter we wanted but couldn’t have before because we couldn’t afford her.

In September of 2006, on my 31st birthday, we started a new chapter in our lives when we purchased our first home. It took a little extra paperwork and we had a slightly higher interest rate, but banks were actually willing to give us a loan even with the bankruptcy. It’s something that, 4 years ago, I never thought would ever happen for us.

Like I said earlier, bankruptcy isn’t for everyone. And, to be honest, since they changed the laws a short while ago, it might be harder to file for it. But, I hope, if you’re having severe financial difficulties, you’ll read my story and realize that declaring bankruptcy isn’t as bad as many people make it out to be. In fact, it’s a great way to start over with your life.… read

How to check your credit score

It doesn’t take much effort to find out your credit score, and once you do, you’ll know what lenders know when they evaluate your credit application.
Be the odd one out-check your credit score.

Knowing your credit score may be the first step towards improving your credit rating, but most people don’t even take this first step. A recent survey carried out by indicated that more than three quarters of the people they surveyed reported that they didn’t know their credit scores within a 200-point range. Half had never checked their credit score, and 17% hadn’t checked in the last few years.

Where does the information come from?

The information from which your credit score is calculated is compiled by three major credit reporting agencies, Experian, Trans Union, and Equifax. A little over a third-35% to be precise-of your credit score derives from your payment history. Another third-30% to be precise-is calculated from the amount of your total outstanding debt. Within this, revolving accounts weight more than installment loans. Another portion-15% to be precise-depends on the length of your credit history; and smaller portions-10% each to be precise-describe the percentage of new credit, and the mix among forms of credit in your ‘portfolio.’

How does someone else know if your credit score is a good one?

Consumer lenders and bankers most commonly use your credit score to estimate the likelihood that you’ll pay your bills on time. Your credit score is the result of a mathematical formula that seeks to indicate the likelihood of a borrower falling delinquent in the next 24 months. A FICO score, for example, generally ranges between 300 and 850. Any score that tops 750 is considered a good credit risk, while a score below 620 is considered risky. Each lender decides for their own institution whether or not to lend to people with scores between thee two numbers.

What a credit report looks like

When your credit report first reaches you, you might wonder if the printer went wild. The paper will be filled with numbers, abbreviations, and technical terms. What’s a ‘trade line,’ ‘a charge-off,’ an ‘annual review inquiry’?

How am I supposed to decipher this thing?

Usually, the credit report is divided into four sections. There’s one heading for identifying information, one for credit history, one for public records, and one for inquiries. Information under the first heading, identifying information, is quite straightforward. When you read it, you might notice that your name is spelled more than one way, and that there may be more than one Social Security number. That’s okay: the system is set up to keep any variations. Information under the second heading, credit history, is pretty straightforward as well, even though sometimes this section is called a ‘trade line.’ Each creditor will list your account number, when you opened the account, the kind of credit you were offered, the total amount of the loan, how much you owe, your minimum monthly payment, and the account’s status, as well as other information. “Charged-off” means that the creditor has made efforts to collect, and written them off. The third section, public records, is best when it’s blank. This is where the credit report lists the bankruptcies, judgments, and tax liens that will bring your credit rating crashing down. The fourth section, inquiries, is a list of everyone who’s asked to see your credit report.

Is your credit score is a good one?

Your credit score is the result of a mathematical formula that combines data from all four sections of the credit report, in order to suggest the possibility of a borrower falling delinquent in the next 24 months. Consumer lenders and bankers use your credit score to estimate the likelihood that you’ll pay your bills on time. As just an example, a FICO score generally ranges between 300 and 850. Any score that tops 750 is considered a good credit risk, while a score below 620 is considered risky. Of course, each lender decides for their own institution whether or not to lend to people with scores between thee two numbers.

Will credit score monitoring hurt my credit?

Not really. First of all, every consumer has the right to look at their credit report, without any effect to either their credit, or their credit score. You see, when you request your credit report, it isn’t the same as if a finance company requests your credit report. Your request is called a ‘consumer pull’ and has no effect on your credit whatsoever. It’s only when you ask a possible creditor to inquire, that it can affect your score negatively, because of the implication that you’re planning to open new lines of credit.

Will credit score monitoring help my credit?

Not really. But knowing your credit score will let you stay on top of your credit. The data that’s at the basis of your credit report changes over time, and so even under the best of circumstances your credit score will also fluctuate. If you are signed up for a credit score monitoring service, you’ll have a better sense of whether or not you qualify for credit, and if you do, what rate you’ll receive. And, if someone else has taken credit in your name or you have reason to suspect that you’ve become the victim of identity theft, credit score monitoring will let you know much sooner.… read