Bullish: To Give Up or Not to Give Up? A Column About Bankruptcy

This is the sort of column that doesn’t apply to everybody, but I think everybody knows somebody you might want to send this to.

I hope you, the casual reader, never need it. But surely some of us do.

Here’s a reader letter:

About a year ago I was involved in a three-car accident. I was at fault; all three cars had extensive damage (mine was absolutely totaled), but miraculously, no one was hurt.

My insurance policy only covered $20k of damage on other cars. I began to receive letters from the insurance companies of the other drivers: it seemed that one driver had $17k worth of damages, the other driver had $22k. Their insurance companies paid them off, and then my insurance companies gave each of theirs $10k. The letters informed me that I now owed one company $7k, and the other $12k. (My car wasn’t covered at all, and I went two months in LA without a car. Finally my parents scraped together the money to help me buy a new one.)

I didn’t have that money. I still don’t. When I pay rent every month, I’m left with about $35 in my bank account. My folks aren’t doing much better.

Finally, a few of months ago, I received a call from my insurance company. The other two companies are suing me for the difference. As part of my coverage, my insurance company is providing me with a lawyer.

At first, this was a huge relief. She talked one of the insurance companies into taking a deal. But the other won’t accept any settlement, and usually forces people to go to trial. If I go to trial I will certainly lose and owe them the $12k plus interest plus all their legal fees. In addition, the actual drivers of the other cars have up to three years in which they can sue me for bodily injury, and she said that happens 99.99% of the time.

At this point, my lawyer began to tell me that bankruptcy isn’t all that bad. If I declare it, not only will the lawsuit go away, but the women from the accident won’t be able to sue me as well.

It kills me to declare bankruptcy – I’m 24, but unlike most people my age, I have no student loans to repay, no outstanding credit cards to pay off. I’m very good with what little money I have. It seems so unfair that a big company with a bazillion dollars like State Farm is going to go out of their way to ruin my credit over $12k.

I’m just so nervous that declaring bankruptcy will ruin everything. I’m not going to buy a house any time soon, but I’m looking to move out of Hollywood in a few months. How will I find a decent apartment with a cat, no job, and bankruptcy on my record?

I know from reading your column that you declared bankruptcy at a relatively young age and bounced back.

Oh no! I am so sorry that this happened. I had to shorten your letter, in which you described the accident; even though you were at fault, I’m sure that there are few drivers who haven’t made a driving mistake once, and simply gotten lucky.

I have indeed declared bankruptcy, although I’ve mentioned it only in passing (see Bullish: The Career F*ckups I Made So You Don’t Have To).

I talked at much greater length about the failure of my company in Bullish: When To Make Massive and Ballsy Life Changes for Your Career. Specifically, the moment at which I was sitting in my beat-up car (which had been hit in a car accident, for which I received insurance money, which I used to pay rent instead of to repair the car) with a stack of collections notices on the passenger seat, fantasizing about stepping out of the car, shaving my head, and walking away, barefoot, down the street, into god knows what, but away from the giant tangle of failure that was my company and life.

It took longer, and was much more painful than I had hoped, to come back from that. But I gained some things there’s no other way to get. Age 24 is a great time to have a hugely stressful, remarkably adult problem. My problem – in part, that my office landlord sued me for back rent and locked me out of my office, thus preventing me from doing any more work and trying to pay the bills – just overloaded my stress system until it broke, like when you play music loud enough to blow out a speaker.

Now, I can do almost anything with much less stress. Hopping on a plane, alone, to India or Argentina; getting lost where you don’t speak the language; having to wrest back a deposit from a slum landlord; negotiating for a raise after realizing that you’ve been a fool and that others have already negotiated superior deals for themselves? I feel remarkably relaxed. If I had balls, I would sit in a way that gave them a lot of space.

Before I failed hard at something, I was the sort of person who felt stress about late library books.

That said, let’s talk about two things: the actual decision making, and what it’s like to live life after bankruptcy.

Why Bankruptcy Exists, and Whether You Should Jump On It

As you mentioned, dear question writer, you are very responsible with actual money that you’ve earned. You mentioned that you have zero credit-card debt and no student loans.

What happened to the question writer – having auto insurance and still being on the hook for insane amounts of money (if personal injury lawsuits ensue) – is something I’m pretty sure that civilized European countries don’t allow to happen to people. Those are countries that also make sure that everyone with cancer receives treatment.

I feel that the advice I write in these columns (Bullish: Maybe Work-Life Balance Means You Should Work MORE) could only exist in the context of a harsh America in tough times.

I have a general guideline: if Europe wouldn’t have let it happen to you, it’s not entirely your fault. In this country, we let medical bills bankrupt people. I’m pretty sure that in any civilized fucking European country, we don’t put a 24 year old on the hook for an amount of money almost no 24 year old can come up with.

I am reminded of a column I read by The Ethicist, Randy Cohen, for the New York Times. A reader wrote that s/he works for an antipoverty nonprofit that pays volunteers a poverty-level stipend and encourages them to apply for food stamps. The writer wonders, as a college graduate who could have made other choices and made a decent living, whether it would be ethical to apply for food stamps. Cohen replied:

It is indeed ethical to apply for food stamps. And when you do, fill out those forms honestly and comply with all eligibility requirements, which refer not to some hypothetical earning power but to your actual income. Those who designed the program could have required you to seek more profitable employment (recipients of unemployment benefits must demonstrate that they are able and available to work, for example), but they chose not to. No nurse’s aide or poet (or poetical nurse’s aide) is compelled to return to school for an M.B.A. And you have no obligation to set more rigorous food-stamp eligibility standards for yourself than your state has.

I think this applies to you. Bankruptcy would not exist – with its reams of regulations and requirements already – if it were not meant to be open to people exactly like you. You meet the eligibility requirements, and you have no obligation to “set more rigorous eligibility standards” than the law. (Also, I really like when the Internet works; I had a vague memory of having read this article in a paper version of the Times in 2005, and found it instantaneously by Googling “ethicist food stamps.”)

There is a reason we no longer have debtors’ prisons. Society has an interest in your becoming a functioning, taxpaying member of society. We don’t need to push you off the grid.

In fact, while I have harshed out on America plenty in this column, there are some things that are truly better about our system. In many European countries, you need working papers (and even references!) to open a simple checking account. Want to start a company? You’d better have family money, because you’re not getting an unsecured loan, and you won’t be taking out a second mortgage on your house; your real estate holdings are entirely non-liquid. In the U.S., we would actually LOVE for you to risk your three bedroom suburban ranch house to have a chance at being the next Bill Gates (see Bullish: Starting a Business When You’re Broke). Of course, in the U.S., you can go back to college at any time in your life and take your chances at becoming whatever the hell you want. And you can start a business – a risky, bold, daring business – because if you fail, your life won’t be ruined.

Also keep in mind (while this doesn’t apply to the question writer, it surely applies to others), when you declare bankruptcy, you are still free to pay back any debts you choose to. Of course no one turns down your money! When I declared bankruptcy, I had an auto loan my dad had co-signed on. Rightfully, he was very concerned. I assured him I would continue to pay, and I did. Because of the bankruptcy, the credit union was not permitted to send me bills or statements (but they sure as hell would send them to my dad). So, I just had to remember to send in the $190 a month, and my dad would forward me the statements.

Our bankruptcy laws are far less punitive than they are in many European countries. I’m fine. You’ll be fine.

What Life is Really Like Post-Bankruptcy

Shortly after declaring bankruptcy, the boyfriend I was living with broke up with me (related? no idea) and I needed to move out and find a new place.

This was 2004. I found a $1,495 apartment in a terrible neighborhood. The landlords were deeply sketchy. Due to the bankruptcy and my self-employed status, I was asked to put down three months’ deposit. There was also a $1,200 broker fee (the broker fee is usually a lot more in NYC, generally 15% of annual rent, but he was new and really wanted to make the deal). That’s $5,685.

I could have avoided the three months if my parents had been willing to co-sign the lease. After seeing the 60-page document (at that time, spending $17 overnighting it to them was a painful expense), they balked. Nope. (Um, yes…see my column on social class.)

I was lucky. In college, I had joined, essentially, a co-ed computer science fraternity. It was a much closer-knit group than some random alumni club. So when I emailed our list about my plight, several older alumni from the fraternity offered to loan me money. It wired to me at the last minute; I got the place. I paid the money back diligently for nearly two years.

Of course, if I had not had my fraternity network, I could have lived with roommates. I could have moved out of New York and lived with roommates. If you have a few hundred dollars, you can always find a place to live.

When I rented my next apartment in 2007 (for $1,595), I had no trouble at all. There was a boyfriend on the lease, which helped. No one blinked at the bankruptcy. Fun fact: most of your credit score is determined by the last two years.

When I rented my current apartment in 2009, I was able to afford a “luxury” building. This is absolutely a case of the Matthew Effect (the rich get richer and the poor get poorer) – once I was able to move into a $2,400 apartment (in NYC, “luxury” means a doorman, an elevator, no horrific toxins, and a super who fixes things without sexually harassing me one bit), guess what the leasing company wanted? No deposit. No broker fee. Seriously. They looked at my financials – I had a steady part-time gig with one company, a bunch of the previous year’s 1099s from freelance work, and a statement showing that my ING account had $12,000 in savings. And my luxury building landlord said, “Oh, you have savings – we don’t need a deposit.”

If you have cash, you can buy whatever you want. If you pull yourself back up, you won’t be denied much. (Do you think most freewheeling celebs have good credit? No, they just pay money for things. Go make money.)

Sure, a bankruptcy might keep you from obtaining a military security clearance. And bankruptcy will indeed get you screened out of many shitty jobs. Any type of job that requires a drug test is likely to also require a credit check. Of course, in those cases, explaining that you were in a car crash and were sued by State Farm would be a good explanation to any reasonable person you would actually want to work for.

Taking yourself out of the running for degrading forms of employment shouldn’t hold back a moxie-filled Bullish reader. (See Bullish: Launching Your Empire While Your Youthful Mojo Is Sky-High. I would also like to note that I am the top Google hit for the expression “bullish mojo.” Can someone name a cocktail that, please?)

Since 2004, I have been turned down for American Express and Discover cards (actually, the Discover lady wanted to know why I had declared bankruptcy and seemed enthusiastic once I told her about my company failing; I just declined to send in the additional paperwork she wanted). However, I have three perfectly normal and functional unsecured credit cards with reasonable interest rates and no annual fee. And I could do without them; as long as you have a debit card with a Visa or Mastercard logo, you can do anything.

After declaring bankruptcy, I didn’t check my credit for a few years, but now my credit score is 702. (I keep track at CreditKarma).

Again, even with a bankruptcy on your record, the last two years are most important. Also keep in mind that a bankruptcy is one (big, bad) thing on your credit, but the alternative is numerous big, bad things on your credit – after all, that’s why you’re thinking about bankruptcy in the first place.

Furthermore, plenty of people function outside of the credit system entirely. It’s probably a good idea, actually, considering how terribly unfair credit scores are – you want your life ruled by a number compiled by a for-profit company (Fair Isaac) via a secret formula?

Last year I discovered that both my boyfriend-at-the-time and my best friend didn’t know their credit scores or use credit, at all. The boyfriend lived simply as an artist, didn’t make a lot, paid all his bills on time, and was fine. The best friend makes six figures and lives a totally fabulous lifestyle, pretty much as free of large corporations as it’s possible to be these days.

Keep in mind that the effects of bankruptcy are bad, but the situation you are in now is worse.

You are frozen because you are considering a third “option” – having none of this have happened in the first place – that is no longer on the table. Sometimes your choices are, for instance, chemotherapy or death; giving up on seeing your child or drawing out a painful custody battle; losing a friend or enabling her to kill herself with her addictions. Be glad you aren’t making one of those choices. (See Bullish Life: How to Make Better Decisions.)

The hardest choices are of this format: terrible versus more terrible. Even when the choice is clear, we hesitate, hoping for the Kobayashi Maru that’s going to save us.

I warn you now that “bouncing back” never feels bouncy. To other people, it seems like you really worked something out (good for you!); to you, it seems as though you’ve slogged painfully through the mire for an eternity. If you had told me in 2003 that it would take until a couple years ago to really hit it, I’d have been depressed. (If you want to climb Kilimanjaro, don’t look up?)

But if you spend the next several years fighting lawsuits or battling bills that no young person could ever pay, it’ll be worse. There is no superior option. Pick the best of two non-ideal options and then move forward as quickly as possible, to give yourself better sets of options from which to make your next decision.

I’ve written before about being kind to your future self (Bullish Life: Breaking Free From Terrible Situations and Bullish: Extreme Advance Planning for Very Smart Women). She wants you to get her out with the least collateral damage, and to become a more resilient person for the collateral damage you do sustain.

If you had asked me in 2003 whether I was going to “learn” anything from my experience, I would not have taken it well. But, here we are. I’ve learned enough to at least write this column. (Which has still been hard.)

Let’s let Emily Dickinson have a word here:

Finite to fail, but infinite to venture.
For the one ship that struts the shore
Many’s the gallant, overwhelmed creature
Nodding in navies nevermore.

You probably shouldn’t trust career columnists to interpret poetry, but I’m pretty sure that it takes a lot of failure and risk – and bravery that those around you will not understand – to get where you want to go.

I really think that, when you’re 35, none of this will matter. And, once you pull yourself up, your life will be full of people who have had similar, or equally terrible, things happen to them, and who are only interesting and vital and galvanized and ambitious because of those experiences. You are joining a club of people who have failed hard. Welcome.

originally published on The Grindstone