Bankruptcy Can Happen, Even With a 700 Credit Score
Every one of us has had "aha! moments." Epiphanies. Days when we reach a crossroads and realize that we have to make some changes. We're sharing moments like those in our Life Stage Lessons series: Real stories straight from the financial lives of our DailyFinance contributors about times when they realized they were due for a serious course correction. So read on, learn from our mistakes, and get inspired to improve your relationship with your money.
For the year ending Sept. 30, 935,420 Americans filed for nonbusiness bankruptcy. This year I'll be doing the same.
While my near 700 credit score exemplifies my ability to pay my bills, I lacked on the management side as I piled on debt while trying to establish myself professionally. I never studied the importance of making financial decisions for myself. I took risks, and they went bad -- but I don't completely regret them.
How Did I Get Here?
I opened my first credit card at 19 to pay for college textbooks -- paying them off before the end of each semester. Since I was only working at part-time retail positions around classes, I amassed a debt around $1,500 over sophomore and junior years. It was nothing that couldn't be handled with a couple double shifts at the restaurant I worked at, but then came expensive repairs that came with driving a 1992 VW (VKLAY) Jetta in 2006. That started the internal dialogue that hadn't let up until recently: If I need this to get by, then the purchase is justified.
While that may be true, I regret allowing that thought process to creep into my head. In the following years, emergency car and computer repairs became "need to get by" purchases. Bills began to add up. Yet they were still manageable to where I was saving at the end of each month. I had a small nest egg that held me over a month or two. I was being offered other cards, but I never accepted any -- I didn't want to amass the debt I was always warned by my parents to avoid at all costs.
Then came the move that took the wheels off my financial carriage.
The Costly Quarter-Life Crisis in Los Angeles
Maybe it was graduating as the Great Recession was announced and not having any job prospects. Maybe it was the string of unfulfilling jobs that never became professions. Maybe it was being robbed the day I moved into my second Brooklyn apartment at 25. Whatever it was, by August 2012 I was leaving for the city I always believed to belong in -- Los Angeles.
I'm a stubborn fool sometimes. Thinking I could succeed in Los Angeles straight away was beyond foolish. But I somewhat got on my feet within a few weeks. I landed a job as a waiter and leased a car. Life was getting on track, just how I always knew it would.
Except, it wasn't.
The restaurant wasn't paying as well as it made it out to be, and finding food service jobs (my usual go-to for quick employment) in the city felt like getting a role in a major motion picture. On top of all that were the car and insurance payments -- priced for one of the most expensive markets in the country. Of all the mistakes I've made in my life, accepting a four-year lease on a 2013 Jetta may go down as the worst to date. It even hurts typing it here.
Between fading finances and some personal issues back home, it became apparent that I needed to get back to the East Coast by November 2012. I had never felt more like a failure in my life.
To drive home, I used one of those credit cards that I never dared open -- a $3,000 limit I swore would only be used for "emergencies."
The Road is Paved With Good Intentions, Which Means Nothing Now
I settled back into life near my college town in Northern New Jersey. I aimed to stay with friends for a few months, save up my money and move back to New York when I had some savings and a job. I began food serving again to build income. At the same time I started going on interviews in New York City for career positions. After being turned down for a few interviews after it was implied that my living situation impacted my status, I decided to make the move as soon as I could.
After four months in New Jersey I moved back to Manhattan -- after taking a $4,000 personal loan from my bank. This money was my backup in case things went bad. Sure enough, they did. My restaurant was going to transfer me to its Times Square location. After moving to New York, it chose not to rehire me after a month of giving me erroneous start dates -- even sending me home twice. However, within days I had another serving position -- that doubled as a social media manager position -- at a new restaurant. Neither position paid as well as promised, and I was left facing another predicament: admit defeat and leave the city again or keep going. I chose to keep going.
I knew being in New York would benefit me, personally and professionally, in the long run. I took out a $4,000 balance transfer and began to pay it off with some freelance positions that included being the editor in chief of a music blog. Things were going well for most of last year until my employer failed to make payments on time in early 2014 -- something freelancers know all too well. I struggled again and took one last $6,000 transfer out to make up for the near $3,000 I was owed from back payments and breach of contract. All the time I was trying to keep my head above water, I was actually sinking myself in debt.
In July I earned my dream job, a full-time paid writing position with a reputable company. I also freelanced on the side to supplement my income. But I noticed my debts continued and my bank account began to dwindle. After months of my parents' suggestions, I finally considered bankruptcy. I never thought with my credit score that I could file simply on the fact that I was stressing about a financial situation I put myself in. This was my bed. I should lay in it, right?
After consulting with lawyers, I realized that my low funds made me a candidate for Chapter 7 bankruptcy to alleviate my credit card, personal loan and auto lease debts. I'd be responsible for my student loans -- something manageable without all the other debt. This week I plan to start the process with my lawyer. The ten-year mark of bankruptcy on my record, as well as the credit score hit, is worth getting out from under crippling debt. While anxious, I'm excited to finally admit my years of errors and move forward as the person I have since grown into.
Here I Go -- and Maybe You Should, Too
So here I am. From an outsider's perspective, these moves probably were awful decisions. I can see the comments on here now. Except, I'm in a much happier place, personally and professionally, than I've ever been before -- even if I am hitting the metaphorical financial reset button.
I took risks that didn't pay off, but it kept me afloat to succeed. I figure that this is one of the few times in my life where I'll truly need the government's assistance to rebound. This is when I -- a hardworking, taxpaying American -- need to take help from the systems I pay into every year. Some may not like hearing that, but such is life -- and maybe more people should consider bankruptcy themselves. Bankruptcy is nothing to be ashamed of. You are getting the help you need to live.
I don't regret my decisions -- at least not completely. If not for L.A. I'd have never taken the steps I needed to reestablish myself in a positive direction. Going further in debt kept me afloat and away from a small suburban New Jersey town surrounded by dying industry and no career prospects for a creative writing major.
In fact, I'll continue to take risks like the ones I did -- except with ones that won't involve debts I can't pay. This time around, I'll be much more matter of fact in my decisions, but I'll never stop taking risks to achieve my dreams.