How Much Do I Owe, Anyway?

Although the overall debt situation is better than it was last month, I've noticed an ugly downward trend in our net worth over the past couple of years. Since we had several clients finally pay, we were able to pay off a loan my father had made to us, and to get all of the credit cards, except one, paid off. Last month, our net worth (excluding the value of and mortgage on our home) was at the lowest level since I started keeping track in 2000.

Not counting our mortgage debt, things aren't looking too pretty:

Account	Amount
Credit Card	$1,414
401(k) Loan #1	$12,906
401(k) Loan #2	$4,800
Total	$19,120

Both of the 401(k) loans are being paid off according to schedule, and if we don't pay anything off early, we'll be debt-free some time in 2009. If this "life changing" job turns out really to be as profound as our client says, then perhaps we'll be able to get things paid off early.

The last time we had a positive net worth was over two years ago, when we were working a big job for a client. It was steady work, and we were getting paid. Unfortunately, our client was mismanaging money he'd received from his customer, and in the end he stopped paying us for our work. He kept promising to pay, and didn't. Ultimately, we got ripped off for $14,000 by this guy.

We've really been scrambling, financially, ever since. I hope the tide changes, soon!

When Clients Don't Pay

I pulled my company's A/R (accounts receivable) report this morning and continued to see a discouraging trend. Clients are not paying their bills in a timely fashion. At the moment, we have two clients that are 31-60 days late, and three clients that are 1-30 days late. Although frustrating, it's an improvement over where we were last year when we had some clients who were more than 90 days late, and much better than two years ago when we had two clients completely stiff us for a total of about $20,000.

On the plus side, some of our clients paid on time or early, so we were able to pay off my father for a loan he gave us last February to repair our damaged car, and we paid next month's mortgage payment and health insurance premiums early. It's a good feeling to be a month ahead on those two major bills, but I have to admit to a significant amount of concern, since we haven't made any estimated tax payments so far this year.

It's really hard to stay motivated to do quality work when clients don't pay their bills on time. I'm staring to develop this really fatalistic attitude that it doesn't matter if I do a good job or a lousy one, because the end result will be the same -- bills will come due, and I'll be stressing out over the fact that I don't have the money to pay them when they arrive. Although things always seem to work out so I can pay everything on time, every month paying bills is definitely a stress-fest, because I'm constantly having to juggle things and figure out who can wait a week or two.

I would like enough money in my checking account so that I can just pay the bills and forget about it!

Thou Shalt Not Covet

I have a friend, I'll call him Harold. Although I really like Harold as a friend, I really hate visiting him. He's got this awesome house in a really nice neighborhood, with a fantastic view of the city below and the ocean. Although his place isn't a mansion, and he bought it many years ago when real estate was cheaper, I always get depressed after I visit. The place is gorgeous, bright and sunny, and I'll never own anything like it. Although I'm really happy for Harold's success, it makes me sad when I look at my own situation and wonder if I will ever be able to make it better.

It's not that I want Harold's house, or even a house exactly like his. It's just a reminder that I am not doing nearly as well I'd like, and certainly not as well my parents, and there are a lot of things I don't have. I drive a beater, Harold drives a fancy european car, though in his defense it's a few years old.

I've gotten to the point where I really hate to go shopping, even if it's for things like groceries, because I walk through aisles and aisles of things I can't afford or shouldn't waste my money on. There's lots of stores that are basically off limits, including book stores, electronic stores, and even the local Wal-Mart, unless I'm shopping from a list. Although I used to love to eat out in restaurants, I don't enjoy it anymore because I'm constantly thinking about the bill that will be coming at the end of the meal. It's just not fun anymore!

I keep reminding myself thou shalt not covet, and trying to remind myself that I should be grateful for what I do have. I have a roof over my head and food in my belly, and a huge portion of the world's population doesn't even have that much. Even so, it's really hard to be part of white, middle-class America, and being stuck on the sidelines, watching the American Dream pass me by.

Are Things About to Change?

A client of mine has been bidding on a multi-million dollar contract, and told us that if he was awarded the job, there would be considerable work for us. He said that the contract would be "life changing." We've been waiting for several weeks to hear, and yesterday afternoon he called.

"We got it," he said calmly. He was almost too calm. Too many late nights had taken their toll on him, I guess.

I put the phone down for a moment and shouted to my partner, "Yeehaw! We got it!" My client and I exchanged a few pleasantries, and a few key pieces of information, and plan to meet next week.

We got the contract.

At first, I was really excited, but now that I've had a moment to process things, I really don't know what it means. Does it mean we'll finally be earning enough money? Does it mean that we'll finally be able to stop worrying about money every time we go to the store or pay bills? Does it mean we'll be able to start paying off our debts? Does it mean we'll be able to actually save some money for a rainy day or for retirement?

The end customer is a Fortune 100 corporation, so they are going to expect a very high level of customer service. I know this is going to be life changing for my client in a positive way, but I'm scared that this might not be so great for me. I'm worried it will mean another year or two of IT slavery, being on call 24/7, for inadequate money. I hope it will mean good things for us, but I've worked on many projects where I made my employers a lot of money and came up short.

I'm trying very hard not to let my fears overtake me, and I'm trying to be cautiously optimistic. I'm not worried about my ability to do the work; it's just an extension of work I've already been doing for this client, anyway. What I'm worried about is the money, and the impact it's going to have on us. I'm concered, too, what happen when the contract ends? The job is only guaranteed for a year or so. After the job ends, will we just go back to living our hand-to-mouth lifestyle?

In my 15 or so years in the IT Industry, I've never had a job where I was able to live an "abundant lifestyle." When I say "abundant" I don't mean an extravagant or wasteful lifestyle; I mean a lifestyle where there is enough money for all the basics, plus enough for savings, and extras like vacations and fun stuff. An "abundant lifestyle" would mean I'd have enough money decent housing and transportation, and to be able to keep my home and car in good repair. I'd have enough money that a trip to the dentist (I haven't been in four years) would be possible.

My best earning year was when I was living in the RV. Although I was earning enough to put the maximum into my 401(k) plan, and was paying my bills with ease, had no debt and could afford a few extras, I wasn't earning enough for "normal" housing. I lived in a cramped trailer with a dog and a cat, and it was the absolute best I could afford.

Is it possible things might change? Is it really possible?

Everything Is Broken

One of the many things I find frustrating about my current financial situation is that there are so many things we have to do without because we don't have the money to pay for them. The other day, I made a list of all the things in my house that are broken, need repair or need attention, and the list was quite long. Some are big things, and some are small, but it's frustrating to have an growing list of problems that I can't address because it all costs money. The problem is compounded, too, by the fact that I'm completely hopeless at fixing things around the house. I've tried, many times, and only seem to make things worse.

1. I haven't been to the dentist in four years.
   
2. My partner hasn't been to the dentist in four years.
   
3. I own a 30-year old convertible that can't be driven because it needs a few minor engine repairs and needs new tires. Since I can't afford the tires or the insurance, I filed a certificate of non-operation on the car. It has sat in the garage for seven years. I kept hoping I'd have the money someday to get it back on the road.
   
4. My truck needs new tires and can't be driven. They are bald. We aren't talking worn tread here, we are talking no tread.
5. Our $500 junker station wagon needs a new radiator, fan and fan housing It's leaking coolant, so we have to check it whenever we drive it, and carry water with us.
   
6. Our house desperately needs an exterior paint job.
7. Our driveway is full of cracks.
8. Our yard looks like an overgrown jungle. We can't garden because we are terribly allergic, and the next door neighbor kid isn't capable of doing much more than mowing the grass. We really could use a lawn service.
9. We need new carpet. The house had white carpet, and we knew it would be a problem when we moved in. The carpet is now really gross-looking, even though we have a shampooer. A wood floor would be so much better.
10. The house could stand an interior paint job.
11. There's a leak in the master bathroom shower. Water is seeping out one corner onto the floor and into the ajoining cabinet.
12. The shower head in the guest bathroom is broken.
13. The tub in the guest bathroom needs to be re-glazed.
    
14. Our "home theater" system (if you can call it that) no longer works. It turned 20 years old this year. The amplifier no longer powers up and the tape deck is malfunctioning.
15. Our birds haven't been to the vet for their annual checkups this year.
16. My partner sometimes misses her asthma medication because we don't always have money for the Rx co-pay, even though we do have insurance.
17. Our dishwasher rack is rusted out and needs to be replaced. (Better, we need a new dishwasher, because this one doesn't clean worth a darn)
    
18. Our chimney needs a visit from the chimney sweeper.
19. Our front and back yards really could use some landscaping.
20. The springs and the recliners in both the sofa and loveseat are broken.
    
21. We can't sit on one side of the sofa because the springs are so broken down that it's like sitting in a hammock.
    
22. The loveseat's stitching is coming apart in several places.
23. I need a new pair of comfortable dress shoes.
24. Our furnace needs a new filter.
25. The RV has a leaky roof.
26. The RV needs a new battery.
27. The RV needs new tires
28. The RV's hitch is rusty and needs to be repainted.
29. The house is a mess and we could really use the services of a professional organizer. The place is really too small for our needs, so it's like trying to cram 10 pounds of $h*t into a 5-pound bag!
30. The lock is broken on the guest bathroom window.

And the list just keeps growing...

UPDATE 9/19/2005: Although the list is growing, I've managed to actually cross a few items off the list...

Credit Rebuilding

Since I know this is a point that a lot of people worry about, I thought I'd share my experiences with credit rebuilding. There's really no magic to it, and despite what all the expensive books and credit repair companies say, the truth is that it just takes time.

In my case, here's a timeline of what I did:

• Early 1997 - Opened an American Express account. AMEX, provided that you don't owe them any money and don't include them in your bankruptcy, seems to be willing to keep your account open if you file. I don't know if this is still true, but I opened the card earlier in the year thinking that I might file later. I used it a few times, paid it off every month and left it sitting in a drawer.
• June 1997 - Stopped using my credit cards, went to paying minimum payments on all bills in preparation of filing.
  
• September 1997 - Bankruptcy filed.
• October 1997 - Received re-affirmation agreement from Citibank. Since I only owed them about $500, and I knew I'd need to have a Visa or Mastercard for work-related travel and expenses, I reaffirmed. I had to fight my lawyer tooth and nail on this -- he felt that I should reaffirm nothing. I'm glad I did, because I have a very low interest rate on this card (about 10% now) and a long, positive credit history with this company.
  
• January 1998 - Bankruptcy discharged.
• February 1998 - Bought a secondhand pickup truck. I got hugely crappy terms, at 21% APR. In my opinion, recently bankrupt people should never buy a new car. If you have to buy a car at all, buy the cheapest one that will meet your needs. I bought a truck because I was living in an RV, and my nine-year-old 4-cylinder Toyota was wheezing to an early death from all the towing.
• September 1998 - A tree totaled my RV, so I used the insurance money and a 401(k) loan to pay off my truck loan and purchase a secondhand trailer.
• Early 1999 - I applied for a Capital One secured credit card. Yes, Capital One can be crappy to deal with, but they seem to have the fairest terms for people with sucky credit. They do have an interest-free grace period, and pay interest on your security money. If you pay your bills on time, after a year they will convert your card into an unsecured card. Although I've heard complaints about Capital One, they aren't nearly as bad as some of the other predatory lenders. Beware of any company that expects you to pay a non-refundable fee for the luxury of getting a credit card. It's a screwed deal, and you should pass it up.
• August 2001 - Applied for home mortage. I was turned down, but we got the house anyway. My partner applied alone, and we did a no-doc loan. The interest rate was 8.25%, and we had to pay PMI, which wasn't great, but it was better than no house!
• Sometime in 2002 - Applied for a business credit card. I was turned down, but my partner was approved, so I was just added to the account as an authorized user.
  
• April 2003 - Refinanced our mortage, and the bank approved me as well as my partner. The bankruptcy (and the fact that we were self-employed) gave us a slightly higher rate at 6.00%. However, it's a fixed-rate, 30-year mortgage, so we can't complain too much. (Interestingly enough, my average credit score at this point was 666!)
  
• September 2004 - Applied for a Sears card. Turned down flat. When I got the rejection letter in the mail, "prior bankruptcy" was the reason given for the turn-down.
• November 2004 - Considered applying for a home equity line of credit, so we pulled our credit reports with scores. It turned out that my partner, who had a dispute with a credit card company the year before, had been reported 30 days late. My lowest score was 723, but my partner's were no longer good enough to qualify for the best rates, so we passed on the idea.
  
• July 2005 - Applied for a music store credit card. To my suprise, I was approved and given a pretty high limit. Woo-woo!

Some of the lessons I learned along the way:

• Credit card companies are not your friends - Always read the fine print before you apply, and make sure that you understand their terms. Many companies will use a bait and switch technique where they will invite you to apply at a really awesome rate, review your credit, and then give you lousy terms.
• Don't buy a car using dealer financing - Credit unions, I found out later, almost always have better terms, even for people with crummy credit. Don't let a predatory lender take advantage of you. If you have no other choice go with the crappy loan, but buy the cheapest vehicle you can get by with, and double or triple your payments. Better idea: buy a really cheap junker and pay cash!
  
• Pay your bills on time every month - Okay, maybe it means you are going to be eating generic macaroni and cheese for the rest of the month. Never pay a bill late if you can possibly help it.
• Learn the difference between wants, needs, and emergencies - A "want" is something you can get buy without. When your kid tells you, "but Mom, I need a new iPod," it's not a "need", it's a "want." A "need" is something you can't do without, like decent, nutritious food, or gas for your car so you can drive to work. An "emergency" is something that you really can't do without. Your home theater system breaking is not an emergency, and neither is the dent in your car door. An "emergency" is something like your only car busted it's timing belt, so you have to get it fixed.
• If you use credit cards, pay them off every month - The only exception is if you are paying for an emergency that you can't otherwise cover. If you have to carry a balance, pay at least two or three times the minimum payment. As the minimum payment drops, don't reduce what you are paying -- keep paying two to three times the original payment, or more if you can afford it. Don't let debt evolve into an anchor.
  
• Open a savings account, and put money in it every month - Even if you still aren't earning enough after you've filed bankruptcy, put something away. Even if it's only $25 a month, it's still something. If you can afford more, by all means, do it. Become a saver, not a consumer.
• Never file bankruptcy again - Remember the mistakes you made that got you into the mess in the first place, and don't repeat them. In most cases, bankruptcy isn't a sudden surprise. It's usually a slow decent into financial chaos, that's usually started with a few bad decisions and then culminated by a stroke of bad luck. In my case, I could have avoided bankruptcy entirely had I not invested/borrowed so much money to keep a dying business alive. If I had been smart and cut my losses several years before, I wouldn't have gotten in over my head. Hindsight is 20/20 and there's no rewind button on the VCR of life, so learn from your mistakes and don't repeat them.
  

Why I Created This Blog...

One of the things I've noticed when I've searched the Internet for post-bankruptcy information is that there's basically nothing out there for people who are more than just recently bankrupt. There are quite a few books, discussion groups, chat rooms, etc. for folks who are considering, or just recently filed bankruptcy. I haven't seen any stories about people who filed five, seven or even ten years ago.

I've always wondered, once people get past the initial trauma of the filing and some of the early phases of credit rebuilding, do they just forget the bankruptcy ever happened? Do people just bury the whole event and move on, or does filing bankruptcy forever change people? Do most filers get back on track, or do they continue to have financial problems that continue past their discharge date?

It seems that a common public sentiment is that many bankrupt families are somehow taking advantage of the system. People believe that individuals who file for bankruptcy were behaving irresponsibly. They were spending wastefully, running up huge credit card debt for expensive vacations, toys and fun. When they get in over their heads, they buck the system, file Chapter 7 and walk away from their responsibilities.

That's the common perception.

Although I am sure that there are a few people who used bankruptcy as an avenue to live a lifestyle beyond their means, I don't believe that to be true of most filers. Of the people I personally know who filed bankruptcy, each of them had an event that was out of their control that pushed their finances over the brink. In some cases it was enormous medical bills. In others, it was extended job loss. In each case, these families weren't living fancy, extravagant lifestyles. They were middle-class wage earners who had a financial crisis larger than their savings and their ability to earn.

One couple I know declared bankruptcy after they were hit by an uninsured motorist. Their medical bills topped $100,000 and they had no way to pay. Their own medical insurance refused to pay, claiming the responsible driver would have to cover the expenses. When the bills came due, the hospital and doctors looked to the injured couple, since the uninsured motorist had no job and no assets. Although my friends did their best to pay as much as they could, and tried to make payment arrangements, the medical bill collectors had no sympathy. They wanted all their money now. My friends couldn't pay the amount demanded, so they filed bankruptcy.

I don't know anyone who is proud they declared bankruptcy. When I went to my own hearing, the room was filled with many discouraged people. There wasn't a smile in the room. Everyone looked downcast, depressed, and ashamed that their lives had taken such a terrible turn. Many of the women were crying, and most of the men looked like they were holding in their emotions as best they could.

In my own case, although I was relieved that the collection calls and the stress of trying to pay bills each month was gone, I felt very ashamed. I felt a certain amount of peace, yes, but also a huge amount of grief. Even now, some eight years after filing, I still feel bad. I feel that there's this invisible letter "L" (loser) tattooed on my forehead. Most people can't see it, but it's still there. Although my credit reports show no late payments since my bankruptcy was filed, and all my credit scores are all above 720, I am still a deadbeat in many people's eyes. My best efforts weren't good enough and I'm forever damaged goods.

Even with very good credit scores, I am reluctant to apply for new credit for fear of being turned down. Last summer, our aging refrigerator died rather suddenly and we needed a replacement. We went to Sears, and I decided to apply for a Sears card. I thought I had a good chance of getting a card, since my bankruptcy was more than seven years old. I was turned down, and the clerk was rather gleeful about the entire thing, making enough of a show to attract the attention of nearby customers. Fortunately, my partner was able to get a card, so we were able to save ourselves 10% on the purchase and receive no-interest financing for a year.

Things seem to have improved recently. It seems that the seven-year mark might be some kind of magic number. I applied for a music store credit card recently, and was given the advertised terms, including a 12-month, no-interest account. Maybe it was luck, or maybe this company just has looser credit terms than Sears. In any case, I applied because I could do so over the Internet, and I didn't have to worry about other customers staring and saying, "Oh look, that poor slob just got turned down for instant credit!"

Although my financial situation certainly was improved by filing, I can't honestly say it was like a magic wand curing all my problems. It got rid of the overwhelming debt, but it didn't cure the problem of under-earning, and it didn't solve the problem that it's just damn expensive to live where I live. It didn't solve the problem that in order to make it, you really need to have inherited money or be a dink (dual income, no kids) so that you can spend thousands of dollars on housing. It definitely didn't make me feel better about myself or my situation. It was a solution for an untenable situation, but it had huge cost, too. I traded my debts for living in a tiny travel trailer for four years. I traded a cessation of collection calls for my self-esteem.

For those who have filed bankruptcy and are struggling with the aftermath, all I can offer is to take one day at a time. There are no miracle cures, and no magic bullets that will solve your problems. To those out there who call us deadbeats, all I can say is that I hope you never find yourself in the same situation.