In Bankruptcy or Foreclosure? I had one reader leave this comment:
I personally can't comment on foreclosure, but the effects of bankruptcy tend to linger a very long time - personally, professionally and emotionally. Ours happened 8+ years ago and of course, it is still reflected on our credit report. It was extremely embarrassing when we went to purchase our daughter a car and it was brought out in the negotiations with her sitting beside us. We had never discussed this with her - she was only 8 at the time of the bankruptcy. It was not something that concerned her and she didn't need to be concerned about her parent's financial stability. I have missed out on job opportunities due to this also - having been upfront and honest with the potential employer. My best advice - work as hard as you can to do whatever you can to prevent declaring bankruptcy.
And a few days later, I found this piece that says big lenders keep squeezing consumers who filed for bankruptcy. The highlights:
The Raleigh, N.C. factory worker pulled himself out from beneath a mountain of bills by means of a bankruptcy proceeding that wrapped up in 2002. One of the debts the judge canceled, or "discharged," was $9,523 Rathavongsa owed to Capital One Financial, the big credit-card company. But Capital One continued to report the factory worker's discharged debt to credit bureaus as a live balance, according to documents filed in U.S. Bankruptcy Court in Raleigh.
This kind of failure by creditors to update credit reports happens with some frequency, consumer lawyers and court-employed bankruptcy trustees say. And it can have consequences: In September, 2003, when Rathavongsa tried to close on a $274,650 mortgage for a new house, his would-be lender, Wachovia, said he would either have to pay Capital One or show proof from the credit-card company that the debt had been discharged. Despite several calls and a letter from his attorney, he says, Capital One never revised the credit report. To obtain the home loan, Rathavongsa eventually did what many consumers in this situation do. He gave in and paid Capital One $9,523 he no longer legally owed.
These are just two of the horror stories associated with bankruptcy. I'm sure someone will comment here on how well their bankruptcy went, but if it was me, I'd do everything I could to avoid filing for it. It would certainly have to be the last chance I had to get my life back before I'd proceed with it.
Anyone else have a different perspective?
Sometimes bankruptcy really is the best option. For example if you are middle aged or older with debts that are multiple times your income, (i.e. you will pretty much never pay them off) then declaring bankruptcy is probably best.
I'm thinking that the point at which it is a better solution probably means that under the alternative, you are likely to suffer adverse consequences anyway.
Posted by: plonkee | November 21, 2007 at 07:22 AM
Man, I would never cave like that. I would sue the company that did not discharge the debt.
Posted by: Brandon Barkley | November 21, 2007 at 08:10 AM
Yes, in fact you can recover damamges against both Capital One and the credit bureau, because it's obvious they did not investigate when the credit report entry was disputed. Wachovia might bear some responsibility too, as the bankruptcy paperwork should have proven the debt discharged, and they should have accepted that as proof.
But the overall point is valid - if avoidable, stay away from bankruptcy or anything that will harm your credit. When lenders see that, they get big dollar signs in their eyes because they can charge you more interest, even if the event was a long time ago.
Posted by: Matt | November 21, 2007 at 08:18 AM
The rest of the story is that Capital One repaid the guy his $9,523, and another $14,000 in fines and legal fees on top of that.
I'm really not familiar with bankruptcy law, but how does a factory worker who's bankrupt in 2002 manage to get a $275K mortgage in 2003 (not to mention having $9,523 in spare cash laying around to succumb to CapOne's extortion)--is that a remnant from the heyday of subprime lending or is that par for the course even today?
Posted by: MelMoitzen | November 21, 2007 at 08:22 AM
That story sounds pretty shady for the reasons Mel pointed out. Doesn't really sound like this guys bankruptcy affected him all that much.
Posted by: Kevin | November 21, 2007 at 09:24 AM
I want to focus on how factory worker buys an almost $300k house a year after bankruptcy. I have a combined income well over 100k and I wouldn't dream of having a mortgage that big.
Posted by: Richard | November 21, 2007 at 09:41 AM
All he would have had to do is dispute it in his credit record and when they couldn't reestablish it, it would be stricken from it.
Posted by: Lord | November 21, 2007 at 04:48 PM