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KOM, I don't know but I can refer you to the Harvard study Here is a summary of the reports findings.
Posts: 12591 | Registered: Jan 2000
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If find myself is a rather awkward position here defending people who declare bankruptcy. To the best of my knowledge I am the second most conservative person on the planet when it comes to debt and financially planning. I have never carried a credit card debt, never borrowed money for school or a car and I paid of the morgage on my home in record time. I am absolutely not one to justify consumer debt of any kind.
At the same time, I have read enough on the subject to recognize that the common stereotypes about bankruptcy are not valid. People who declare bankruptcy most likely have too much consumer debt, but they don't generally have more consumer debt than Americans who don't declare bankruptcy.
It's really easy for someone in my position to advise people never to borrow money on a credit card. But what would I do if after paying my utilities and my mortgage there wasn't enough money left to buy food? If I was on a really tight budget and the car needed a $500 repair or my child needed new glasses, what would I do? What would I do if my 4 children each came home from the first day of school with a list of $100 in school supplies that were required? If I was living from pay check to pay check and my child broke a leg, how would I make the copay?
Those aren't strictly hypothetical questions. I know people who've been in those exact situations. Invariably they always plan to pay those credit card debts off fast, but the reality is that next month is rarely better than this month and if you can't afford to pay your bills now, you probably won't be able to pay them plus interest next month.
People who have children young often really struggle financially. Young parents often overextend themselves in order to live in a neighborhood with good schools and so any crisis can devastate them financially. Is that a mistake?
At the same time, I think many in our society have lost track of the difference between necessities and luxuries. The average home size keeps rising even as the average household size drops. Children can share bedrooms without suffering irreparable damage. Many of my students think owning a new car is essential even while they are in college. Even things like a personal computer, which are very useful for an engineering student, aren't really necessities. A thrifty student can get along just fine using the computer labs on campus.
Bankruptcy is a very complicated problem. Part of the problem is that, in our economy, a persons earning power is usually lowest during the time of life when they have young children placing heavy demands on their time and resources. In addition, our culture tells us that wanting "the best" for our children is fundamentally different from being greedy so parents will justify going in to debt to get the latest thing for their child even when they wouldn't justify it for themselves. Part of the problem is that medical costs are out of control and that many safety nets which once existed, from extended family to community to government programs, are no longer viable.
I'm the 2nd to last person on earth who would recommend anyone go into debt, but still I think we have to look beyond the stereotypes before we condemn those who are in serious financial trouble.
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One more thing, I'd like to comment on the original question. For many religious people the paying of tithes, alms and offerings is a crucial obligation. It isn't something you can do if you have excess, it is an important and essential religious practice. For those who believe in this principle, the offferings are made before even their basic needs are met. In this sense, it isn't any different than other religious observances like honoring the Sabbath, keeping a fast, prayer, dietary codes, holy days of obligation or any other religious observance.
Would you support a law that require a 7th day adventist to work on their Sabbath until their debts were paid? Would you support a law that required an orthodox Jew to eat pork until their debts were paid? Would you support a law that forbid fasting or prayer for debtors? Would you support a law that forbid Mormon's from attending the Temple until their debts are paid?
It doesn't matter whether or not you like the idea of tithing. It doesn't really matter whether or not you think church's are justified in asking a tithe of the poor. What matters is whether our laws will allow an individual to decide for themselves whether or not to follow any religious practice.
I don't think that bankruptcy courts should account for a persons religious commitments when calculating out debt payments made under bankruptcy. If the court only allows the person/family to retain enough money to pay rent, clothing, utilities, food etc, that amount shouldn't be changed to allow tithing. However, if the persons religious beliefs direct them to pay the tithing instead of buying new clothes or eat beans and rice so they can donate to the poor, it is wrong for our laws to forbid them from doing so.
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quote:I don't think that bankruptcy courts should account for a persons religious commitments when calculating out debt payments made under bankruptcy. If the court only allows the person/family to retain enough money to pay rent, clothing, utilities, food etc, that amount shouldn't be changed to allow tithing. However, if the persons religious beliefs direct them to pay the tithing instead of buying new clothes or eat beans and rice so they can donate to the poor, it is wrong for our laws to forbid them from doing so.
Thank you. You've saved me the trouble of formulating my thoughts on this. I was unhappy with both sides of the issue until I read this, but hadn't taken the time to work out exactly why. Would you mind if I posted this on the weekly discussion the author of the OP article does each week (probably next week)? I'd like to see her thoughts on it.
Posts: 26071 | Registered: Oct 2003
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katharina in another thread about homeownership made the point to not exchange secured debt for unsecured debt. We bought our house (a definite fixerupper, but livable) four years ago. We were just out of college and so we did an 80-20 loan with no down payment. (80% fixed plus 20% variable rate home equity loan)
Recently with the housing prices going up in our neighborhood, we theoretically had gained 20% equity in the house. So we hustled to refinance our mortgage into a fully fixed rate loan, which I still believe was the right thing to do. We didn't take out any additional money or anything when we did the refinance (even though the loan company would have been happy if we did)
That was last winter. This spring the roof started leaking severely. The roof was less than 5 years old. However it was improperly installed by a fly-by-night company and there was no warranty.
A leaky roof is one of those items that can't be ignored. Unfortunately we *didn't* have 9K in savings to get a new roof. So we had to go into consumer debt and now we are stuck paying it off rather than putting that amount monthly into savings. It is at least a fixed rate loan, but since the price we paid for the house was already for a house with a new roof, (and it was inspected at the time of purchase... an improper installation shows up about the 4-5 year mark) unless we hold on to the house for at least 5 years it is unlikely we will recoup the amount in a sale.
We also have auto loans which will be paid off in another year, and our plan is to hit the remaining consumer debt hard once that monthly sum is freed up. Again, fresh out of college needing reliable transportation we had to go into debt. The first vehicle we had to buy new because they wouldn't finance us on a used vehicle, because we didn't have enough of a credit history because we were frugal college students that didn't use credit cards. The second vehicle we bought was used and at a fabulous price. But, in order for both of us to work, we needed cars to get there so it was a circular problem for debt. We bought our house in the best place we could for an investment, but as a result it was too cheap to be close to the public rail transit, and not low-income enough to be closes to the main bus lines... again a circular consumer debt problem. (And don't tell me to ride my bike Rabbit... I draw the line at bicycling 13 miles one way in winter snowstorms...)
Now there are some luxuries in our lives that could and would be cut summarily should a true emergency arrive, but we don't live outrageously beyond our means either. I *know* we are better off than most of the U.S. when it comes to consumer debt and we have good health insurance etc, yet if only a few things went wrong simultaneously, we could be in pretty big trouble. And we don't have kids and have two substantial full time incomes. I have no idea how someone with children would make it, because we aren't doing much more than getting by ourselves.
quote:(And don't tell me to ride my bike Rabbit... I draw the line at bicycling 13 miles one way in winter snowstorms...)
Bike and ice really don't mix. I really hope my earlier statements didn't come across this way.
Even though I do think many people spend too much on luxuries, that was not my point. I think most Americans get into debt for very legitimate things just like you did Anna. I can't think of many circumstance where people would be better off paying rent than paying on a mortgage. In the US, we have designed our communities and transit systems so that a car is a necessity for most people. While I find it ridiculous that its easier to get a big loan for a new car than to get a small loan for a used car, you didn't make the system. If I were in your circumstances, I can not say I would have made different choices. Its very easy for people to sit on the internet and criticize people who declare bankruptcy or have large debts. But when you look at the actual studies, you find that most people who declare bankruptcy aren't reckless spend thrifts. Most of them are like you and me but they've had worse luck.
The really sad thing is that the poorer you are, the higher interest you end up paying on most things. If your roof starts to leak and you don't have a great credit rating, you may have no choice but to put it on your credit card at 20% interest. If your credit is even worse, you will probably have to rent because you can't get a mortgage. When you run out of money before the end of the month, your only choice for feeding the kids may be an outrageous payday loan. Its a really vicious cycle.
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Whoops sorry Rabbit... on that line about bicycling I meant to add a smiley face.... so you didn't take me too seriously. I wish there was some sort of winter HPV that one could warmly traverse city streets on though.
Your last paragraph gets to the heart of the matter. We are "wealthy" enough to have a decent credit rating... otherwise we'd really be screwed.
Another interesting parallel is life insurance. Term life insurance is better than nothing. Then there is the other life insurance that appreciates over time, but it costs a lot more. Now they've got hybrids between the two to help you bridge the gap (the plan we currently have is a hybrid...) but if you can't even afford term life insurance to begin with then what does one do?
Posts: 11265 | Registered: Mar 2002
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Incidentally... if you ever do need to finance necessary home improvments, Home Depot has great fixed rate financing plans, tiered based on your credit ratings. They also offer a 25 year transferrable warranty on their roof installations too, and their roof installation prices was extremely reasonable for a quality install.
You can also pay it off, but leave the fixed rate line of credit open at a rate well below credit cards, and "re-use" it for another remodelling project too. Obviously it would be better if you paid it off and then saved up separately for another project, but if we decide to sell the house rapidly, it is what we would do.
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quote: Bob, I don't see anyone advocating shunning or even suggesting it as an option. Can you show me where someone did?
No. Nor did I say or mean to imply that anyone had.
I'm kind of sad that this is what you got out of my post. I was reacting to what I perceived as a negative strain in this thread where people are accusing religious institutions of having a somewhat mercenary attitude about tithing. I think the reality is pretty different from that.
Did you read into it a criticism of LDS tithing practices -- of which I know nothing and would not venture any opinion? Does someone's status in the LDS church depend on their tithing habits? Like do you no longer get to participate in some activitities if you aren't tithing?
Posts: 22497 | Registered: Sep 2000
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Another interesting parallel is life insurance. Term life insurance is better than nothing. Then there is the other life insurance that appreciates over time, but it costs a lot more. Now they've got hybrids between the two to help you bridge the gap (the plan we currently have is a hybrid...) but if you can't even afford term life insurance to begin with then what does one do?
Going off on a tangent- I sell life insurance and always recommend term, even though my commision ends up being less. A 20-30 term policy should be all anyone needs. After 20-30 years one should have enough in savings, kids should be out of college, and ones house should either be paid off, or close to being paid off.
I usually recommend either taking the difference in price between a term and a whole life policy and either saving it, or using it to buy more term insurance.
Hybrids, or return of premium policies, in my opinion are a waste of money. At least the ones I sell are. Basically they are a term policy, but you get all the money back after the 20-30 year term expires. They typically cost twice as much (again at least with my company). Saving the difference in a mutual fund over those 20-30 years will be a lot more profitable.
People have this idea that life insurance should be an investment. Its not, its so your family can survive on their own if anything happens to you.
The other thing to consider is long term disibility insurance. I would always tell someone to buy that BEFORE life insurance. A disabled spouse is a lot more of a burden on a family then a dead one, and disability is much more likely to occur. As stated before health reasons are a leading cause of bankruptcies.
Bob, I did kind of read it as a criticism. I hadn't seen anyone advocating what you were decrying, so I wondered where it came from.
Posts: 26077 | Registered: Mar 2000
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quote:Originally posted by katharina: pH, isn't that terrifying? it isn't unusual at all, either.
I know. Unfortunately I'd never actually SEEN it before I met this girl. I mean, how do you counteract that? How do you explain to people what credit and credit cards actually mean before they turn 18 and start running amok? How do you keep teenagers from buying timeshares in Cancun (which is apparently another part of her debt)? I just keep thinking how completely screwed she's going to be once she has to start paying back student loans on top of everything else. She's already paying off one credit card with the other.
I also don't know how the heck she got all these credit cards in the first place, honestly. I have two cards (one a store card) and one line of credit, and they're all with low limits. I don't know if I could get into $19k of debt if I wanted to.
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As of late I have tended to refrain from getting into the sticky arguments, so I will just say to Katharina and Rabbit "Thank You" for making the statements I would have.
Posts: 293 | Registered: Sep 2006
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The worst part of debt is how much harder it makes it to get back out again. I budget $1,000 for each car in car repairs every year. This year, we needed $4,500.
Then my boyfriend quit his job. After I pay the rent in December, I'm out of savings and still have all the car repairs on the card.
I have no idea how I'll get any savings back since I'll be paying off the credit cards once he gets another job. If anything else happens, or if he doesn't get a job this month, I'll be putting bills on the card - even after I cancel the cable and long distance.
Maybe if we cut the grocery budget I can avoid it. I've been saying I want to lose weight. Looks like now's the time.
I may not have created the situation, but I did choose my boyfriend. So while I take responsibility for the situation (and $1,000 worth of binge shopping on the card) it's still nothing I did on purpose. I had a budget. The cards would have been paid off next year. Then life happened.
Posts: 2283 | Registered: Dec 2003
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Michelle Singletary is interviewing an author in her chat today, but I tried to post the question anyway:
quote:Michelle, I'm not sure if you're taking questions on your other columns today, but I wanted to ask about the column you wrote last week about tithing while in bankruptcy. I agreed with your point, but something about the situation was nagging at me until I read this comment on a message board:
"I don't think that bankruptcy courts should account for a persons religious commitments when calculating out debt payments made under bankruptcy. If the court only allows the person/family to retain enough money to pay rent, clothing, utilities, food etc, that amount shouldn't be changed to allow tithing. However, if the persons religious beliefs direct them to pay the tithing instead of buying new clothes or eat beans and rice so they can donate to the poor, it is wrong for our laws to forbid them from doing so."
Then I realized what had been nagging at me was that I didn't like the idea that the court would set a different allowance for a household based on their religious practices. However, I really, really didn't like the idea of the court actively preventing someone from using a portion of their allowance in a charitable manner - in effect, forbid frugality in the name of charity. The above quotation clarified those two concerns for me.
I couldn't tell from your column if the courts were forbidding tithing at all or were not increasing the allowance for those who chose to tithe. Can you clarify? Thanks.
Will post her response if she gets to it, otherwise I'll submit again next week.
Posts: 26071 | Registered: Oct 2003
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quote:That's not the same thing at all. Bankruptcy is legal. It is legal to declare bankruptcy. It is not legal to commit fraud or to shoplift.
I don't see how bankrupcy being legal makes it necessarily moral. There are lots of immoral things we can do which are perfectly legal or are even protected by law.
Posts: 16551 | Registered: Feb 2003
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quote:And I did see the questions about my tithing column. Couldn't get to them but I will at a later time (perhaps in the e-letter or a follow up column).
I do think that most commercial contracts are made with the implicit understanding that bankruptcy is a possibility, so unless one hides imminent bankruptcy or abuses the system to qualify, one is not being dishonest or taking something that does not belong to oneself.
The legal framework of contract is essentially a set of default rules that both parties agree to (although some may be contracted around). When two parties agree to a contract, they agree, for example, that impossibility of performance that meets certain legal tests will excuse a party from its obligations. Presumably both parties set their price in accordance with this expectation.
Similarly, when two parties agree to a contract, they agree that if the party that owes money goes bankrupt, bankruptcy law will determine how that money is repaid. Although the bankruptcy rule cannot be contracted around by mutual agreement (the impossibility rule can be), many contracts structure debt so as to enhance the creditor's priority as much as possible. And, of course, the interest rates charged price in this risk.
It's as if every contract has a clause atached to the payment provisions that says "unless I go bankrupt." So it's not per se breaking one's word to use the bankruptcy system.
Now, I do think it's possible to use bankruptcy in an immoral manner. In that sense, you're absolutely right: there are perfectly legal instances of bankruptcy declaration that are immoral.
I also think there's a moral responsibility to realistically assess one's ability to meet one's financial obligations. The weight of this responsibility varies with the wilfullness of the unrealisticness of the assessment. A person who knwos they can't pay back a debt when taking the debt is less moral than a person who merely suspects or has not bothered to effectively calculate whether he can pay the debt, all other aspects of the transaction being equal.
Further, I think the necessity of the thing being borrowed for enters the equation. Life-saving surgery can be purchased on credit even when one knows one can't pay it back now, as long as one does the best they can after they're back on their feet.
A person who has wilfully or negligently exceeded their repayment capacity, barring a necessity circumstance, is committing an immoral act when they borrow and aggravating the effects of that act when they declare bankruptcy. A person who is capable of saving for an emergency and does not may be acting irresponsibly enough to have some moral culpability for an unforseen bankruptcy caused by a necessity event, but I would put this at a lower level of culpability than the reckless borrower.
A person who, through no fault of their own, becomes unable to pay an otherwise payable debt is not committing an immoral act.
I take no position on which camp the majority of bankruptcies fall into. The medical bankruptcy studies suggest the majority are triggered by non-culpability-causing events, but we would need to analyze prior spending to be sure. Regardless, I think a consistent bankruptcy policy that allows pricing of the risk should err on the side of mercy if error is necessary.
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You make some excellent points, Dag. Thank you for doing so.
Beverly and I are considering starting a small buisness for tax purposes, and we were pondering the morality of "exploiting" the tax code to pay less.
My opnion was that we don't have a choice on whether to pay taxes, and we don't have a choice about the rules for paying taxes. Since we have to play by those rules when it helps the government, we should certainly be allowed to use those same rules to help ourselves.
I am forced to accept the risk of another's bankrupcy when I am a lender, and in fact have been burned by that before. It doesn't make sense to me to be forced to accept the risks of bankrupcy but not be able to reap the benefits, if I ever need them.
In other words, I'm continually, in all my other transactions, paying for benefits of being able to declare bankrupcy.
quote:Similarly, when two parties agree to a contract, they agree that if the party that owes money goes bankrupt, bankruptcy law will determine how that money is repaid. Although the bankruptcy rule cannot be contracted around by mutual agreement (the impossibility rule can be), many contracts structure debt so as to enhance the creditor's priority as much as possible.
This is true, of course. However, for small business owners, especially those who bid for jobs and/or are in highly competitive markets may, of necessity, neglect to allow for "bankruptcy insurance" in their contracted rate.
I seem to recall Belle talking about situations like that, neh?
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In our situation, we lost a ton of money because a contractor that hired us declared bankruptcy and left us holding the bag. We had already installed thousands of dollars worth of fixtures and pipe into a house (it was a million dollar home with five bathrooms) and we wound up having to pay for it ourselves and getting nothing back. We took the homeowners to court, to try and get the money from them...after all they did have the fixtures and did have possession of the house...but the judge found that we could only recover from the bankrupt contractor, not the owners. So not only were we left with the debt incurred for the fixtures and work, but we had to pay our own legal bills as well.
We very nearly went into bankruptcy ourselves because of it but my husband refused, said he couldn't face himself in the mirror if he defaulted on what we owed. So we took the next two years and put every spare dime we had toward our creditors until we had it paid off. Ruined our credit, by the way...we're still trying to recover our credit rating. But the alternative was to declare bankruptcy which he considered morally wrong.
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The biggest single problem for bankruptcy and small business creditors is that most lack a sufficiently large transaction base. Given an expected bankruptcy rate B for the entire universe of transactions of a given type, and a pool of N transactions of that type, the actual number of bankruptcies in that pool will tend to be closer to B the greater N is.
A small business can go under because of one bankrupt customer. One bankrupt customer will likely greatly exceed the number of "expected" bankruptcies based on B times N. So most small businesses won't be affected in a given year, but the few that are will suffer consequences out of proportion to the expected rate.
What compounds this problem is that many small businesses don't take the legal steps to enhance their protection by obtaining security interests or mechanics/subcontractor liens when possible, usually due to cost.
MNBA's bankruptcy rate is probably very close to B, so they can spread the cost and accurately price the expense of obtaining protection when possible. Most small businesses can't do that as easily.
Posts: 26071 | Registered: Oct 2003
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quote:Originally posted by Belle: In our situation, we lost a ton of money because a contractor that hired us declared bankruptcy and left us holding the bag. We had already installed thousands of dollars worth of fixtures and pipe into a house (it was a million dollar home with five bathrooms) and we wound up having to pay for it ourselves and getting nothing back. We took the homeowners to court, to try and get the money from them...after all they did have the fixtures and did have possession of the house...but the judge found that we could only recover from the bankrupt contractor, not the owners. So not only were we left with the debt incurred for the fixtures and work, but we had to pay our own legal bills as well.
We very nearly went into bankruptcy ourselves because of it but my husband refused, said he couldn't face himself in the mirror if he defaulted on what we owed. So we took the next two years and put every spare dime we had toward our creditors until we had it paid off. Ruined our credit, by the way...we're still trying to recover our credit rating. But the alternative was to declare bankruptcy which he considered morally wrong.
Belle good for your husband. Frankly speaking I highly respect taking such a hard path for the sake of honor.
My own grandfather was doing quite well, but in his 30's a good friend had him cosign on a huge loan, and then skipped town leaving my grandfather holding the bag. He only recently finished paying back the money for that, and he probably won't ever be able to retire because he had no chance to set aside money for it. He will likely work until the day he dies, or until he simply cannot and one of his children agrees to pay for him, something I doubt he would ever allow.
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quote:I am forced to accept the risk of another's bankrupcy when I am a lender, and in fact have been burned by that before. It doesn't make sense to me to be forced to accept the risks of bankrupcy but not be able to reap the benefits, if I ever need them.
In other words, I'm continually, in all my other transactions, paying for benefits of being able to declare bankrupcy.
This is the model current bankruptcy law is based on - spreading the risk of inability to pay across all transactions.
Insurance does the same thing, except you get to opt in to it. In both opt-in and mandatory systems, there are ways to exploit the risk-sharing, generally by increasing one's risk (and reaping the benefits of the increased risk-taking) without letting that increasd risk be reflected in the transaction cost.
The S&L crisis in the 80s was an example of this.
quote:Beverly and I are considering starting a small buisness for tax purposes, and we were pondering the morality of "exploiting" the tax code to pay less.
My opnion was that we don't have a choice on whether to pay taxes, and we don't have a choice about the rules for paying taxes. Since we have to play by those rules when it helps the government, we should certainly be allowed to use those same rules to help ourselves.
This is generally my take on it. My way of making the moral determination is to make each factual statement required for taking a tax benefit and examining it to see if I would consider that statement to be honest and fair if it were made to me and I were deciding whether to invest based on that statement. If so, then I consider the tax benefit fair game, assuming I meet all the technical requirements.
Edit: And this is true even if the reason I'm making the decision that makes the factual statement true is that it will lower my taxes - assuming that is compatible with the tax rule in question.
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so you didn't take me too seriously. I wish there was some sort of winter HPV that one could warmly traverse city streets on though.![[Smile]](smile.gif)
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