The Helping Families Save Their Homes in Bankruptcy Act of 2009

A couple of years ago, the mother of my child moved out of the townhouse where I still live (and rent) and moved into a coop nearby. It was (and still is) my opinion that it's never a good idea to buy a home when you have no cash in the bank, but she did it anyway. I had cash, but not enough to make me feel comfortable about buying a nice home in a decent neighborhood, and put 20% or more down. I decided to continue renting, even though I could have qualified (easily) for an ALT-A mortgage. I felt that it was the right move: continue renting for a few more years, then buy a really great home when I had enough cash in the bank.

The mother of my child is struggling now, and she may have to file for bankruptcy protection. H. R. 200, the Helping Families Save Their Homes in Bankruptcy Act of 2009, is a bill that, if enacted into law, would empower bankruptcy judges to modify the terms of a mortgage in bankruptcy court. A bankruptcy judge would be able to lower both the principal and the interest rate on a mortgage loan. A lot of American see this bill as an unfair helping hand for homeowners who bought a home they really couldn't afford. Here is how John Conyers, Jr., the bill's main sponsor, explains it,

"...The legislation before us today would grant bankruptcy courts the ability to modify the terms of a home mortgage in a chapter 13 bankruptcy to bring them closer in line with the value of the home in a depressed real estate market.

For families in dire distress, this is a much-needed reform. And considering the realistic alternatives, it is fair – to all concerned.

I have been working on this legislation – on a bipartisan, bicameral basis – for nearly two years, because I believe it represents one of the most tangible steps we can take to limit the fallout from the real estate depression sweeping the nation.

While bankruptcy reform may not provide all of the answers to this crisis, surely it provides a common-sense and practical approach to helping stop the spiral of home foreclosures – which are not helping anyone.

To those who say we should continue to hold up this legislation while we seek to encourage voluntary mortgage loan modifications, outside of bankruptcy, I would point out that the evidence has shown that such modifications don’t work.

For one thing, most of the servicers who control the mortgage loans are not even legally permitted to agree to voluntary modifications.

And even when they can agree, their financial incentives are stacked in the direction of foreclosure.

As a result, the much-vaunted “Hope for Homeowners” program, which went into effect last October with the goal of helping hundreds of thousands of distressed homeowners, has processed less than 400 applications to date.

To those who claim that this legislation will only end up harming consumers by increasing the cost of credit, I would respectfully suggest that they are not taking account of the track record of the modern-day Bankruptcy Code, and have perhaps not kept up with the latest changes we will be making to the bill today..."

"...Finally, to those who argue that this legislation constitutes some form of “moral hazard” that will encourage reckless borrowing in the future, I would simply ask them to come to Detroit.

Detroit has had more than 100,000 foreclosures over the last three years. And they are continuing at the rate of 126 each day. We have block after block of “for sale” and foreclosure signs – feeding off each other, driving down home values, uprooting families, decimating communities – and causing local tax revenue that pays for police and firefighters to plummet.

We don’t have the luxury of worrying about theoretical future moral lessons; we need to stop the actual bleeding today. And the same is true in Ohio. And in California, and Florida, and Nevada, and Massachusetts, and Arizona – and in countless communities all across the country.

If we can spend 700 billion dollars to bail out the brokers on Wall Street, it seems the very least we can do is allow working families, willing to repay their debts as best they can, under court supervision, the dignity of being able to stay in their home..."

It's all pretty convincing, until you reach the part about increasing the cost of credit. I'm not an economist, but it's clear to me that this bill would increase the cost of credit, making it harder for responsible borrowers to buy a home. Mr. Conyers is not being realistic. When a bank prices a loan, the primary factor is risk. Giving bankruptcy judges the power to modify mortgages would obviously make loans riskier, which would in turn drive up interest rates.

Mr. Conyers then tries to dismiss the moral hazard issue like it's some theoretical nonsense. He doesn't seem to get that, for responsible borrowers, it's an issue of fairness . Mr. Conyers, it seems, doesn't mind rewarding the irresponsible. H.R. 200 would legitimize reckless borrowing at the highest possible level by condoning it in the United States Code.

And now for the counter. George Mason University law professor Todd Zywicki wrote an extremely poignant article about this issue in the Wall Street Journal:

"...The nation faces a foreclosure crisis of historic proportions, and there is an understandable desire on the part of the federal government to "do something" to help. House Judiciary Chairman John Conyers's bill, which is moving swiftly through Congress (and companion legislation introduced by Sen. Richard Durbin) would allow bankruptcy judges to modify home mortgages by reducing both the interest rate and principal amount on the loan. This would be a profound mistake.

Mortgage modification would indeed provide a windfall for some troubled homeowners -- but its costs will be borne by aspiring future homeowners, and by any American who uses credit of any kind, from car loans to credit cards. The ripple effects could further roil America's consumer credit markets.

In the first place, mortgage costs will rise. If bankruptcy judges can rewrite mortgage loans after they are made, it will increase the risk of mortgage lending at the time they are made. Increased risk increases the overall cost of lending, which in turn will require future borrowers to pay higher interest rates and upfront costs, such as higher down payments and points. This is illustrated by a recent example: In 2005, Congress eliminated the power of bankruptcy judges to modify auto loans. A recent staff report by the Federal Reserve Bank of New York estimated a 265 basis-point reduction on average in auto loan terms as a result of the reform.

Allowing mortgage modification in bankruptcy also could unleash a torrent of bankruptcies. To gain a sense of the potential size of the problem, consider that about 800,000 American families filed for bankruptcy in 2007. Rising unemployment and the weakening economy pushed the number near one million in 2008. But by recent count, some five million homeowners are currently delinquent on their mortgages and some 12 million to 15 million homeowners owe more on their mortgages than the home is worth. If even a fraction of those homeowners file for bankruptcy to reduce their interest rates or strip down their principal amounts to the value of their homes, we could see an unprecedented surge in filings, overwhelming the bankruptcy system.

Finally, a bankruptcy proceeding sweeps in all of the filer's other debts, including credit cards, car loans, unpaid medical bills, etc. This means that a surge in new bankruptcy filings, brought about by a judge's power to modify mortgages, could destabilize the market for all other types of consumer credit.

There are other problems. A bankruptcy judge's power to reset interest rates and strip down principal to the value of the property sets up a dynamic that will fail to help many needy homeowners, and also reward bankruptcy abuse.

Consider that the pending legislation requires the judge to set the interest rate at the prime rate plus "a reasonable premium for risk." Question: What is a reasonable risk premium for an already risky subprime borrower who has filed for bankruptcy and is getting the equivalent of a new loan with nothing down?

In a competitive market, such a mortgage would likely fetch a double-digit interest rate -- comparable to the rate they already have. Thus, the bankruptcy plan would offer either no relief at all to a subprime borrower, or the bankruptcy judge would set the interest rate at a submarket rate, apparently violating the premise of the statute and piling further harm on the lender.

More worrisome is the opportunity for abuse.

Imagine the following situation: A few years ago a borrower took out a $300,000 loan with nothing down to buy a new house. The house rises in value to $400,000, at which time he refinances or takes out a home-equity loan to buy a big-screen TV and expensive vacations. He still has no equity in the house.

The house subsequently falls in value to $250,000, at which point the borrower files for bankruptcy, the mortgage principal is written down, and the homeowner keeps all the goodies purchased with the home-equity loan. Several years from now, however, the house appreciates in value back to $300,000 or more -- at which point the homeowner sells the house for a tidy profit.

Nothing in Mr. Conyers's proposed legislation would prevent this scenario from occurring. To modify a mortgage, a borrower would have to enter a Chapter 13 repayment plan for five years. If the homeowner sells his house while he is still in bankruptcy, the mortgage lender can recapture some of any appreciation in its value on a sliding scale -- 80% the first year, 60% the second, 40% the third, and 20% the fourth. After that, however, any appreciation in the value of the house goes into the debtor's pocket.

This dynamic creates obvious opportunities for borrowers to file for bankruptcy to strip down the value of their property in anticipation of rising real-estate markets down the road. At the very least, Congress should extend the time period for allowing lenders to recapture home appreciation beyond five years.

Mortgage modifications during bankruptcy will almost certainly increase the losses of mortgage lenders -- and this may further freeze credit markets. The reason is that when mortgage-backed securities were created, they provided no allocation of how losses were to be assessed in the event that Congress would do something inconceivable, such as permitting modification of home mortgages in bankruptcy. According to a Standard & Poor's study, most mortgage-backed securities provide that bankruptcy losses (at least above a certain initial carve-out) should be assessed pro rata across all tranches of securities holders. Given the likelihood of an explosion of bankruptcy filings and mortgage losses through bankruptcy, these pro rata sharing provisions likely will be triggered. Thus, the holders of the most senior, lowest-risk tranches would be assessed losses on the same basis as the most junior, riskiest tranches.

The implications of this are obvious and potentially severe: The uncertainty will exacerbate the already existing uncertainty in the financial system, further freezing credit markets.

If Congress wants to deal with the rising number of foreclosures, it should not create a new mess by converting the mortgage crisis into a bankruptcy crisis. Doing so will open the door to a host of unintended consequences that will further freeze credit markets, raise interest rates for new home buyers, and spread the mortgage contagion to other types of consumer credit. Congress needs to reject this plan and look for better solutions..."

Sorry, but I just had to quote the whole thing. I didn't want to dilute the power of the article by leaving anything out.

I've been watching the credit crisis very closely since it began, and I think Todd Zywicki is right on all points.

I found myself cheering as I watched CNBC's Rick Santelli tell it like it is:




Yes, calling misguided homebuyers "losers" on national television was indelicate. Mr. Santelli could have been a bit more diplomatic in his tirade, but no one should hold that slip of the tongue against him. When you're fired up, sometimes the wrong word slips out. Happens to the best of us.

So, what does H.R. 200 do for folks like me who made responsible, housing-related decisions when others did whatever they wanted? What does it do for those responsible borrowers who put 20% down and bought the right-sized house, and who now owe more on their mortgage than their home is worth? Nothing. Lots of decent Americans are getting very hot under the collar about the government's fixes for the economic crisis. Lots of hard working, responsible Americans have been gnashing their teeth as careless mortgage borrowers and Wall Street banks get generous bailouts, while they get...well, they get to sit in their underwater homes and watch.

The American Recovery and Reinvestment Act of 2009, which was recently signed into law by President Obama does offer some help for those who may be looking to buy soon. That help comes in the form of a homebuyer tax credit:

"...$8,000 credit for all homes bought between 1/1/2009 and 12/1/2009 and repayment provision repealed for homes purchased in 2009 and held more than three years..."

The Senate wanted a $15,000 tax credit. It's a shame they didn't get their way.

The new law also contain these provisions:

• $2 billion to help communities purchase and repair foreclosed housing
• $200 million for helping rural Americans buy homes

Hmmm...Maybe it's just me, but these numbers seem kinda' wimpy considering the scale of the entire package. At the core of this nation's economic woes is a major housing crisis, so I think the spending in this arena should be as aggressive as possible. Lawmakers should make sure that people like me have all the help we need to go into a distressed neighborhood, buy a foreclosed home on the cheap and fix it up. Without the boldest possible action, I fear that the housing crisis will still be with us 2 years from now.

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If the mother of my child ends up loosing her home, my daughter always the option of moving back with me. I recently fixed her up her room with a desktop computer I put together with mostly salvaged parts from other PC's.

Foreclosed homeowners can move back to renting. What's wrong with that? There's nothing wrong with renting!

I think the big question is: do we, as Americans, want to be a nation of Sullenbergers or a nation of Sulemans? There's a great WSJ article by Peggy Noonan here.

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Can You Get Student Loans Discharged When You File for Bankruptcy?

Can You Get Student Loans Discharged
When You File for Bankruptcy?

It makes sense that many individuals who find themselves filing for bankruptcy also have defaulted student loans. In our current economic climate, you may be hard pressed to find a college educated twenty or thirty-something who isn't experiencing woes with student loan debt. Government statistics released in September of 2008 report only to FY 2006, when default rates were low, at 5.2 percent. However, when recession hits, student loan default rates go up. Right before the U.S. recession of the early 1990s (which had been looming since Black Monday of 1987) student loan default rates reached a historic high of 22.4% in 1989.

I think it's safe to say that default rates are on the rise again.

So, many borrowers who are considering filing for bankruptcy have defaulted student loans as well. The problem, however, is that generally student loans aren't dischargeable via bankruptcy. In fact, there is very little consumer protection involved with student loan debt in any respect. Such borrower vulnerability is the inspiration for a gripping new film, Default: the Student Loan Documentary. The trailer for this documentary sheds a lot of light on how student loans are some of the most dangerous financial products of our time:



The current recession is sure to cause many other borrowers to default on their student loans, and this may come as they are already considering filing for bankruptcy. The lack of basic consumer protections like the right to refinance, Fair Debt and Collection practices, adherence to usury laws, Truth in Lending requirements, and statutes of limitations build a financial trap that many college graduates cannot escape in a poor job market. Because so many borrowers are uninformed about their financial rights and responsibilities when they acquire these loans, the lack of bankruptcy protection can come as a shocker when it comes time to file. Most people filing for bankruptcy cannot get their student loans discharged.

However, there is a small group who can...technically. If you find yourself experiencing such a great hardship, as in the case of a crippling disability, that you feel you cannot pay back your student loans you can indeed file a separate motion for the discharge of that debt.

But how often does that happen?

How Hard Is It To Get Your Student Loans
Discharged Because of a Disability?

Unfortunately, it is extremely difficult, even in an exceptional case, to get your student loans discharged.



The truth is that most borrowers will never actually be so financially burdened that they can prove that they would never be able to pay back their student loans. AllExperts.com adds,

"...Court decisions that find undue hardship for the debtor have been extremely rare in the reported case decisions. A review of the reported court decisions in this area will disclose that most undue hardship discharges that have been granted typically go to individuals that suffer from some type of very severe permanent and total disability or some sort of permanent disability that drastically restricts the ability of the debtor to more than a subsistence level of income. The courts require a finding that the debtor has proven each of the following three elements:

1. That the debtor cannot maintain, based upon current income and expenses, a “minimal” standard of living for himself and his dependents if compelled to repay the student loans; and
2. That additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and
3. That the debtor has made good faith efforts to repay the student loans..."

Furthermore, if they indeed did meet such qualifications, retaining legal counsel would probably be just as burdensome, preventing them from taking legal action at all. Therefore, in all practicality, it is nearly impossible to get your student loans discharged when you file for bankruptcy. If you do file for bankruptcy, you will still have to find a way to pay your student loan debt. It will only continue to compound if you ignore it; you simply have to pay it back.

So, I guess that there are three guarantees in life - death, taxes, and student loan debt.

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Total Christmas Spending for 2008: $3.20

I don't like KB Toys. There's one in my local mall, and whenever I would go in there with my daughter, she would want to play with everything. She's five, and that's what five-year-olds do. In other toy stores, kids play with everything, and the employees / managers don't care, which is the way it's supposed to be. In KB, however, my daughter would play with stuff, and within five minutes the manager would walk by and give me a stern look like, "hey, buy something you deadbeat! Your daughter needs to stop playing and start buying!" Needless to say, I never opened my wallet in that store. Even if that grumpy manager turned into Snow White, I doubt I would have ever spent money there: the prices at KB have never been competitive.

My daughter spent Christmas Day with her mother. When I called to wish her a merry Christmas, I promised that we would go shopping when I picked her up for her usual every-other-Saturday visit; I told her that she could pick out a present for herself. She was very pleased with my plan, and I was pleased about the prospect of taking advantage of after-Christmas sales.

So, earlier today, we visited the local mall and started window shopping. When we reached the KB Toy store, she tugged at my hand to signal that she wanted to go in; she also added, "Daddy, it's a going-out-of-business sale. Let's check it out!" I was surprised and delighted that she understood the significance of a going-out-of-business sale; could it be that she understood that a going-out-of-business sale meant that her raison d'etre -- toys -- could be obtained at a great price? Does she really understand value? I asked her, "why is a going-out-of-business sale a good thing?"

"Because, Daddy, they're going out of business," she replied in a very frank manner.

Oh well. I tried to explain why it was a good thing, but I don't think any of it registered. She was already locked into full toy shopping mode.

We browsed the isles a few times. Most of the store shelves looked like a tornado had hit them. There were plenty of employees around so there was really no excuse for the mess. Then again, how could I expect them to care when they all knew that KB was about to close its doors forever? Bottom line: I believe in professionalism, right up to the very end. If I was forced to go out of business, I would provide my clients or customers the best products or services until the last second of my business's existence.

My daughter eventually ended up with two items in her clutches: a very cheesy replica of a star wars light saber ($2.99 after 50% off), and a plastic machine gun that makes lots of noise but doesn't fire anything (also $2.99 after 50% off.) I told her to choose one and she chose the gun (pictured.) I handed her some cash to pay the cashier (she really likes handling such transactions) and we were on our way.

Some people might think it strange to buy a toy gun for a five-year-old girl. But what does it matter? If that's what she wants, then why not? She likes playing with toy guns, but she also like playing with baby dolls and other "girly" toys. Her mother doesn't like her playing with toy guns, so I suggested to my daughter that she keep her new toy at Daddy's house, and that we keep the toy as our little secret.

My daughter has been asking for a Nintendo DS handheld gaming system for a long time, but it's too expensive considering that she would either break it, lose it or fall out of love with it in no time. I was seriously considering buying her one of those battery-powered cars that we sometimes see in the park. Too expensive for my current financial status, but I knew she wouldn't lose it or lose interest in it, and I'd be with her every time she played with it, so I was thinking it could be worth the (gulp) credit card purchase. I was also highly motivated by a very embarrassing and excruciatingly ignominious (for me anyway) episode from my daughter's life in which she chased a young boy -- a complete stranger -- who owned one of these cars (similar to the one pictured below) and was having a ball with it in a grassy field next to the jungle gym at our favorite park. My clueless daughter decided that it would be a good idea to run alongside this car and plead for the driver to stop so that she could join him in his fancy ride (it was a tiny Cadillac.)

He didn't stop.

It had been an easy, fun and sun-drenched fall day in the park until I had to chase my daughter down, pull her away from that bewitching situation and give her a lesson in dignity.

I will buy her a similar car as soon as the weather warms up. She's a good kid and she deserves it. Would Suze Orman approve? No way! If I was a guest on her show I'm certain my plan to buy my #1 girl a $250 car would be met with a resounding DENIED! But that's TV, and I live my life according to my own philosophies (and Suze has no kids, so how can I expect her to relate?) Yes, this recession has hit my business hard, but I'm not broke, and I have a lot of confidence in my strategy to increase my income during 2009. For me, striving for a picture-perfect financial profile is important, but it's not my top priority. Childhood years should be fun and full of happiness. Over the years, I've noticed that the well balanced, well adjusted adults I've come to come to know well all had one thing in common: a happy childhood. Does a $250, battery-powered car = childhood happiness? Of course not! But I know my daughter quite well, and I'm quite certain it's a gift that she would really enjoy. Besides, I like the idea of keeping her busy with something that I can easily keep my eye on (I'll buy one with loud, obnoxious colors) while I sit on a park bench and listen to Marketplace on my portable radio.

So, all in all, it was a good day. We spent the rest of the day at Dave & Busters playing skee ball, air hockey, pool and other games. I am glad I spent less than $5 on my daughter this Christmas. No, not because I'm stingy. It's because I was able to buy my daughter a present that made her happy, and her contentment had nothing to do with how much it cost. I will buy her that car when spring arrives, not because it's Christmas or her birthday. I'll buy it for no other reason than I like to see my daughter happy. That's a good enough reason, isn't it?

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This Is A “Fill In The Blanks” Financial Crisis. Now It’s Time To Fill In Your Blanks.

In the following article, we invite you to just fill in the blanks where you see parentheses. Fill in each blank with any old Bank and see what you get:

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Banks Have Their Backs Covered. Who’s Got Yours?

On [just pick a date], the Federal Reserve, the US Treasury, the US President, and Congress agreed to give [Big Name Bank] 300 [Billions or Trillions, take your pick] Dollars in tax payer money, so [Big Name Bank] could buy [Bank About to Fail] for 1 Billion. For those who didn’t know, [Bank About to Fail], one of Wall Streets largest and best known investment bank was bankrupt. [Bank About to Fail] owed more debt than it had in value. Sounds familiar. Kinda' sounds like many people in Foreclosure. Actually, it also sounds like many homeowners not in foreclosure, who have a mortgage loan greater than the value of their home. Just like many ordinary people who have more debt than cash. But I digress. [Bank About to Fail] was in financial trouble because they were worth nothing on paper. So we heard in the news “[Bank About to Fail] must be saved.” Why? “Because if [Bank About to Fail] went under than the whole financial system could have fallen apart. “COULD HAVE”. The stock market “would have” plunged. Big investors “would have” lost lot’s of money. There “would have” been a world crises.

Now let’s think about their bailout logic, one more time. This is my take:

First: [Bank About to Fail] was about to file for bankruptcy because…THEY WERE REALLY BANKRUPT!!.

Second: The Federal Reserve, the US Treasury, the US President, and Congress determined that if [Bank About to Fail] does fail we will have a World Wide Financial Crises.

Third: The Federal Reserve, the US Treasury, the US President, and Congress “saves the day” by essentially GIVING [Big Name Bank] [Billions or Trillions, take your pick] of DOLLARS OF TAXPAYER MONEY so [Big Name Bank] could buy [Bank about to Fail] for 1 BILLION.

Fourth: The Federal Reserve, the US Treasury, the US President, Congress, [Big Name Bank], [Bank About to Fail] and All the Kings Men shake hands, hug, pat each other on the back, exclaim “JOB WELL DONE” b/c the WORLD DID NOT DESCEND INTO FINANCIAL CHAOS.

Do you see what just happened? What does it mean?

No# 1 : There are certain people and businesses TOO IMPORTANT to let go Bankrupt even WHEN BANKRUPT.

No# 2 : The Federal Reserve, the US Treasury, the US President, and Congress DO NOT NEED YOUR PERMISSION to give taxpayer money away to a BANKRUPT BUSINESS.

No# 3 : The Threat of a World Wide Financial Crises is a REALLY GOOD EXCUSE.

No# 4 : It doesn’t take a genius to figure out WHO GOT ALL THE MONEY.

No# 5 : The employees of [Bank about to Fail], who saw the value of their IRA’s or pensions drop because their [Bank about to Fail’s] stock tanked, WATCHED their MONEY they PAY IN TAXES given to…Well let’s say it WAS not given to them to SAVE THEIR IRA’s or PENSIONS.

Truth be told, it is entirely possible that had [Bank about to Fail] actually failed, there would have been a financial crises. It is equally true that if [Bank about to Fail] actually failed, there would NOT have been a financial crises. As is everything in life that could have been, WE WILL NEVER KNOW.

So the rules are made and when things get BAD there is only one Sheriff in town and that Sheriff has friends to protect.

This is history repeating itself over and over. DO FOR YOUR FRIENDS AS YOU WOULD DO FOR YOURSELF. There are those who claim that the bail out of [Bank about to Fail] created a “moral hazard” because [EVERY SINGLE BANK] will take even more risks and ask for even more bailouts because the Federal Reserve, the US Treasury, the US President, and Congress will cover their behind.

And cover their behind they have. For the first time in history, the Federal Reserve allowed Wall Street Investment banks to borrow money from the Fed at a discount (window). For the first time in history, investment banks can become commercial banks. For the first time in history, the Federal Reserve, the US Treasury, the US President, and Congress can hand out TRILLIONS OF DOLLARS of YOUR MONEY without telling YOU where it is going.

It doesn’t end there, the Federal Reserve, the US Treasury, the US President, and Congress gave [Big Name Banks] Treasury Bills (your money) in exchange for [Big Name Banks] worthless collateralized paper. YOUR MONEY FOR BAD PAPER. The paper that consists of collateral debt obligations, sub-prime mortgage backed securities, alt-a mortgage backed securities, credit card backed securities, auto loan backed securities…and the BAD PAPER list goes on and on and on…..

It all boils down to one thing. When it all hits the fan, the BIG NAME BANKS’ Peoples get together, handle their business and do what is necessary to keep their stuff together.

The question for you is “Will Your Peoples Come together, When it starts to get BAD”. It’s time to fill in your blanks.

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After 9/11 Creditors Told Me, "There's Nothing We Can Do"

My husband worked on the 81^st floor of Tower One in the World Trade Center for a company called Network Plus. On September 11^th his entire office managed to climb down all 81 flights of stairs and escape just minutes before the buildings started to collapse. His boss guided the entire team of salespeople down and encouraged my husband to continue when he felt tired. At one point my husband’s boss even left the team in order to help carry a woman in a wheelchair down the stairs to safety. Miraculously, she survived as did everyone in my husband’s company. As the highest office to have every member survive, Oprah Winfrey even had them appear on her show.

The ordeal was stressful enough for us to deal with, and after a few weeks passed the company he worked for went out of business. They tried to survive by relocating but the entire city was in such turmoil that the company simply couldn’t make it work. I realized that my husband was the bread winner and I had no idea how we were going to pay for our bills. We had managed to accrue quite a lot of credit card debt and now had only my small teacher’s salary to pay for it all. As the bills continued to pile up I started to make phone calls to the credit card companies with the hopes of working out a payment plan. What ended up happening instead was my filing for Chapter 7 bankruptcy.

Before September 11^th I had a credit score of about 650 and had over $10,000 in credit card debt. My payments were always on time and I rarely had any problems. Most of my debt was due to department store credit cards such as Macy’s, Ikea, Express and Spiegel. I also had an electric bill that I couldn’t pay and a cell phone bill which piled up. The interest rates were sky high, over twenty percent for each card and I knew if I didn’t work something out I was going to sink fast. Paired with the late fees I knew it would happen quickly if I didn’t do something fast. The largest amount I owed was to American Express and since they require payment within thirty days they were the first company I called.

To say that American Express is cold-hearted would be a nice way of describing them. I explained to the representatives over numerous phone calls that I wasn’t looking to get out of paying the $2,000 I owed them but that I needed more time than the thirty days. They could care less. They didn’t even sound sympathetic when I spoke to them nor did they seem to care about my situation. As if programmed like a robot, each representative I spoke with said the same thing to me, “there’s nothing we can do”. They would take nothing less than the full amount owed and as long as I didn’t pay it the late fees would continue. The late fees started to add up into the hundreds as November rolled around.

The other department stores sometimes sounded sympathetic when I told them about my situation but could do little to nothing to help me. The representative I spoke to at Spiegel was distraught to hear about my situation and immediately put her manager on the phone. He explained that there was little he could for me except to lower my interest rate from a 22% to a 12%. He waived one late fee for me but gave me no extension.

I found that no one really wanted to do me any favors at all. I explained to each one that I simply needed a two month period during which no late fees or other charges would be given to me. Even when I explained that I would be forced to file for bankruptcy they still gave me the same line – “there’s nothing we can do”.

The only company that helped me out was the bank that issued my student loans. Citibank immediately issued me forbearance for my student loans and gave me no problems whatsoever. They were nice and understanding and were actually the only company that did anything to help me during the difficult time.

My credit score began to plummet as did my credit history. After I filed for bankruptcy in December my score dropped to the low 500’s and stayed there for years. I couldn’t rent an apartment and I had a hard time getting utilities without paying a deposit. The funny thing was that my husband found a new job within months and our income was back where it was before, but none of that mattered when companies looked at my credit report.

Today my credit is back up to a 620 but is still marked with the bankruptcy. If the credit card companies had taken the time to work with me they would’ve had their money and I would’ve kept a clean credit report.

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