May

30

what do you think of bankruptcy?

Filed Under credit and debt | 13 Comments 

I wrote just the other day about a slightly random conversation that I had with someone who had declared bankruptcy a few years ago.

I’m very strongly of the opinion that bankruptcy is necessary for a good economy. Without it, it becomes impossible for people to take business risks and individuals can become mired in debt from which there is no hope of escape.

I am aware that some people think that you have a moral duty to repay the money you owe, as you agreed in the first place. I disagree, and think that as far as commercial credit is concerned, it has nothing to do with morality, but is simply a contract drawn up within the law of the land - which generally includes provision for bankruptcy.

when is bankruptcy a good idea?

When there is no way that you will pay off your debts in your lifetime, regardless of the actions that you take (e.g. you can’t even repay the interest on what’s owed let alone any of the capital) then bankruptcy is likely to be the only solution to your problems.

If you’re forced into bankruptcy by the taxman or by your creditors, then it is by default the way that you are going to have to go.

In general though, you should declare bankruptcy only if it’s in your best overall interests to do so - and people generally need help to find that out.

why bankruptcy is good for debtors

If you are made bankrupt, it’s almost always as the result of crippling debt. People often have the bailiff demands, phone calls from debt collectors and general hassle that can lead people into depression. This is not good, and being made bankrupt is one way of stopping that. Improving the mental health of people is definitely a useful side-effect of bankruptcy laws.

Also if you are made bankrupt - at least in the UK - you are forced to live within your means, and denied access to credit. If you’d never learnt how to do this before, you’d have to now. This period lasts for a couple of years, and in addition, if you can afford to repay some of what you owe then you will have to.

your reactions?

I strongly suspect that most people who read plonkee money, have never been made bankrupt, probably will never need the protection of bankruptcy and are perfectly sensible with their money. This is good. But what is your reaction to bankruptcy?

Given the rules of polite society, if someone tells me that they, or their friend of relative, has been made bankrupt I would feel rude expressing anything other than general muted support. But in addition to being the polite response it’s the one that most fits my own opinions.

It’s true that some people are serial bankrupts. They are doing themselves no favours at all, and probably shouldn’t be given credit by financial organisations. I can’t bring myself to condemn someone who is, in the long run, punishing themselves.

It seems likely to me though, that most people learn from the experience (possibly eventually). And after all, there are lots of people that struggle with debt, learn from it and go on to be financially successful - in fact a bunch of them are fellow personal finance bloggers. Everyone makes mistakes, and most of us make mistakes with money.

Does this mean that I think it’s ok to run up massive debts?

Err no. Actually it’s the running up of debt that’s the problem - and any subsequent burying of heads in sand. Once the debt is there, any method of tackling it that leads to sensible boring finances and works is just fine with me.

I don’t expect everyone to agree, but whether you do or not, please let me know in the comments.

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May

29

just pointing out some new things

Filed Under OT | 3 Comments 

In case you haven’t heard, there’s a great new source of personal finance articles from around the pfblogosphere at pfbuzz. It’s a social networking site (like Digg or reddit or stumble upon) which focusses on personal finance the brainchild of Pinyo @ moolanomy. Go, submit posts that you like, and vote. If you want more interactive personal finance, check out and contribute to the finwikian run by Mrs. Micah.

If you’re a recent graduate, or you know someone that is, you might be interested in this little guide for college graduates from Jim @ blueprint for financial prosperity. I’ve read it, and it looks good to me. Some of the advice is a little US biased (of course) but the general principles are there, and if you need any help translating to British personal finance, try this and/or this. Also in the new resources, is a very short pdf on making more money, from millionaire money habits.

Once you’ve seen all that little lot, come back and check out the discussions here at plonkee money. I’ve got a new page up that lists the most recent conversations, so that you can check out who’s saying what where. I’m hoping that it’ll encourage you (and me) to comment more often. If there are any other features you’d like to see on plonkee money, drop me a line I’d love to hear from you.

May

28

getting out of debt Amy’s way

Filed Under credit and debt | 8 Comments 

You never know when you’re going to have an interesting conversation.

Last weekend I was staying with some friends by the seaside, and whilst we were out I ended up chatting to one of the group, Amy, about my house - which I bought last year. She stated that she was rubbish with money, to the extent that a few years ago, she’d been made bankrupt.

The details of the story are that she ran up £25k of credit card debt in her very early twenties, whilst earning a salary of something like £15k. After talking to a friend who’d been through bankruptcy she decided it was the best option for her, went to court and was made bankrupt. She was put on a payment plan of £100 per month for three years - this was the spare money that she had after basic expenses and could afford to repay to her creditors.

I admired her frankness, although I was then stuck with what to say. I told the truth, which is that I think there is nothing wrong with being made bankrupt - for businesses it’s a cost of providing credit which they should be allowing for. She said that although she’s now eligible for credit she no longer takes it up, and whilst she’s still perpetually skint (not a well-paid job, living in an expensive area), she’s debt-free.

I don’t know whether I conveyed my admiration well enough. I made (for me) the mistake of saying “it’s ok if you don’t do it every year”. I know that she’s right. Bankruptcy isn’t for everyone, but for some people it’s the best way to relieve their debts. It would have been for her as she couldn’t have even payed the interest on £25k, and she had little immediate prospect of a better paid job. Once bankruptcy has been discharged, you can carry on your successful life, hopefully a little wiser for the experience.

If I knew someone in real life who was facing massive debt I’d probably try to put them in touch with her. There’s nothing like hearing personal experience to try to reassure them that there is life after crippling debt, and that bankruptcy isn’t an insurmountable obstacle in the quest for a happy, fulfilled, and eventually rich life.

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