Being resilient in midlife debt crises

Many of the people we see and help are facing a debt crisis in midlife. This should not be surprising. Being laid off or having medical problems with high medical bills are common causes.

This article from the New York Times caught our eye as particularly helpful: “How to Boost Resilience in Midlife”. It contains many of the nuggets of advice we provide to clients.

We hope it is useful and helpful. If you are in a debt crisis, or are not sure whether a crisis is looming, I looking at your monthly net income and comparing it to what you have to spend to live and stay employed. We can help guide you and if you come to meet with us, we will ask you to do this beforehand so that we can help you get a handle on the finances. As always, we will explore the non-bankruptcy options, and if we recommend a bankruptcy we will explain why and what is involved.

Drowning in debt? Losing your home? Here is how to overcome the stress and take back control of your life.

Are you drowning in debt that threatens your life and livelihood? Facing the loss of your home from foreclosure? No doubt you are feeling scared, angry, ashamed or in denial. These are understandable and common reactions, but will they make the problem worse not better. The New York Times recently posted a series of articles which point out how stress does not have to get you down and provide ways to deal with it, reduce its harm and even use your daily stress to make you stronger. NY Times, 7/30/2017- How to be Better at Stress

If you are in this situation, this series of  articles is a must read. It reinforces the approach we try to take in guiding people through these situations. First, take a deep breath and don’t panic or grasp at “too-good-to-be-true” promises. Secondly, take a good look at what the problem is, and plan. Get professional advice from people who are experienced and whom you think you can trust and who can help you map out alternatives. Consider and accept the worst case outcomes, but plan and hope for the best. Third, talk about the situation, with your spouse, children, family, and legal or financial advisers.

If you are in this situation, it may well not be one of your own creation. Even if it is, learn from what you might have done wrong, accept your own role, then stop obsessing over it. Time to move on.

Likewise, recognize what you may not be able to control (decisions by others to hire you or not, expenses greater than income), and work hard to make things happen that you can control (eg job search, cut back spending where possible). Maintain hope and confidence.

It’s not easy but done right, it achieves results. Most of our clients get back on their feet and move one to financial stability and happiness. The hardest thing is often controlling spending and accepting necessary down-sizing. But being able to afford the basics of living and supporting your family is a great achievement, and cause for celebration.

If you need our help or guidance, we are available to help you map out the choices and options that are right for you.

NY Fed Study shows that for those drowning in debt, a bankruptcy results in a faster improvement in credit scores

A February 2015 study by the Federal Reserve Bank of New York looked at households in financial distress who are in or descending into insolvency,  and compared the results of their filing bankruptcy vs not doing so. Insolvency after the 2005 Bankruptcy Reform. Most of these households were facing lawsuits or collections, unpaid medical bills, and not enough money to pay these debts. Surprisingly, after a year to a year-and-a-half, those who filed bankruptcy had better credit scores and better access to credit!

Here is what the study found:

  • “both the balances in collection and the fraction of individuals with court judgments grow after insolvency for individuals who do not go bankrupt, whereas bankruptcy filing immediately stays collection efforts and court judgments”
  • individuals who filed bankruptcy had better access to new credit, opening “a larger number of new unsecured accounts.” NOTE: this does not account for how favorable or unfavorable the credit terms were. Most likely these are high interest credit card accounts. Because a bankruptcy discharge bars another bankruptcy discharge for 4-8 years, this makes sense,  as compared to those with unmanageable debt.
  • For those who were “newly insolvent… the individuals who do go bankrupt have lower credit scores than those who do not go bankrupt, which is consistent with them having a higher default risk”
  • BUT  by a year post-bankruptcy,  “the individuals who go bankrupt experience a sharp boost in their credit score after bankruptcy, whereas the recovery in credit score is much lower for individuals who do not go bankrupt. “

This coincides with what we have been saying for a long time. A bankruptcy may be a better option for those who are drowning in debt with no realistic prospect of turning things around. Either way, the goal is to get back to financial stability and financial health.

Too many people put off consideration of bankruptcy as an option, and end up making things worse for themselves and their families.

The starting point is a consultation with a qualified bankruptcy attorney who will take the time to help you review your budget and your options. Properly done, this easily takes an hour.

Whether or not bankruptcy is right for you, our firm is available to help.

 

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