Is it Wrong To Ask To Have Your Debts Forgiven?

The follow guest post is from Neal Frankle. Neal is a Certified Financial Planner and writes a blog over at WealthPilgrim.com. He talks a lot about making smart financial choices and finding balance.

Over the weekend, I read about the semi-famous Steven Baldwin’s financial woes. Steven became a born-again Christian not long ago and refused movie roles with too much sex or violence. Good for him – bad for his creditors.

Steven hasn’t been working much. As a result of that, he’s in bankruptcy.

A good Samaritan surfaced and created a web page where people can donate to Steve to try to bail him out.

I don’t know if Steven asked for this help but I do know he isn’t refusing the money.

Is that wrong?

Is it wrong for any of us to even consider bankruptcy when the end goal is to pay debts pennies on the dollar – if at all?

We created out debts. Nobody put a gun to our heads. Shouldn’t we pay up?

Is it wrong for somebody to ask for a “do over” (effectively sticking it to the people who took us at our word when we borrowed the money)?

I’ve even heard commercials that offer “help” to people who need to modify their car loans.

Car loans?

Really?

Have we gone that far?

When I was a kid I was broke and just about homeless. I didn’t borrow any money. I didn’t run up huge credit card bills. I survived. I worked hard, was lucky and got it together.

Does that give me the right to judge others?

Jason has worked really hard and he’s paid off his credit card debts. That’s outstanding. Many other PF bloggers are trying their damnedest to that too. Does it give us the right to tell someone else they must follow in our footsteps?

Or do we have to walk a mile in someone’s shoes before we judge?

What about the ads and posts we write to help people take advantage of debt relief programs? Are we wrong for displaying those ads or writing those posts?

I’ll admit that I even wrote a few posts like this myself. One article talked about how to declare bankruptcy and keep your home. Another talked about declaring bankruptcy and wiping out the home equity line of credit debt.

Is it wrong for me and other bloggers to write such pieces?

I really don’t know the answer to these questions.

What do you think?

Comments

  1. If you go out and get a credit card and spend on it and never pay the bill, thats wrong. BUT, people now a days who need to file bankruptcy or have some type of debt relief are people who have already probably paid back their debts ten times over bacause of the outrageous interest rates these banks charge. Believe me these banks are not losing money. They charge enough interest, penalties, late fees etc. to be losing money. And when a person can’t make a house payment the bank gets the house back, same for cars. I don’t think anyone should ever feel guilty, if they come upon hard times and can’t pay their bills. You already have to live with the consequences of the bank or bill colloectors calling your house every fifteen minutes, or your almighty FICO score being ruined.
    One little late payment can make you end up having to pay 29% interest and your suppose to feel guilty because now you can’t make a payment.

    Please anyone out there who honestly can’t afford to pay anymore don’t feel guilty if you need debt relied or bankruptcy. The bank doesn’t need your money. They’ve already been robbing you blind for years and your suppose to feel guilty for not being able to pay them anymore? PUHLEEZE………..

  2. I don’t know there is a clear black and white answer. I feel more sympathetic to the person that goes bankrupt to pay medical bills than one that just went crazy with the credit cards. Also, I know many people that have lost their jobs here in Michigan, and it just isn’t easy to replace that income.

    It is interesting that many people that once had substantial wealth eventually end up bankrupt. Not sure how that happens; if it is a case of their income not keeping up with their spending habits, or some accountants ripping them off.

    I am hoping that this economy forces many to change their spending habits for a lifetime, and in a good way.

  3. Sorry for all the typos with my last post. I was half asleep while typing this morning. This post just struck a nerve. My whole point was that if you have fallen on rough times….just do what you gotta do and don’t feel bad for the bank. On the other hand don’t go out and overspend then intentionally not pay your bills. I don’t think people wake up one day and decide not to pay their bills. Usually there is a job loss, health crisis or whatever.

  4. Steven Baldwin did not fall on hard times. He made conscious decisions on his movie role picks. As a Christian, he knows that he should pay back his creditors. That being said that is all I know. I do not judge because these are only simple facts I was given. As for me I would do what I could to pay people back. I also agree with previous posts that medical debt is different. No one asks to have a financially ruining disease or accident.

  5. It’s absolutely wrong to have your debts forgiven (in most cases) for two main reasons: 1) You don’t learn anything because you never worked hard to get out of the debt and are likely to repeat the cycle. 2) It raises the cost of borrowing for everyone else that works hard and pays debts like they are supposed. Why should hard working responsible people pay more to shoulder the burden of irresponsible and reckless spenders that end up in bankruptcy?

    I realize that sometimes bankruptcy is caused by hardships from medical complications but that is really the only acceptable time for debt forgiveness. In every other circumstance, including job loss, I think that if a debtor had made better choices from the beginning, they could have avoided a lot of their financial issues.

  6. Like most things: it depends. I can’t take Val’s anti-bank position because most times when banks lose money it’s not really the bank; it’s their depositors who get lower interest rates or the other on-time payers who pay higher interest rates to offset the default debts. But I can’t take the hardline, “no mercy” approach either.
    Dave Ramsey (yes, I’m a big fan) has a great perspective. He went bankrupt, twice. After achieving success, of his own free-will he paid back his creditors. He didn’t do it because of guilt: he did it because he could and felt that God led him to such a decision. Legally he had no obligation, and I’d even argue morally he had no obligation. But there is a difference between doing what is legal and ethically good vs. doing what is BEST. See, Dave went above and beyond because he chose to. Like most superstars, he chose to go the extra 10 miles rather than just the extra mile. And I think it developed his character. Will this be possible for everyone? Probably not.
    Many could argue against the bankruptcy and/or bailouts. I ask these questions: where would our country be if you got one shot at success and that’s it? Edison failed to create the lightbulb thousands of times before succeeding. Where would we be today had not his investors and friends been there to pick him up, dust him off and say “try again”? Sure it sucks that some people get off the hook, but I’ll take the road that I’d rather have one Edison fail 999 times and change the world on his 1000th try than have 1 Edison fail and live forever in darkness.

  7. I’m with the previous posters on medical debt. That one is a hard one to cover if the medical treatment in question leaves you unable to work to cover the debt. I personally made payment arrangements for the emergency birth of my first son, but I wasn’t prevented from returning to work after my maternity leave. In terms of credit card debt and secured debt – I went through a very bad time and lost a legal battle over the debt in a very bad divorce. The debt was far more than I had the means to pay. BUT I felt as though I had reaped the benefit of that credit and needed to do the honorable thing…I made arrangements with my creditors to reduce the interest rates and to get on a reasonable payment plan for my income. The banks were actually very cooperative with me as I had good payment history and was earnestly trying to pay them back. They worked with me for a year and then I revisited the issue with each of them again. I eventually got debt-free but not without sacrifice. Serious lesson learned…If I cannot afford to pay for it, I don’t buy it. We have a credit card for emergencies like plumbers and electricians and medical bills. And I’m proud to know that I payed my way for the benefits I received. It was worth the work!

  8. On the flip side of things…I think one of the greatest gifts you can give someone is to relieve them of a debt owed to you (I’m referring to personal loans, etc), assuming the person is going through a real hardship.

    If you can afford to let the money go, canceling a loan for money owed to you often salvages a relationship that would have otherwise detoriated into a creditor/debtor relationship, which I don’t think is healthy amongst family and friends.

    My old pastor told the story of a used car lot owner who financed hundreds of deals over the years, and one day recognized he had “enough” money. He called in each of his borrowers and told them he had canceled their car loan – they now owned their cars free and clear. Must have been a lot of fun watching their reactions!

  9. I don’t think it’s any different then anything else I see. You’re fat? It’s not your fault. You owe $50,000 in credit card debt? It’s not your fault. Got fired? It’s not your fault.

    We’re becoming the blameless society. Cheat on your wife? Go to sex rehab, as it obviously wasn’t your fault. Celebrity does something stupid (when don’t they)? Go to rehab, as it obviously wasn’t their fault.

  10. Felecia – you were very lucky to have your creditors work with you. My husband has been out of work since last September. He’s in the union and there just is no work. We have tried desperately to talk with our creditors and only 1 – the place we have our mortgage through – was willing to do anything! All the credit card companies said basically – there is nothing we can do. So combine that with rising energy and food costs and a growing family of five (I’m disabled so I can’t work) – we were left with no other option other than bankruptcy. Well we could have been harassed endlessly which is what started to happen when we couldn’t make our payments. Due to my medical problems my husband just can’t leave the union because even though he is not working we still have our medical benefits.
    The choice was tough and the process was awful and humiliating but it gave us the breathing room we needed. We just make it every month and thanks to my mom’s help my kids still get snacks and Mc,Donalds once in a while.

    Believe me the decision wasn’t easy and we tried EVERY other option out there.

  11. I think the best way to learn is to fight your way back to being in the green. If a personal friend/family members want to help you out, that’s cool. But to just let the borrow pay for your mistakes is absolutely wrong. You’ll most likely make the mistake again because you never really felt the effects of your bad decisions.

    It makes me sick because I’ve talked to a number of people who just stop paying their mortgage. Not because of a job loss, not a death of the income earner…just because they can. They realize that their home is not worth what they paid so they just stop paying on it. In the same way, I bet if the home doubled in price they would have given all their profits back to the bank. These people should be put in prison!

  12. I think bankruptcy is wrong because if you created the debt, you owe on it. We need to get more people in America especially to take responsibility for their actions. That said, the crash of the housing market has left me sympathetic to a few who may end up having to move (like military or job transfers) and cannot get what they owe on their house. This is one of the few circumstances that I would understand asking for a short-sale or bankruptcy if there are no other options. I think that it is fine for you to write for those cases, but as an overall trend, I do not believe it is right for people to do

  13. For me personally, it would be morally and ethically wrong.
    For me, it’s cheating, lieing, and stealing. – But those are my personal opinions.
    However, I can only make that decision for myself.
    Everyone has to live with their own conscience.
    And I’m not supposed to judge others – so I leave that decision to them.

  14. I’d like to add to my comment above that I absolutely cannot stand the advertisements to help people get out of back taxes. That one upsets me more than anything else related to money I believe! Why should we give someone a break who hasn’t filed or paid taxes in years when the rest of us have suffered? Heck no! I think they should be sentenced to hard labor and have all assets seized, even if it’s more than they owe. Strict rules for those who try to dodge what they owe!

  15. A person who declares bankruptcy is by no means getting off scot-free. There are years are repercussions to credit ratings, the ability to buy a house or even in some cases to get a job. It’s a serious decision with serious fallout and I don’t think many people take it lightly. I also agree with the point made that most people have paid back what they owe and more but can’t dig out because of usurious interest rates and fees.

    I’m pretty anti-bank too, and in the case of credit cards it’s because of the free and easy way the enticed (through advertising) and handed out credit cards to any and all, regardless of history or job status or ability to pay. Look at the flood of credit card offers on college campuses. I think most consumers’ assumptions are that “if they’re giving me credit, they must think I can afford it” which I grant you is naive, but the banks bear some responsibility for the situation as well.

  16. All companies advertise. The same with credit card companies. Just because they promote their business does not mean you have to buy. I have always been bombarded with credit card offers, but never applied for any of them. People go crazy with these credit cards buying the latest styles and gadgets knowing full well they can’t pay it back. Then they put their head in the sand and want someone else to bail them out. I agree with Amanda Y. There are times when a person gets into debt through no fault of their own, but when it is of your own making, you should have the obligation to pay it back.

  17. For me, if I create a debt, I feel obligated to pay it back. It might sound cliche, but my husband and I see it as a matter of “honor”…we created the debt, so we need to pay it back.

    For others, I know I shouldn’t, but I do judge. Coming to a payoff agreement is a mutual decision between the creditor and the buyer, so I’m cool with that. Simply declaring bankruptcy and never paying back what you owe seems wrong. Yeah, you get years of bad credit, but that’s not payment…that’s a consequence of not keeping your word.

    And yes, I cringe at tv ads and blog posts that explain to people how to get out of their financial obligations. I know people that work their debts off and hope that others can do the same. If I post about debt, it’s about how to save to get rid of it, not how to declare bankruptcy to make it go away.

    I understand life can serve up some really crappy scenarios like medical problems, job loss, death, etc, but I also know that my husband and I and all the family we know are financially prepared for all of those situations and wish that others would have emergency funds, insurance, and a lack of credit card debt too. Being prepared for bumps in the road is just as necessary as paying your monthly bills.

  18. I believe that if you entered into an agreement with a creditor to pay them back, you have an obligation to pay back your debt. As long as they do not break the contract, you are bound by your word!

    That’s why the bible can say that the borrower is a slave to the lender (Proverbs 22:7), because you have made a vow. A slave can’t just say “I don’t want to be a slave anymore” and just walk away! They must purchase their freedom (if possible) or have someone do it on their behalf. So I believe that one should feel bound by their word to repay their debts.

    In the case of medical debts, the costs are usually unknown until after the procedures are done. Also, these debts are not the result of spending above your means as is usually the case with credit card and other debts. Many times these debts are due to corrupt insurance companies and medical professionals.

  19. While I understand there’s plenty of people out there jobless, we were just there! That isn’t an excuse to have things you couldn’t afford anyway. If you were making “payments” on something, you couldn’t afford it. I wish our country would go back to the financial practices 100 yrs ago, where if you couldn’t pay cash for it, it wasn’t yours. This whole idea of “credit” has instilled a sense of entitlement and most people I know who have filed bankruptcy have done it more than once and on “stuff”. And guess who picks up the bills, the ones that actually PAY them. While the ones who truly need help, get choked up in the system. I’m so very tired of this society of debt.

  20. BTW, it’s Stephen Baldwin, not “Steven.”

    And I wouldn’t contribute a dime to help him any more than I would donate to the growing population of cyber-beggars on Craigslist.

    Just because you can’t get movie/TV roles doesn’t mean you can’t earn an honest living…

  21. Like most people, I end up on the fence.

    I think bankruptcy is treated too lightly in this country. But I also understand there times when you quite literally can’t pay back the amount. Usually, of course, this applies to medical bills.

    That said, I got pretty annoyed at a reader who once tried to justify a short sale on a condo because they were talking about over $100,000. And the condo was too small — despite the fact that their kids (boy and girl) could share a room for at least five more years without it getting weird. But she was convinced that it was too much to ever pay back.

    Even if she were in her 40s, I don’t see how that’s possible. It wouldn’t happen overnight, but I’m betting in 5 -10 years they could do it. My husband and I have paid off over $40,000 in debt (while dealing with a *lot* of medical bills) in about four years — and, up until two months ago, we earned less than $40,000 combined.

    I get very tired of people believing that if it’s hard, it’s impossible. What they’re saying is that they don’t think they should have to if it’s just too inconvenient for them.

    Are there situations where bankruptcy is inevitable? Yes. But not nearly as many as there are bankruptcy cases. And that’s not even dipping a toe into the “poor choices” debate.

    I think bankruptcy should be reformed so that, depending on the situation, you get government help negotiating with creditors, but still have to pay back what you owe. It would give you temporary protection, but also make sure you learned that there is no spot you can just run to where creditors can’t touch you.

  22. I think for people like Kim, the economy has forced you out, that’s one thing. I just feel like right now too many people are taking advantage of it. They bought houses they couldn’t afford and are whining about it. The rest of us, that were responsible, are left sitting here, while their homes go for $100,000 less than what we paid because of bankruptcy.
    One of our neighbors that was in the industry worked the system because he knew a loop hole, that is now closed. He rolled all his toys into his mortgage. His jet skis, motorcycles and some other things. When he lost the house, he just grabbed his toys and left. He never had to pay for them.
    It’s frustrating to say the least.

  23. I think it’s just frustrating for the people that do the “responsible” thing and pay back their debts. It would be a lot easier for all of us just to ignore the mistakes we made and move on. It’s frustrating when some people feel responsible for those choices and others can just leave them behind without feeling guilty. Someone pays in the end. It’s the same when people take advantage of any assistance available.

  24. I don’t think it’s wrong at all. It is a protection that we’re given and most people only do it as a last resort. The most common reason for bankruptcy isn’t unpaid credit card debt but medical bills.

    I think its great when people can face hard times and still manage to pay their debts, and my hat is off to anyone who is able to do that, but I think that luck and timing has as much to do with it as hard work does.

    I don’t believe that anyone has the right to judge anyone else, and I’ve made that point on my own blog.

  25. I would fall into the ‘it depends on the situation’ camp.

    Medical bills can mount up to the point of never being able to pay them off. In the case of job loss, I would try to work with the creditors and say I will pay when I can, but it is going to take a while. If they want to be hard nosed about it then just do the best you can.

    But, I have little sympathy for the folks who ran up debt living beyond their means or who quit paying the mortgage just because they overpaid for the house.

    Remember reading about how Mark Twain having to go on round the world lecture tours to pay off debts from bad investments even though it meant being away from his family for long periods of time. I know there are a lot of people who do work hard and give up a lot to do the right thing. My hat is off to them.

  26. A family member just completed bankruptcy. Why? Taking on a mortgage they could not afford, a car payment on a way too expensive car, and running up debt that no one could pay. Totally their fault – they bought “toys”. So – the McMansion was seized by the bank, car gone, etc. and their creditors are basically out of luck. In this case, they chose not to pay their bills. They could have paid, but instead kept buying more and more stuff. I don’t think bankruptcy should be the answer because people choose not to pay their bills. I think there should be more scrutiny when people do file…for instance, they should not be allowed to spend money on a new flat screen TV when they are allegedly “bankrupt”.

  27. The idea behind borrowing money,or using a credit card is to build credit. At least I thought it was. To a lot of people, that piece of plastic give instant gratification. If you are going to use it, you should pay for it. Now if the credit card company decides to get rid of your debt, fine.

  28. My mom gets mad at me every time she tells me about how my brother, who makes more money than I do and can make his mortgage payments, is trying to get the bank to forgive $100,000 of their mortgage through some government program because he owes more than the house is currently worth, and I tell her that’s unethical. He signed the contract to pay the loan for the amount of money he was willing to pay for the house. The fact that the house is currently worth less has no bearing – he owes the money and should pay it. I have no patience for this kind of behavior.

  29. There was a bankruptcy reform in 2005. It’s not that easy anymore to file chapter 7. You have to prove to the court you cannot afford your debts. It’s not as easy as it use to be. That’s why I don’t think people need to feel guilty. If you can’t afford it because of job loss, medical illness, etc then you can’t afford it period. If later on down the line you come into money or your luck changes and you want to pay back your creditors, then fine. But in the mean time if you can’t afford your bills , can’t find a job, medical bills keep piling up, no rich relatives to help, you have to file bankruptcy for your protection. That’s why we have bankruptcy court.

  30. Hmmm, personally I think that if you made an agreement with another entity (mom, dad, bank, whatever), and they gave you the money in good faith, then you need to repay your obligation…

  31. Personally I do think whatever money you borrowed, you should pay back at the interest rate agreed to in your contract. I hate the speech some people give that credit card companies charge outrageous fees. Read the contract before signing it, if you dont like the rates, dont get the card, simple as that. The only time i can see when a person needs a break (not an elimination) from debt is if for some reason they can not work anymore. A job loss, death, whatever is a lot different from people who jsut bought too much and thought they could afford it without thinking about the worst case disaster!

    • One problem with that: the credit card companies can change your agreement at any time…well, now, they’re forced to give you notice of the change in your agreement, but it doesn’t stop them from changing it, and there’s no cap to the amount of interest they can charge.

      The financial system is rigged to extract the most profit out of those least able to pay. You know who the bank’s most profitable customers are? The ones who miss a payment here and there, the ones who are barely making it. They’re a goldmine.

      Three things need to happen: 1: Credit card contracts need to be written in plain English with easy to understand terms. 2: Once a contract is made the terms are set and, just like every other contract, unalterable, except if both sides agree, and 3: Banks need to do their due diligence to ensure that the person who is borrowing the money can reasonably pay it back.

      I also must say again the majority of bankruptcies are caused by medical bills, and the rest by some sort of misfortune, such as a job loss. This is a fact.

      • your 2nd change that needs to be done isnt fair to the cc companies though. if you mess up and miss payments, shouldnt your rates be raised? its only fair that htey extract more money from you because you messed up. If they dont, everyone elses rates will go up to cover for your mistakes.

      • If your bank raises your rate, you do have the right to go to them and say that you want your old rate back. They will agree, but only if you close the account. Most people don’t want to do that because they think they need it in case of an emergency of don’t want to hurt their FICO.

  32. I see how debt forgiveness can literally save an entire family from a bad situation not of their doing. But I’ve also seen how standing between an adult and the consequences of that adult’s bad decision making can bring down an entire family when that adult decides he (or she) can indulge every whim that comes to mind because someone else will always be there to pick up the tab or clean up the mess.

    A person in my own family became so accustomed to being forgiven for minor debts, insults, and oversights that he ended up with a massive sense of entitlement and the supposed inability to control his impulse behavior. He, and everyone else around him, appears to truly believe that he’s not in control of what he says and does. Yet when it comes to finding someone else to mooch off of, he’s got the amazing ability to say and do exactly what is necessary to get that person to take care of him, and astonishingly he’s in perfect control of every aspect of himself while he does that. He’s been bailed out so many times, and by so many people, that it ought to be quite frightening. His consumption and/or need literally expands to consume all the available resources, and then some. Yet every time he exhausts a well-meaning friend or family member who gives up and says “no”, he finds another do-gooder. At the moment he’s mooching off a church congregation: they’ve decided that since he has been “abandoned” by his family and “laid off” from every job he’s ever had, he’s a good candidate for charity since this time he really means it, and he’s really gonna-gonna-gonna turn his life around.

    It’s hard enough to tell the difference between helping and enabling when I know the recipient of the gift. I can’t imagine trying to create a tax system or a bank policy that could distinguish between good people in a bad situation and lazy, greedy people who are trying to game the system or take advantage of someone else by getting the fruit of that person’s labor for nothing.

  33. I knew a couple who went bankrupt. They now make $400,000 a year and are still in debt. They know who to pay and not to pay in terms of bills. They lease beautiful vehicles, children in private school, etc. If someone doesn’t hold them accountable they’ll never learn.

  34. That is why you need to have cash in the bank in case of an emergency! If you cant buy your car, house or boat..AND STILL HAVE a nice chunk of change in the bank (about 6-12 months worth of your monthly expenses), then that means you CAN’T AFFORD IT! In the event an unforseen circumstance arises, and you are unable to make payments, that is when that ‘reserve cash’ will seperate the financially responsible from the “out-of-option” and “soon-to-be-bankrupt” individuals. Bankruptcy is a parachute to those who jump at every oppurtunity to blow every dollar they earn. I believe the best way to teach a lesson to those who leap off into debt they can’t afford, is to let them feel the impact of their decision! SSSPLAT.

  35. I agree with Ryan,

    The only real excuse for walking away form a debt is medical hardship. That is because there is no societal safety net for those unable to pay for treatment- and as a society, I hope, still unwilling to say, OK then, just die, or live broken in the streets.

    My in my own scenario, I was forgiven a debt, sort of. I left an abusive marriage, young and naive, with a toddler and infant, only to find out during the divorce that we owed 52K in taxes- I had no idea. I was only given 10 dollars a day to feed the kids and myself. With severe post-partum depression- I just signed where my husband said sign this, on the tax forms. I have sympathy for those unable to understand, for intellect or other reasons, what they are getting into.

    I brokered my own OIC with the IRS. It took 6 months to do, and was emotionally exhausting, as I was now a single mom, working 12+ hours a day, and often not even eating so I had enough for the kids. I ended up paying 4500, at 50 dollars a month.

    I would argue that this was best for the country overall, as it kept me from becoming homeless or on welfare. The one-time reprieve allowed me to pull myself up. I now have 2 master’s degrees, was very successful, and the gov has gotten back those taxes tenfold, instead of having me as burden. Eventually, I left the corporate world, and am now a school teacher, with great kids readying for college.

    Every situation is unique, and blanket judgments are rarely useful, or productive. It helps to detach, and figure out what helps the long term societal impact.

  36. I would never say someone who had medical bills, in abusive situation, etc. should be responsible. I think we’re all talking about people who use credit cards for “wants”. To use extremes are just rabbit trails from the real issue which is people who abuse credit cards, get themselves in so much debt for all the wrong reasons.

  37. Well, whether or not one believes that bankruptcy is immoral, and even if someone did immaturely run up credit cards and now can’t pay, the credit card companies have what I consider an unreasonable reach in some states.

    For example, in some states, the credit card companies can actually empty out your bank accounts after you’ve defaulted on your debt to them.

    So, let’s say this…you have the best intentions of paying them back, but also have to keep food in your kids’ mouths and a roof over your head.

    Imagine your surprise when you see that your bank account has just cashed out your bank account Vegas slot machine-style and you have nothing left for groceries or rent/mortgage.

    Should the credit card companies have this kind of reach? In my opinion, NO!

    This is a point at which one should file for bankruptcy protection. No matter how you got to that point and no matter what your belief system.

    • Credit cards can’t take your money from your account unless there is a judgement that allows them to serve your bank papers to seize the money (or you gave the right to auto-pay from your account – which is why you don’t do this unless you setup a separate checking account JUST to pay them). The IRS is a different story – they can swoop in and take ALL your money out of your account without ever going to a court.

      • Yes, Shelley, you are correct. The credit card company does need to have a judgment against to to cash out your bank accounts.

        However, the judgment is a mere formality, because if you go to court regarding the judgment, the judge will likely ask you if the debt is yours or if there was an error.

        If the debt is yours and there was no error, but you have simply lost your ability to pay, even if you intend to pay eventually, the judge has no recourse but to allow the credit card company the right to access your account, as they choose, when they choose.

        Personally, I don’t think that they should have the right to take your rent money or grocery money, even if you’re morally and legally obligated to pay them back.

        Should a person and their family starve and/or lose their housing in order to pay their credit card when they’ve hit hard times? I don’t think so.

  38. Yes, Lynn, but if you make blanket rules, you end up hurting the people you might actually want to help or protect. There has to be the time taken for circumstance evaluation. But I would never be able to prove I was abused- no paper trail, and I kept it secret out of shame. So even there, if I were asked to prove my circumstance- I could not. The blanket OIC forgiveness tendency gave me a chance in life.

    As far as using credit cards for wants? Well, I have little patience for that, as I went without food to make ends meet. I also have little patience for my tax money bailing out people who went in for ARMs, as I could have by that time gotten one, but did not, as I knew it was unwise long term. I rent. So I am being penalized for the responsible choice, while those whose chose poorly, are using my money to keep a house I am paying for, but never got!

  39. I guess I feel like bankruptcy is okay, being as the banks who loaned the money did so with full knowledge of the laws governing bankruptcy and took that into account (or should have) when they set the interest rate.

    Even if everyone always paid their debts, there would still be default due to death of the borrower, so interest rates will always have to be set to offset losses.

    • It is not always a losing situation at death. Your estate has to pay off your debts first. Now if you have nothing in the estate, that is a different story.

  40. If you miss a payment or are late it’s because you are having some financial difficulty. If they raise your rate during a time of financial difficulty that should guarentee the bank that they won’t get paid.Comman sense would say if I can’t make my payment at 5% interest there is no way I can make it at 29.99% interest. That’s why I think the banks want you to default. If your late or having trouble making a payment then they should temporarily(NOT THAT THEY HAVE TO) reduce your rate not increase it.

    • so where is the incentive for consumers to pay their bills on time? mess up and get rewarded with a lower rate sounds like a good idea to me

  41. Stephan, I understand your point. Maybe if you don’t pay on time they can close your account or take away your reward points etc. but to raise an interest rate when you are having trouble with the current rate will cause someone to default completely and then the bank won’t get anything.

    • ya i mean it really is a lose lose. ideally, people wouldnt charge more than they can afford, but that is wishful thinking for the majority of people in a debt situation. Its tough, both sides have valid points, and i really dont know what is the right answer.

  42. The thing I don’t like about filing for bankruptcy or debt relief programs is the general attitude that I have seen some people display. I don’t like the attitude “the banks have been taking our money, stand up and fight back.” So, wait, you bought all the stuff with the documented terms from the bank and now you want to act like you have been forced to do so? They weren’t that angry at the banks when they were spending money like it was going out of style. They got angry when interest rates went up, limits were cut, and it impacted their day-to-day life. If it never happened, they would be happy paying a little more than the minimum, spending more when the limit increased, etc.

    No one said that you had to buy all those things. No on said you couldn’t save up and pay cash for these purchases. No one forced you to do anything. They applied for the card, bought the stuff, and then feel they have the bad end of the deal (of course they can’t even remember what they bought).

    I only think you should file for bankruptcy when you have lost your ability to earn money (a disability that halts your earning potential and will be in debt to your death).

  43. @ Shelly, I agree with you 100%! I hate the attitude that not paying your obligations is a right because banks make a profit! Like you said, no one blamed or cursed their bank when they were buying too much house, car, fancy meals, flat-screen tvs, etc!

    Of course not everyone in financial trouble falls into this category, but the majority of them do!

      • I don’t need statistics because I have seen people write those sentiments on forums all the time.

        While a lot of folks filing are due to medical bills, there is that faction that don’t even want to try. I know someone that has lots of old things on her report and her solution was to file bankruptcy to clear them.

        I was just communicating with someone about their choice to sign up with a debt settlement company as it was her right to not pay what she owed. I was just taken aback by the attitude (and encouraging others to do the same) of stick it to the banks (which also means all of us). I am sure they didn’t have that attitude when they were spending borrowed money.

        There are people that will fight tooth-n-nail to keep their home. Then there are folks that walk away because they were too under water on the house loan (their rate didn’t go up and they had money to pay their mortgage). I know one of them – the loan was in his name. He and his family walked away and bought a new build home within a year about a mile away in the wife’s name – just as big and loading up with all the stuff they had at the old house: pool. etc.

  44. @Stephan: Wouldn’t raising interest rates on someone who is obviously having financial difficulties make it harder for them to pay the money back?

    The biggest problem with credit cards is that there is no cap on interest rates. Credit card interest should be capped at a decent rate that still gives the cc companies room to charge low rates to reward people for paying on time, and to raise rates if someone is habitually late, but not so much that it would make it impossible for them to pay the debt off.

    @Khaleef @KNS Financial: It is a myth that this country is full of out of control spendthrifts. The majority of families spend a full three quarters of their income on rent/mortgage, car payments, insurance, and tuition. People are spending less on food, less on clothing, and less on household appliances than they did forty years ago. It is just not true that we’ve developed an insatiable desire for debt. However, most families walk the tightrope and one misstep could send them tumbling down into financial disaster.

    Furthermore, once again, the number one reason people go bankrupt is medical bills. And the majority of these folks have medical insurance!

    • You also have to realize that people are buying/renting bigger too.

      My family came to the States from another country decades ago. My parents never bought lunch at work – they brown bagged it every day. We never ate out at a restaurant – totally unheard of in the 70s. There were 7 of us in a 3 bedroom/1 bath house (bath on the 2nd floor for goodness sakes). People will rent and buy bigger because those are the conveniences that they think they are entitled to have in life. We lived in NYC and didn’t need a car, but the first car was some sad looking leopard print (from the home mechanic knock out the dents we didn’t paint it job) vehicle. My parents were happy to have a car, not go into debt to buy a new car.

      Spending habits have CLEARLY changed. I look back and wonder how we survived, but we did. People go into debt (or spend more than they should) over a sense of entitlement versus what they can afford.

    • I dont think the idea behind rising interest rates is to make it harder to pay back. the idea from the ccc is to encourage consumers to stay on time. they are punishing you for messing up, just like your parents punished you when you messed up as a child. look, i understand the frustrations of consumers, but overall, its their fault. in our free market, these credit card companies should be able to do what they want, when they want, and if you dont like it, close the account and pay off the debt. some might say this will take years, but then you gotta ask yourself, why do you have a 10,000$ balance on your card? clearly, YOU messed up in the past, over spent, and didnt live within your means. stay out of debt, and you wont care what the penalty interest rate is, simple as that

  45. This has been a fantastic discussion that I enjoyed reading. I think the one thing I’ve learned is that when it comes to debt it’s very tough to make generalizations. There are so many factors at play that can lead someone into debt, and often those factors are out of their control or beyond someone’s understanding. What if you make a credit card purchase while employed and lose your job or are seriously injured? You miss a payment, and now you’re paying back your debt at a rate that may be significantly higher than what you agreed to.

  46. Wow, I am kind of disgusted by the author of this piece. I ended up in the hospital and even though I had insurance, the hospital is refusing my insurance.

    Now I am in debt because I got sick, which was not my fault, and even though I had insurance, which is not my fault.

    I don’t know what I am going to do. Because of my illness I am unemployed.

    And you think it’s wrong for me to ask for debt forgiveness?

    You don’t know people’s circumstances.

    Only God can judge people.

    Here is the answer to your question:

    IT IS WRONG TO JUDGE ANYONE FOR ANY REASON, BECAUSE FOR THAT YOU WILL BE JUDGED IN HEAVEN.

    FORGIVE, says God, if you want to be forgiven.

    This is the Golden Rule.

    Better be less judgmental and worry about yourself!

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