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Thursday, January 12, 2012

Money, When You Are Underwater On Debt, When Is It Time To Bail Out

      Underwater is a term very common today.  It simply means you owe more than something is worth.  It may mean you owe more than you are worth.  At least in dollars and sense and not as person.  Another term for the same condition is upside down.  Whichever term you use and however you got there, it is not a good situation to be in.  The question is how do you deal with it.  Do you struggle and suffer and try to pay your way out of debt.  When you find yourself in this situation it comes down to a battle between the honorable thing to do and salvaging what you can to start over.  The banks and your creditors will push you to do the honorable thing. That way they get all they can out of you.  However when they feel threatened they will not extend you the same courtesy.  I know this from personal experience.  Your duty is to yourself and those who are dependent on you.
     Banks and creditors can write off debt and do not hesitate to do so.  That was proven during the housing crisis and the banking crisis.  Actions that put America into the sad financial situation it finds itself in today. Federal law guarantees each citizen the right to file bankruptcy when there is no hope of redeeming there situation.  That law was created to give citizens a second chance and an opportunity to rebuild there life.  The reality that sometimes though no fault of the borrower situations would arise where forgiving the debt was the only solution. However, be advised that certain debts are not terminated through bankruptcy.  Debts to the Federal government and student loans will remain as debts even after filing bankruptcy.  That being said bankruptcy is not a cure all.  You need to study your own situation and make your own determination which way is the best way for you to go.
    Pride and honor are important, but they are not worth putting yourself in bondage over.  In the early eighties I filed bankruptcy myself.  If you are interested my blog of 10/10/11 explains why and how I came to file bankruptcy in the last half of the blog.  During the bankruptcy I found some of my debtors worked with me and actually tried to reach reasonable solutions.  You can exclude some debt from a bankruptcy filing, but be advised that once you file the bankruptcy you are stuck with it.  Under the advice of my lawyer I filed on all my debt.  I owed taxes and student debt, but the rest was forgiven.  I kept track of who I owed what and and after the bankruptcy I paid off several of the creditors who had tried to help me.  I did not have to, I chose to.  The creditors who jerked me around and caused me to have to file bankruptcy did not get a penny. I have never done business with any of them since.  I am sure it did not hurt their feelings, but I also did not and do not send them any business either.
    Bankruptcy will ruin your credit.  That is a myth.  You will have more credit opportunities thrown at you than hopefully you can deal with.  The reason is they know that for seven years you can not file bankruptcy.  It may hurt you when buying a house or a car, but otherwise it won't really matter.  Also if you are following my plan you are working to be debt free and owe nobody anything.  Once you get in that status it will not matter about a credit rating.
   In closing let me say that the decision is yours and you have to make it.  If you are struggling to save a house or car that you are underwater you need to ask yourself a couple questions.  Is this a situation that I will be happy with when it is all resolved? If you save your honor and when you get done you are worth less than what you spent your time and money to save.  Why would you do that.   It is not a good business decision.  If you are confidant the property will eventually recover its value or you satisfied that you are staying in the home of your dreams.  Go for it.  However if you will end up with far less than you put into the investment it may be time to bail and file the bankruptcy.  One advantage of filing the bankruptcy you are released to move to a better location.  You are free to go where there may be more opportunity.  Like I said though you are the one that has to live with the decision.   Do not base it all on dollars and sense.  Base it on what is best for you and your future.  What is best for reaching your goals in life.  If you are going to put in the effort make sure that in the end it gives you what you want.  If it is what you really want out of life fight for it.  If it has issues and you could be just as happy starting over, start over.  Just make sure when you leave you know what the shortcomings of your present house are.  When you get your next one make sure it is even better or it is a step towards that better situation. Good luck in whatever you choose.

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