This post is from Debt Kid (Scott Mitchell), who after day trading away over a quarter million dollars found himself in some serious debt. He’s been blogging since 2007 about his journey back to zero.
In 2007, after trying a debt management plan, and selling most of my possessions on ebay, I hit my breaking point. I couldn’t afford to keep servicing over 250K in debt. I did something I never thought I would have to do: I filed for Chapter 7 Bankruptcy. Doh! Fast forward to today, and while it was not an easy process to go through, I learned some lessons from the whole ordeal.
Lesson 1: You will feel shame. It’s normal and justified.
I felt terrible about having to file bankruptcy. And rightly so. It’s a big middle finger to people you agreed to pay back. Even to this day I wish I didn’t have to do it, but I really did not have another choice. And that’s what it’s there for, the absolute last resort. To this day I wouldn’t want my friends to know I had to file, but at the same time, 3 years later, it wouldn’t crush me if they knew either.
Lesson 2: You might still get contacted by creditors on accident.
I was at a summer BBQ about 5 months after filing bankruptcy and I got a call from a random number. Since most of the collection calls had ceased, I picked up, “Hello?” “Hi, is this [my name]…I have a document here for you” My heart rate picked up. I hung up and turned off my phone. The next day the lady showed up at my apartment and served me papers for a judgment on a debt that I thought had been discharged in bankruptcy. The lady gave the papers to my employee (I was working out of my house). It was so embarrassing. The debt wasn’t valid, I wrote a letter to the lawyer, and never heard from them again. But still. Just because your bankruptcy got discharged doesn’t mean something might not fall through the cracks. Be prepared for this.
Lesson 3: Bankruptcy is a fresh start. Don’t mess it up.
Before your bankruptcy gets discharged, you have to complete a financial literacy program. I did mine online. It was pretty basic stuff, how to make a budget, how insurance works, etc. But it reinforced all the changes I had had to make in my life the past year. I knew that I would never again trade stocks. My bankruptcy was my one big do-over, and you don’t really get another one. So I vowed to never again put myself in a situation like that again.
Lesson 4: Filing bankruptcy won’t ruin your life. It will make some things more difficult.
Life isn’t just peaches and cream after your bankruptcy is discharged. There are consequences. Some more painful than others. For me the biggest issue was finding a place to live. Forget any decent traditional apartment complex or any place run by a management company. Even once I had a large deposit to put down, I could not get approved because of my recent bankruptcy. Try craigslist and search for individual owners, be upfront with them about your credit, and see if they will not even run your credit so it won’t ding your score. It doesn’t hurt to ask, and I’ve gotten 3 apartments since my bankruptcy without too many issues using this method.
Filing bankruptcy won’t ruin your life. Anyone who tells you that just can’t think outside the box enough. Yeah, you won’t get approved for a new mortgage anytime soon…but that’s OK! The last thing you need after a bankruptcy is credit again.
Lesson 5: I don’t ever want to file bankruptcy again
My 341 Meeting (Where creditors can show up, and hash it out with the judge and you if they want. None of mine showed, which is normal) was incredibly awkward. Your name is displayed on this fancy LCD screen as you walk into the room, every other person there feels the same way you do, and you could just cut the tension with a knife it’s so thick. I don’t think I made eye-contact with a single person outside the judge and my lawyer the entire time. It’s an experience I never want to have to go through again.
Bottom line: If you get to a point where bankruptcy is your only option, take it, but make sure you never get to that point again.
Have you ever gotten to a point where you thought about or did file for bankruptcy? What lessons did you learn?