People Don’t Learn
This morning I read an article in the Los Angeles Times about how Personal bankruptcies surge in Southern California. Overall the article was informative (mainly that bankruptcies are surging back to 2004-2005 levels of 65,000+ filings/yr), but parts of the article just irritated the heck out of me.
“It’s real estate,” said Encino bankruptcy attorney David S. Hagen, who conducts free seminars for homeowners organized by the nonprofit Neighborhood Legal Services. “People got sold a bill of goods on some kind of nontraditional mortgage and thought they could change it when the worth of their house went up. But the worth went down and the payments went up. They start to live off of their credit cards. “
Once again, we hear about how basically the public got conned into buying something they couldn’t afford. Yes, they couldn’t afford it but I don’t believe anybody had to con them into doing it. I just don’t understand how hard it is to know you can’t afford to buy a $500,000 house on a $50,000 salary. I also don’t get what’s so difficult about an interest only mortgage or a mortgage that doesn’t even cover interest (negatively amortizing loan) or a mortgage with a rate that resets in 3-5 years. All of this isn’t “hard” to understand, it’s just the public decided to take a gamble on what is possibly the largest asset they will ever own their entire lives. They took the bet that house prices will continue to skyrocket upwards and got burned. It’s that simple. Nobody sold them a bill of goods. Yes there are some crooked loan officers and mortgage brokers, but seriously when you’re buying the most important thing of your life, remember to ask questions, read the fine print, and be darn sure you can afford it!
By the time Norris Daniels of Sherman Oaks made it to the self-help desk staffed by Neighborhood Legal Services at the Woodland Hills Bankruptcy Court division, he had racked up $47,000 in credit card debt. His house troubles consisted mostly of storm damage repairs that spiraled out of control. The house eventually sold, but then came a divorce and support for his mother when she was ill. “I was a person with a good credit score – 750 – when I bought my house,” said Daniels, 42, a salesman at a Beverly Hills clothing store. “I’m a regular guy.”
[Even though a person filing for bankruptcy probably won't obtain credit for a long time and it stays on a credit report for 10 years,] that doesn’t matter to Daniels. He wants a fresh start. “There was no way I was ever going to be able to pay off $47,000,” he said. If his filing is successful, Daniels said he’d like to go to a low-cost college to get an MBA. “I’m going to reinvent myself,” he said. “And stay away from credit cards.”
Is this guy for real? He’s about to file for bankruptcy because he can’t pay off his loans and his goals for post-bankruptcy is to go get an MBA?! Even at a low-cost college an MBA doesn’t come cheap, I would think it’s at least $20,000 (since a normal MBA is about $80,000). So once he gets his MBA he would be another $20,000 in the hole. I think instead he should get his finances into order and start rebuilding his savings so that he won’t need to use credit cards to pay off debts. What he plans to do just boggles my mind. If I had no money, I wouldn’t think of going more into debt in order to “reinvent” myself. “Reinventing” yourself seems like a luxery for people that have the money to do so.
I feel like bankruptcy has become a vehicle for people that don’t want to take any financial responsibility. Of course there are legitimate reasons for filing bankruptcy (medical bills, job loss), but I don’t think this guy has it and definitely doesn’t grasp the value/opportunity of being able to do so.
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