Tag: causes of debt

The Real Cause

A talking head recently stated that the root cause of bankruptcy was irresponsibility and financial fraud.

It’s a #@mn good thing I couldn’t reach through the screen and grab this guy by the neck.  

Fraud! Irresponsibility! Robbing Peter to pay Paul! 

The agony and pain felt by creditors (i.e. Bank of America or J.P. Morgan Chase) knowing they’d been hoodwinked and bled dry (note the sarcasm). 

It’s absolutely nauseating to listen to this drivel because it is a bald faced lie. 

The mere assertion that someone would go through the bankruptcy process just to deal with a few “lifestyle choices” is frankly an insult to the hard work that my clients and my team put into every single case.  

The *Actual Cause of Bankruptcy

Nonsensical spending is rarely the cause of bankruptcy.  Does it happen? Absolutely! But that’s maybe 5% of cases. 

The need for bankruptcy arises most often under the following circumstances:

  • Loss or downsizing of a job
  • Health problems
  • Failed businesses
  • Having to support adult children, grandchildren or elderly parents
  • Divorce
  • Covid-19

Carried balances on credit cards are usually a result of living expenses, not a trip to the Louis Vuitton store. 

The gig economy hasn’t helped, nor has pandemic related closures.  People are finding themselves more responsible for calculating tax withholdings, finding their own insurance and funding their own retirement. While gig jobs are a good supplement, they often don’t provide reliable enough wages to keep people afloat long. 

How People Actually Get in Trouble

Most of the people I see are in my office because they were trying to do the right thing.

  • They bought a house
  • They started businesses
  • They cared for relatives
  • They fought hard to not have to renege on their debts.

At some point the inevitable will catch up. 

It often starts with a tax problem.  You’ll have reduced your withholdings because you needed extra cash. Suddenly April 15th rolls around and you owe hundreds or even thousands more than you thought you would.  

Maybe you’re sick and can’t work.  If you don’t have paid sick leave at your job, you’re stuck holding the bag.

Even if you do have paid sick leave, do you have insurance? Even if you do it can cost thousands to get sick.  Hospitals and doctors will sue you and garnish your wages.  

Are you trying to keep you home? Are you behind on your mortgage or did you have a significant increase in rent? 

Everyone has a different story, but most of them don’t start with, “Ms. Barrett, I spent $5,000 on purses at Saks Fifth Avenue.”

In reality, its circumstances in life that often catch up.

That’s why we’re here. 

If you need help, don’t wait until it’s too late.  The sooner you act, the better your outcome will be.  Call me, I’m here waiting to help you get your finances sorted out.

Emotional Barriers to Bankruptcy

Rock Bottom

Generally speaking, debt evokes strong emotions.  Those strong emotions often keep people from filing bankruptcy.  While these emotions are understandable, they shouldn’t be the reason why people keep slogging through years of debt related stress long after they should have sought help. The barriers we must overcome are:

Fear

Hardheadedness

Pride

These three emotional barriers keep people stuck in the cycle of debt.  

Fear

It’s the unknown.  While this kind of fear probably kept our primitive predecessors alive, today, there’s no excuse for not being informed.  

People are scared that they may not be able to access credit, they fear being viewed as a failure, they fear that somehow, others will judge them. Those things keep people on the sidelines and stop them from seeking the help they so desperately need.

Some of this fear is irrational but most of it stems from heaps of band information.  Some of this bad information is just a misunderstanding but a lot of it is deliberately spread by people who profit from your fear. Unscrupulous creditors seeking to keep you out of bankruptcy so they can squeeze just a few more bucks out of you before you seek the help you deserve. 

In the end, fear of bankruptcy is understandable. However, I’m going with FDR’s thought.  All we have to fear is fear itself. 

Hardheadedness

Hardheadedness is a trait that you really have to appreciate.  It causes people to finish the race, to follow through, to succeed against the odds.  It’s a virtue. Sometimes though, hardheadedness keeps you from seeking the assistance you need. 

You say to yourself, “I created this mess for myself, now I am the only one who can get out of it.” While that feeling may be honorable, it isn’t always logical. 

You’ll keep trying to chip away at the mountain of debt you’ve gotten yourself in and you’ll end up neglecting the things you need to focus on.  You’ll forego a real and important need that can make your life better and more fulfilling.  Often people skip medical treatments, let their mental health suffer and they’ll often neglect the biggest thing you can do to improve your life…save for retirement. 

Pride

 “I can pay my debts.  I’m not the kind of person who files bankruptcy.”

I hear that garbage all the time and I want to scream. 

Well, who files bankruptcy anyways?

A lot of times it’s people you know. People just like you. People who have gotten sick, people who have lost their job or seen a decline in income, people who got sucked in by the flashy and expensive world we live in. 

You don’t file bankruptcy because you’re immoral.  It’s a legal solution that fixes an economic problem.  After all, not having enough money isn’t a crime. Even Jesus associated with people who couldn’t afford the trappings of life. 

Look at the people who have filed bankruptcy.  Former Presidents, major corporations, even Walt Disney.  Do we look at people or companies in a lesser light just for asking for help to start over?

For far too many people, it takes hitting rock bottom to get over the emotional barriers:  when these irrational emotions are finally whittled away, rationality wins out and people seek the help they truly need. 

If you need help, don’t wait.  Call us today. We can get you the help you deserve. 

Millennials & Credit Cards

The types of people carrying credit card debt is changing in Georgia and around the country. Millennials, a group of people born between 1981 and 1996,  were once known for their aversion to overdue bills, especially as many of them became adults and entered the workforce during the Great Recession. Because of this experience, a significant number of millenials steered clear of credit cards. However, as they have experienced salary growth and with credit card issuers developing cards that are particularly appealing to younger people, millennials have taken on a larger and larger share of credit card debt.

Along with that overall increase in credit card debt, millennials now experience higher levels of delinquent debt. Over 8% of credit card balances carried by these younger Americans were more than three months past due. This marks a high in the level of delinquent debt carried by younger people not seen in nearly a decade. Experts say that millenials and other young people have been inspired to open credit cards as purchasing power and income has grown. Many of these new cardholders feel confident that they will be able to pay back whatever bills they run up. The problem is, life often gets in the way. Personal circumstances like an unexpected job loss or an illness can interfere with a person’s ability to pay. When credit cards are involved, interest rates are exceptionally high, occasionally topping 35%. Even people with exceptional credit often pay interest rates of 18%.

Credit card companies often tweak their marketing to appeal more strongly to young people. These companies use tons of data and studies show that traditional incentives like 0% interest and cash rewards are less enticing for millennials than sign-up bonuses or travel credits. The worst part about the rise of credit card debt is that it accompanies a big rise in interest rates recently by the Federal Reserve.  This makes it even more expensive to carry a balance on a revolving line of credit like your traditional credit card. 

When people find themselves facing insurmountable debt burdens, they may not see the light at the end of the tunnel. However, a qualified bankruptcy attorney could provide sage advice and educate people on the available options that can help you achieve your financial goals. If you find yourself drowning in debt contact the attorneys at Harmon and Gorove.  We have decades of experience helping people achieve the dream of being debt free. 

5 Common causes of Debt

People come into our office all the time with debt.  It’s kinda what we do.  If you’re here and you’re not in debt or seeking a divorce, chances are, we won’t be able to do much for you.  Over time, this has given us perspective on what actually causes debt.  Below are the top five causes of debt. 

1. An unexpected emergency

Many people find themselves in debt because they aren’t prepared when something bad happens. Your entire HVAC system may go belly up and need significant repairs. You may crash your car or get really sick only to find your insurance doesn’t cover everything. To keep these scenarios from wiping out your savings and leading to debt, you once again need to boost your emergency fund.

2. College costs

Going to college is expensive. So many people find themselves saddled with debt from college and often in the early part of their lives. This makes getting ahead and acquiring those assets that help build wealth even harder than before.  The average class of 2016 graduate left school with $37,172 in student loan debt. Those student loans can force a new graduate into even more borrowing just to cover basic necessities, which only furthers the downward spiral into debt.

3. Loss of income

Losing your primary means of generating income can really hurt you. You might have been laid off or maybe you did something stupid and got yourself fired. Maybe you’re self employed and had a sudden decline in revenue for your business. Maybe you had to stop working to care for loved one.  Perhaps your health took a turn for the worse and you were forced to retire early or significantly reduce your hours.  When horrible things like this happen, it’s easy to find yourself overwhelmed and debt can quickly follow.

4. Being poorly insured

Insurance is one of the most vexing things about life. It frequently feels like a waste of money … until you need it. Many people find themselves in very serious debt  when a bad event hits and they aren’t properly insured. Imagine  your house burning down without homeowners insurance or wrecking  your car with a liability only policy. All of these things can lead to serious financial consequences. 

5. Keeping up with the Joneses

People are always looking next door and seeing what the neighbors are doing,  yours truly included. Maybe Todd across the street is putting in a pool or your college roommate is sharing photos of their latest European vacation. Maybe your obnoxious sister-in-law just closed on a house twice the size of yours. Life really feels unfair when you feel like you have to go without and like many people, you may feel pressure to “keep up” with those you perceive to have it better than you. 

DON’T DO IT THOUGH, THIS IS A RECIPE FOR DISASTER.

Chasing a lifestyle your income won’t support will have you turning to credit cards and other consumer debt to fund frivolous buys. The spiral into debt can be quick, overwhelming and unforgiving. The average millionaire drives a Honda, Ford or Toyota, and lives in a normal house in a middle class neighborhood. No one is saying you shouldn’t treat yourself to nice things or go on vacation every once in a while; but if you can’t actually afford those things you’re hurting yourself in the long run.

If you’ve found yourself drowning in debt, whether it’s one of these causes of debt or not, reach out to the experienced and compassionate lawyers at Harmon and Gorove for a free consultation today.  We have decades of experience helping people get their finances back on track and and creating lasting prosperity for our clients.