It's bad enough that we might be digesting the "d-word" (divorce), it's an entirely different challenge to be faced with the b-word — yes bankruptcy. It even sounds hard coming out, right? Well, unfortunately, many women who are going through divorce find themselves financially vulnerable, already be in debt, or headed towards debt, and may need to consider declaring personal bankruptcy as the first viable step towards re-establishing financial solvency.
However, despite what you may think about the subject of declaring personal bankruptcy and all of the stigma it carries, bankruptcy rules and the social reaction to filing for protection have changed dramatically over the years. In the past, most of us knew only a few who had filed, and we knew fewer yet who had actually been "discharged" (approved). Those who went through the process typically kept it quiet.
The shroud covering the subject started to lift in the 1990's, when it seemed everyone was filing. Bankruptcy knows no boundaries — employment status, race, gender, and the like just don't seem to matter. We're all affected by it.
During the 90's, access to consumer credit flowed like never before. Personal debt increased significantly. Many believed the booming gains of the housing and stock markets would continue indefinitely. When the stock market "corrected" in 1999, severe problems started to surface.
At the same time, divorce rates in America (and across the globe) rose dramatically. Many families became embroiled in bitter and costly property and asset disputes. America had changed into a country of two-wage-earning families, and women now had income of their own. Women now carried more responsibility for debts acquired during marriage. As the economic outlook for women changes as a result of divorce, it can lead to difficulty paying creditors as agreed.
As the world changed this way, lenders began to forecast growing delinquency rates. Lenders, and in particular credit card companies, hate to take losses because of the obvious impact. Consumers often don't realize that banks borrow the money they lend. (That's what happens when you use your credit card. That, and your bank's desire to generate a profit, is why your bank charges interest instead of a set fee).
So, what happens when the chain breaks, and more importantly, what should we do as consumers if we find we're reaching a point of becoming overwhelmed by debt and unable to pay?
- First, try not to get too emotional. Everyone realizes that bad things sometimes happen to good people.
- Cease charging so that you don't further compound the problem.
- Speak to your creditors directly about your situation. They don't want to take a loss, so many have programs already established to help you.
- If more help is required, seek out a qualified financial professional to guide you. I've referred clients previously to Consumer Credit Counseling Service (CCCS) of Greater Atlanta and have seen good success there. Any chapter of CCCS will help develop a debt management plan, but the Greater Atlanta chapter is one of a few in the nation certified to provide bankruptcy counseling. (Visit them at www.cccsatl.org for more information.)
- Complete a personal financial assessment. Look at all debts, expenses, income, and assets to determine your current condition. If you're upside down, decide what's necessary to move from a negative cash flow to a positive one, and try to forecast when you'll move toward solvency. Is it reasonable to think it can be done given your circumstances?
- A good credit counseling agent will help you determine answers and help create a spending/savings plan that allows you to pay your creditors monthly. They'll also negotiate more favorable terms with creditors, and continue providing counseling until you've fully recovered.
- Your debt management service won't tell you that you're bankrupt — that's not their job. You need to determine your actual status together with an attorney. However, if they suspect insolvency, they'll advise you of what options are available.
- An important point about debt management services: Many are advertised in the media. Some are non-profit organizations, others aren't. My preference is to avoid for-profit services, though, I'm sure good ones exist. I'm even cautious about non-profit debt counseling agencies.
- I suggest you meet with your counselor regularly, and check with creditors that payments are being made timely. If you see or hear something that you don't agree with or understand, speak-up.
- If you think you've tried everything, bankruptcy might be the right answer for you. Remember, though: Bankruptcy is your financial trump card. Once you use it, you can't play it again for years, so use it wisely. Before filing, be sure you've tried your best to overcome your financial hurdles. Bankruptcy should be what you try when all else fails.
Brian Kilroy is a FWW supporter and retired Vice President of MBNA America Bank, N.A. He directed the Financial Advisory Service, an employee assistance, credit education and lending unit servicing MBNA employees worldwide.
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