Oh, missed that. Huh. Guess I can’t renege on my debts as long as I remain employed. I mean, I can, but not in a way that will be beneficial. Since my monthly income after witholdings is 4k, minus 700 in rent (have a roommate), average $100 in total utilities, and $300-$500 in food and various sundries. (I eat out a lot). $2800, times 60, is 168k - way over the threshold.
Well, this was an interesting mental exercise. I probably wouldn’t have done it even if the numbers came out positive, I just wanted to know precisely why I shouldn’t, other than having an inappropriate* feeling of ethics.
*Ethics are bilateral in my opinion. I work for an employer who has hired 75% H1Bs, and thus has zero loyalty to America and would fire me if they thought it would save them money. And like I mentioned, major banks have engaged in fraud and theft in recent years. And my bank in particular tried to cheat me a couple years ago over a car insurance claim. So…
They will ask you for that cash. If you hide it away, and they find out that you have hidden assets, then you may find yourself with criminal liabilities.
The point of bankruptcy is to give someone another chance, to keep mistakes in the past form preventing them from ever moving on with their life. Before bankruptcy protection, you were just left with nothing, and even sometimes put into prison.
There are some who take advantage of this generosity of our society.
That’s not how the math works. You figure out your disposable income for a month, so your income after all your fixed costs are paid, then multiply that by 60, giving you what your disposable income over the next 5 years would be.
If you are claiming that your disposable income over 60 months is less than 7,700, then yes, you could declare chapter 7 bankruptcy. So, the question is, do you have more than $129 a month left in disposable income? Your monthly fixed expenses would have to be $6121.
Even if we grant the assumption that ethics are solely bilateral, I’m not sure you understand what bilateral means. You seem to be justifying unethical behavior toward specific people who have loaned you money on the grounds that two other unrelated parties (or vague unspecified parties) have behaved badly toward you, or toward other people in general.
This ethical reasoning seems to be as sound as: a bully beat me up in a bar fight last week, and the week before I saw an unfair fight between two other people, so it’s okay if I beat my wife, because we all just live in this culture of violence.
I didn’t literally mean cash, I was saying that retirement fund account balances are concrete, spendable assets, albeit with some penalties and limitations on spending them before retirement. Were I to put the same money into paying off credit cards, all I have is the ability to maybe borrow the money back again if the bank decides to permit me.
Yes, I figured that out above. And yes, there’s no way this would work. If I lose my job, declaring bankruptcy would be a wise plan, however.
This does affect my overall planning. It looks like it would be more beneficial to me to max out my 401k contribution each year and pay less towards my debts. Each marginal dollar going to the 401k on average earns 10% investment ROI - but it’s not guaranteed and can easily be negative some years. While each marginal dollar going to a credit card debt at 10% interest is a guaranteed 10% ROI. So, strict math wise, paying the debt first makes sense.
Except if I were to lose my job unexpectedly, I could borrow against the 401k and use the money to pay the bankruptcy attorney, and clear the whole remaining debt. Also I’d be accumulating ~20k per year in assets that could be used to survive on if I were to lose my job and were unable to find another for a prolonged period.
Basically, it’s a form of hedging against risk and offloading some of the risk to the bank.
I agree. I’ll stiff my creditors with a clear conscience because my employer uses H1B visas…seriously? It was much better on the initial idea of ‘let’s leave personal ethics about paying one’s debts out of it’. That’s fair enough hypothetically.
But as I think the thread has shown, it’s hard to gauge how other people will react based on their ethical view of how you handle your debts. And California can make all kinds of additional stuff illegal for employers to consider, doesn’t mean they won’t. Which is not justifying their unethical acts (as it would be where/if the law prohibited considering bankruptcies), but back to practical $'s and cents. Are other people going to hold it against you, and how much is that going to cost potentially?
Especially as upward mobile person as $75k income at presumably not advanced age implies. If a person is already at the margins of society, they have less reason to care what other people think about a tactical bankruptcy. Or perhaps if they are already independently wealthy, as is ‘if you owe the bank $10k it’s your problem, if you owe $100mil it’s their problem’ kind of saying, which has some validity.
Any solution is going to involve adjusting your spending habits so you can live on what you make. Maybe stop eating out so much. Pay off the cards and don’t use them anymore unless you are disciplined enough to use them in a way that you can pay off the bills each month.
It doesn’t sound to me like your financial straits were caused by an emergency, such as a serious illness or natural disaster. That’s a totally different situation than just running up debt because you can’t properly maintain a budget. You are essentially paying a lot more for every single thing you own or consume by financing it at a high interest rate. You seem a bit disconnected from the fact that this debt isn’t just a random burden, you got lots of stuff in exchange for that 25K.
It’s a common misperception. You see powerful people acting unethically or even illegally and you conclude that those powerful people think ethics and laws are outdated. So you follow their example.
That’s when you discover the truth. These powerful people fully support a system of ethics and laws. They just think that powerful people like themselves should get an exemption. They still believe people like you or me should comply with the law and behave properly. And they will enforce that.
Don’t think that by offering support to powerful people who break the rules that they will return the favor.
But…I don’t believe that. But if these powerful people left a loophole a small fry like me can abuse, I’m not going to refuse to abuse it out of a misguided sense of ethics.
There is nothing illegal about filing for bankruptcy where all your assets are in retirement funds the creditors can’t touch.
There is nothing illegal about staying in school forever so you don’t have to pay your student loans, or when you finally do start paying them back, work for a nonprofit for 10 years so that the debt is erased tax-free.
There is nothing illegal about claiming all your equipment purchases like electronics as expenses, so long as you used them at least 51% of the time for work. Or claiming mileage, even if your vehicle costs much less than 54 cents a mile to operate.
Nothing illegal about buying and deducting a $1200 video card to do machine learning for school or contract work with, as long as any gaming you do is less than 51% of the time.
Nothing illegal about taking a dental vacation somewhere nice, so long as you only expense the dental fees, the airfare, the hotel during the days you had to be there. (you put the money to pay for this into an HSA then withdrawal it to pay these expenses)
And then there’s the fact that, like powerful people, you can stretch the truth in ways that can’t be disproven and you will get away with it. Maybe that 51% was 40%, but you didn’t keep records…
If you’re now acknowledging that all you care about is whether your actions are legal, why the prior digression to try to pretend that your proposed actions are ethical?
I don’t think you’re any worse than most, but I’m frequently astonished at people’s ability to rationalize away their own bad behavior. I think our ability to deceive ourselves far exceeds our ability to deceive others.
They created an opportunity for people in serious financial hardships can get out from under the debts and work to make themselves whole again.
The point behind bankruptcy of corporations and such is to make sure that their creditors get paid as much as possible, not to reward the company for performing poorly. Without banktrupty, most stressed corporations would just go insovlent, out of business, and their creditors get nothing. With a structured system to guide a company through bankruptcy, more of their creditors (and employees) end up getting paid at least something.
The bankruptcy protects creditors as much as companies. Keep in mind, creditors are influential in government as well.
Good luck putting all your assets in retirement funds.
Those are all tax deductions, not bankruptcy protections, so are irrelevant.
That’s a new one for me. But it still involves money that you put in, and are now taking out, and is still not relevant to bankruptcy.
Just make sure that they cannot be disproven. I mean, you can get away with any crime if you can prevent it from being proven.
Also, depending on jurisdiction and court, the burden may be on you to prove that you used these deducted items for business related purposes. Too bad you didn’t keep records.
I think there’s an important ethical argument to consider in the case of credit card debt. For some time now many credit card companies have been studying how to attract what they call the “Minnesota carpenter”, an ideal customer who has a good income some of the time and needs to borrow at other times, because such customers are vulnerable to punitive fees, and these fees have evolved from being an attempt to get customers to honor obligations, into a lucrative profit item on their own. A friend who worked for the analytics department of a major credit card described to me studies and projects they have to identify people who are likely to borrow heavily, and incur fees, and eventually make good, in an expensive cycle of never ending debt. These companies no longer try to help customers borrow in ways we can repay, but rather trick customers into getting themselves into trouble.
If this is part of how a person winds up in heavy debt, and if the lenders are playing a statistical game of maximizing profits with a customer base that includes struggling people and some fraction of people going bankrupt, then I think the concepts of integrity and ethics and obligation and contract are inappropriate to apply. This is a general statement, and I don’t know the conditions under which the OP and his lenders operated. I don’t think all creditors fall into this category, either – just credit card companies engaging in this strategy.
The more relevant question is - will you really be able to discharge that debt? Lawmakers are a step ahead of would-be credit abusers. Since the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, it’s a lot harder to walk away from credit card debt, especially if you have the means to do so.
You described that you have the means to do so, therefore you’ll probably get put on a 5-year payment plan. I imagine some interest still accrues while you’re paying it off.
Apart from that, during that 10 year period, you can’t get credit or loans at reasonable interest rates. You probably will miss out on any job opportunities that require clean credit.
Hard to quantify that depending on how you use loans, or whether you seek those types of jobs, but it seems like it would hurt.
I grew up in a Minnesota Carpenter household, and this wouldn’t be the credit card companies fault. When you live in a feast and famine household, you save for the lean times - any Minnesota Carpenter (or in my case salesperson paid quarterly - with some quarters being better than others) family knows that your financials are highly cyclic. If you are stupid enough to take out credit card debt or payday loans because you are unaware that you don’t roof in a Minnesota Winter, that isn’t the credit card companies fault. Are those customers profitable - sure (so, by the way is the ‘too rich and stupid’ customer willing to pay a premium for luxury goods - like an $80k car that they could get used for $40k with 20k miles on it in two years)…but caveat emptor.
As for bankruptcy - my husband declared it in his early 20s as a result of student loans and on again off again payment (he thought the student loans had been put on hold - they hadn’t and he was in a ‘no choice’ default situation by the time the lender reached him). Paying it off was difficult, but since he declared it before marriage and I had excellent credit (and hate debt), it didn’t hold us back too much (his first three cars were in my name, though). It did keep us from moving into a decent home until his bankruptcy had passed - my income wasn’t sufficient for the mortgage we ended up getting. Really, the only thing he avoided with some interest on student loans - he paid back every penny - just without the interest - and at the cost of having no credit for seven years - he had to use a debit card or cash for everything.
It can be held against you in employment in most states, it can be held against you when getting security clearance (I’ve needed to get security clearance twice in my life for jobs)
I’m not quite sure I understand the ethical problems with taking a legal option out of debt. The agreement is not “I’ll borrow this money, and then pay you back, no qualifiers.” That is the (unspoken) agreement when a friend spots you $20 for the pizza and beer. The agreement with the credit card or bank is tens of pages of dense legalize, and even more stuff that is codified in law. If the agreement leaves an out to avoid having to pay it back, then how is it unethical to take that out?
The out has repercussions, certainly, and those repercussions probably make taking the out not worthwhile, but I don’t see how taking it is unethical. The banks gave me some money secured by my house, and if I don’t pay back the money in the agreed way, then the bank gets the house. That might not be what either of us want, but it is part of the agreement.
See, that’s the thing. It’s very incomplete to describe the debt failure as being due to a stupid customer. The customer has one chance to live a life and manage their own fortune or failure, and debt is neither their chosen field of expertise or main focus. The credit card company has been spending millions for years, on teams of statisticians and psychologists and whoever else, to figure out specifically how to get people to overextend themselves and incur the lucrative fees. They do this because driving a few to bankruptcy, but collecting fees from so many, turns out to be profitable overall. They consider predictably and deliberately bankrupting a certain percentage of their customer base an acceptable collateral damage.
It’s unethical to pretend that this situation is really about free choice and self-responsibility. And it’s especially unethical to hold the participants in this dance to such diametrically opposed expectation systems, to say nothing of doing so in an economic and social system that typically hooks the lives and futures of children and other family members to the performance of the customer. That’s why the law has set up a framework for governing these relationships more fairly. And, bear in mind, this is the law we wound up with after a battle between rich powerful lenders and disorganized disenfranchised debtors. A more fair law would lean ever further in the direction of supporting bankruptcy or other means of not paying the credit card companies back.
Yes, I agree - and with most of Napier’s subsequent comments. I think in general that commercial relationships should be governed not by personal ethics, but by careful regulation designed to protect the interests of society and of all parties fairly, such that for fairness it should be sufficient simply that all parties follow the law.
We should not, for example, need or expect to rely upon banks or lenders to be “good people”. That can never work in a capitalist economy, because being “bad” will tend make you more money, so market forces will drive “good” bankers (or even bankers who are focused on long-term solvency over short-term profit) extinct. Instead, society’s interests should be protected fully by careful regulation, and we should simply require that all banks and lenders obey the law, and then compete on a level playing field regardless of their personal ethics.
The same applies from the consumer perspective. Nothing should depend on whether a borrower feels some ethical obligation to repay a (commercial) debt. There will always be some who act with deliberate recklessness and borrow with intent to default; while others with the best of intentions find themselves in unforeseen financial trouble. The law should be balanced to protect all parties fairly, without regard for any variation in personal ethics. The consumer should feel no ethical obligation other than to follow the law in commercial transactions - otherwise ethical customers are always subsidizing the unethical customers.
Napier, Riemann : Thank you. Thank you for helping me clarify my thinking. I wasn’t feeling bad at the prospect of a massive financial institution like Chase Bank possibly not getting it’s principle back on the high interest credit card they issued me.
And yeah, they spent millions of dollars and hired some of the brightest people to carefully craft their offers and policies in the way most favorable to themselves. In my “agreement” as a cardholder, they got to set all of the terms.
So yeah, if it ever becomes financially favorable to declare bankruptcy, or negotiate down the debts, or any other “unethical” but legal thing, I should do it. It’s not like the bank wouldn’t kick an elderly person out of their home because they owed a dollar, or garnish someone’s social security over the interest on the interest for a long overdue debt.
Unethical acts of credit card companies, if they are such, are a reason not to deal with them on principal. It’s not an excuse to repudiate debts you incurred voluntarily getting, as Ann Hedonia noted, stuff in return for the money you spent. If you’re of sound mind.
A ‘system of ethics’ which permits you to act unethically because others do…is not a system of ethics. People can live as they wish within the law, subject to the effects of how others judge them, which others are ethically entitled to do under certain limits (stick my nose into other people’s business with whom I have no connection, no; but for example consider the moral character of candidates for a promotion to a responsible position, yes).
And I really doubt if typical credit card co activity really qualifies as unethical anyway. They are offering a product you can abuse. So are makers of alcoholic beverages and places that serve them, marijuana sellers as that gets going legally, video game makers, all kinds of consumer products and services. IMO the supposed unethical acts of providers like this are many times rationalizations for people’s own inability to control themselves.
Pull out your credit card agreement, read through the 27 pages of legalese, and find the part where it says it’s OK if you don’t pay us back. Go ahead, we’ll wait.
(waits…)
You didn’t find it because that’s not the agreement you made with that company. The agreement is they let you use their money, with the understanding that the longer you use it, the more you’ll pay in fees and interests. There is no “out” in that agreement. Now - in the real world, it would astonish you exactly how many “outs” people can wrangle out of a lender, because at certain times of the year it makes financial sense for them to forgive 11 months of missed payments if you’ll just cough up the 12th one at the right time of year. But that’s not part of the agreement.
We have bankruptcy laws that exist because, as a society, we have a common understanding that our economy only grows when businesses take risks, and that consumers consume more when occasionally they can spend beyond their means with no worry of being jailed or spending a lifetime in servitude. (We aren’t always performing that principle at our best, but that’s the principle). But that’s a social and political contract that binds the government. There is nothing in the world that says it’s ethical or OK for you to borrow money from me or my company and then stiff me on the repayment.
I mean, think about it. If I go to the grocery store and steal a pound of avocados, I might get prosecuted and do a year or two in jail, but that doesn’t make the store whole. It doesn’t balance their books, and best of luck trying to repossess and monetize a 6-month-old avocado. The law doesn’t protect their financial well-being, it just lets them run a business without the ridiculous financial burden of having a private detective follow everyone around to make sure they aren’t pocketing avocados. The law isn’t part of the store’s business model, it’s just a social construct that makes it possible for us to have avocados without having to grow them from seed on a ranch in Florida with a private security force to protect it. Personally I find this arrangement very convenient and I hold harsh and judgmental feelings toward anyone who threatens it.
That’s secured credit, which is a different matter. The bank gets a lien on your house. As long as you pay the mortgage, you have a place to live. If you don’t, they get your house, which they don’t really want, but ultimately that loan is an accountable asset for them. If you feel like it’s a sound financial judgment to put up a down payment, not pay the mortgage, and go underwater from all the penalties… the personal cost seems ridiculous to me, but hey man, you do you.
But for unsecured credit, yes it’s unethical to bail on it. It is unethical to borrow $25K for hookers and blow, promise you’ll pay it back, and then, and then renege on the basis of “the government says it’s OK for people to take risks”. The provision of credit is a public good that’s every bit as important as water or electricity, and no matter what your politics are on who needs credit, or why they need it, or how we allocate it, it’s wrong to abuse it.
As an addendum, I’m not anti-bankruptcy or anything like that. It’s an immeasurably beneficial public good that people and companies can say “I fucked up, I need a do-over”. It is precisely for that reason that bankruptcy abusers are exactly the same kinds of assholes as anti-vaxxers.
It was much better on the initial idea of ‘let’s leave personal ethics about paying one’s debts out of it’. That’s fair enough hypothetically.