We are dealing with a tough and seemingly unrealistic situation today: How to avoid bankruptcy.
There was that time when we lived a double life. That time where on the outside, life was perfect, life was successful, life was fun, and life was complete. We bought what we wanted, went where we wanted, ate what we wanted, did what we wanted – just the way everyone dreams about.
But it was a lie. Life was anything but. We were so far from a perfect, successful, fun, or complete life. That life was centered on spending what we didn’t have and sending us into a dark place, even thinking for a period of time that we would never again see the light of day financially.
Four years later we were in the heart of that pit – we were hiding in our home, avoiding the mail, avoiding the door, and avoiding the phone.
Up to that point, we had spent our lives into over $108k of consumer debt. And by “spent,” it was literal.
- We spent on loans for schooling that was to get us ahead in life.
- We spent on credit cards for the clothing, shoes and accessories we needed to maintain a professional image in our professional day jobs.
- We spent on loans for cars to show that our schooling and professional jobs really did get us ahead in life, even when we had perfectly fine, used, paid off cars in the beginning.
- We spent on credit cards to eat out and eat out well – no McDonald’s and Burger King here, but steakhouses often as we were too busy being successful in our day jobs to take the time to cook at home; it was how DINKs “double-income, no kids” were supposed to live .
- We spent on loans and credit cards to furnish our first apartment and then later our 3-bedroom home when it was just the two of us. “It is uncivilized to live in a nearly empty home,” we told ourselves.
- We spent on credit cards to travel so we could “enjoy life” before we had kids.
After four short years of marriage and these cycles, we sat in our trailer as we could no longer afford to live anywhere else or even have good enough credit to rent anything else, sitting with “our stuff” around us that migrated with us as it was all we had. We couldn’t afford to eat out, not even at McDonalds. We couldn’t afford to travel anywhere, not even a short drive to the next town over.
We were months late on all of our bills, 60-120 days late on everything. Each month, we played the game of “which bill is the furthest behind or which creditors are screaming the loudest” and those would be the ones we would pay, pushing back the late payments yet another month on the other bills.
These were credit card bills, loans, utilities, etc. After falling into the PayDay loan cycle just to pay our behind bills, it set us further back than we ever anticipated with those 600% interest rates.
We fussed with the antenna on our fancy television so we could watch something to distract from reality and drown out the pain of the delinquency notices in the mail, the phone ringing off the hook and keeping lights low, yes, to reduce utilities, but to appear as if we were never home so we couldn’t be served any papers from the least impatient creditor.
We desperately tried to get more loans to pay other loans, but since our credit was in the 300’s (yes you read that right, bad credit is considered under 600), there was not a soul that would lend us a penny, even the places for the “no credit, bad credit” places.
It was the end of the line for us. The money was long gone, the possibility of additional credit was gone, we owed more each month just in our monthly bills, let alone our living expenses (like groceries) than we were bringing in. In fact, just the interest alone was more than one full paycheck per month. This only meant that we were further behind the next month than we were the previous month.
It was not possible for us to get any
lower on the money totem pole.
By day, Alex was a successful engineer and I was a paralegal/fitness trainer. By night, we were broke.
After reaching this point, we discussed what our options were: like credit counseling and bankruptcy. We didn’t want to do credit counseling, perhaps because of pride, but also because we didn’t want them taking a dime of what we already didn’t have.
But here’s where the irony runs really thick.
I mentioned above how I was a paralegal by day.
Do you want to know what I did all day during my day job?
I worked for an attorney that was the last resort to medical collections. Meaning, once a collection agency tried to collect on late medical debts, it was sent to an attorney so that person could be sued to collect the debt. I prepared the complaints and handed them off to the process server, who delivered the complaint to the person being sued for their extremely late medical bills – which is a very, very difficult job.
Frequently, the plaintiffs wouldn’t show up or contest the complaint, so we would be able to begin garnishing wages after winning the court proceeding.
That was the other part of my job, collecting on the garnished wages. I would call and sneakily try to find out any personal information from any of the contact information passed onto us from the medical and collection agencies. I had to find out current phone numbers, employment, residences, “emergency contacts,” etc. I hated it. It was so hard. These poor people had no idea why I was asking for information; it wasn’t just a friendly reminder call to “update our records” for the sheer purpose of having the most accurate records, but to pounce and chase after them to collect our fees and the medical fees.
In this same office, one of the attorney’s was a bankruptcy specific attorney. Although I wasn’t his paralegal, I was privy to information and details from helping the other legal staff on those cases. I witnessed first hand the ugly side of bankruptcy. I witnessed how these lives were destroyed and how this record will always follow them. Sure, a bankruptcy drops off your credit record after 7 years (legally 10, but the credit reporting agencies generally drop it after 7), but there are numerous situations in which a mortgage loan form, job application (like in a financial field or a field where a background check is required for a government or similar job) and many other circumstances where the application will ask, “Have you ever declared bankruptcy?” I am an honest person, so even if it was no longer on my credit and not easily discovered for most situations, I could not lie on those applications for the rest of my life. Bankruptcy would always follow me.
Also, in most bankruptcies, you incur additional legal fees and rarely have all of your debts forgiven. In fact, most are just a reorganization of debt like credit counseling, but with the result of ruining your financial reputation for life with the court deciding what you keep and what you lose. Many people lost their homes, cars, and more, and still had to pay quite a fairr amount of their debts.
In my mind, bankruptcy was not an option. We avoided those phone calls from the creditors or the legal counsel. If they happened to “catch one of us” we wouldn’t tell them anything because we both knew what they would be using that information for. I avoided answering the door, because if we couldn’t be served papers, they couldn’t sue us.
We were playing a cat and mouse game that we knew wouldn’t last forever, but I refused to entertain the idea of bankruptcy.
You’d think that after working at my day job, our personal financial life would not have gotten even CLOSE to this point. Our book talks about what happened to us that allowed us to so easily slip into this giant mess.
I was able to separate my day job tasks from my personal life. While this is likely good for most people to practice,
it was pure stupidity in our case.
At the point in our lives that I am illustrating for you now, we were likely only a week away from bankruptcy. We were likely a week away because the game of being 60, 90, 120 days late was becoming increasingly difficult with each passing month and in a week, there would be more 120 day lates than ever and we wouldn’t be able to fulfill the payments. The real question became: “How to avoid bankruptcy?”
How did we avoid bankruptcy?
#1 – The first step was to recognize that this was OUR debt and WE still owed it, no matter what we thought or wanted to think. It was our obligation and attempting to avoid our obligations due to stupidity would be wrong.
#2 – The second step involved prayer, repentance and some serious tears. We had to be broken. We were a prideful couple, living a double life. We were convicted of our financial state and convicted that it was ours to deal with.
#3 – The third step involved bringing in some extra money FAST. Desperate times call for desperate circumstances. We did three main things:
- We followed many of the things in our How to find $1,000 in 30-days plan. By being able to muster up as much cash as we could in that first month, we could get a couple of bills caught up.
- We donated plasma. It is very profitable and a great way to get cash fast. Couples can earn $400- $500 per month.
- We woke up at 4:30 am everyday to deliver newspapers before heading to our day jobs. This brought in $400-$500 a month.
The monthly boost from the first step, plus the follow-up of desperate cash close to $1k for a few more months helped us avoid bankruptcy.
It was hard.
It was humbling.
But it worked to avoid bankruptcy and to just start paying our bills and our $1,200 in interest each month on time. Think about that – those desperate tasks, nearly paid just our interest. But it was what we had to do!
The next step was tackling this mountain of $108k of consumer debt and get rid of it once and for all!
That’s where The 2% Rule To Get Debt Free Fast was born! And the rest is history. 🙂
We paid off all of our consumer debts and went from the situation I described above to a financially free life today and no bankruptcy history to follow us around until death – only each other to follow around until death.
Disclaimer: It’s not easy to talk about these things. They are uncomfortable for us because of 1. the memories of the pain during this time, and 2. because it is embarrassing and putting ourselves out there. But we are sharing because after 7 years of blogging, we find that some of the most helpful content for others are these real, raw life experiences. Our #1 goal on this site is to help you through the toughest of times because we have been there. It would be silly to not share. However, if you have been through bankruptcy, please know there is no judgement or shame here. It is the option that is presented to us as a society. We were in a special circumstance with my day job and knowing what I knew, otherwise we would have been a bankruptcy statistic too. But that’s why we are thankful for life circumstances as it forced us to find another way – “necessity is the mother of invention” and this area of finances was no exception. 🙂 Please know that we want to help and encourage however we can.