I recently met with a bankruptcy client who had a lot of credit card debt, almost no equity in their home, and were unable to meet their obligations.
After getting some information, and assessing their situation, I learned that they had lived in their home for almost 25 years, but in the last 12 years had refinanced their home 3 times. The client told me that in no uncertain terms he would not be contemplating bankruptcy if he was able to refinance their home to pay the credit card debt.
Clearly, that wasn’t going to happen.
But then I started thinking, how does someone who has lived in a home for 25 years in the same home have almost no equity to show for it?
Putting aside for the moment any potential claims for predatory lending, here’s some other facts to consider: each time this client refinanced his home over the last 12 years, he did not just get a new rate and a new payment. He took out tens of thousands of dollars in cash. He walked out of the closing with a check in his hand, payable to him and to be used anyway he wished.
In this case, my client paid credit cards. Each time they refinanced. But the credit cards weren’t cut up after they were paid. The debts were built up again and again.
My client and his family were living beyond their means for years, and let’s be fair: they did it because they could.
Might there be predatory lending claims against their lender. Maybe. But (and this is a big but), my client has a bigger problem: he has been living beyond his means for years. He continues to do so. Decisions have to be made.
Spouses need to understand that they cannot have the life they believe they are entitled to.
Children need to understand that their parents do not have the means to do the things that their parents promised that they would do, and parents need to accept the notion that they have – on a very real level – not lived up to the expectations that they set for themselves.
My client needs to accept the he, on a real and deeply personal level has failed.
No predatory lending claim, assuming they even have a legitimate claim, and no trying to set things back on track again will do this family of this client any bit of good if these hard realities are not faced, and ultimately, if their spending habits are not substantially curtailed.
My client’s and his family’s current fiscal crisis will ultimately be temporary. Precisely how temporary will depend on how long my client and his spouse want to avoid facing the very real issues that they have faced for years. How can they say “no” to the kids? How can they say “no” to each other? Why must they buy this instead of that?
For them, what they probably see on the other side of this crisis does not appear (at least now) particularly pleasant, and getting there won’t be a walk in the park. But with the right guidance, my client and his family will have a stronger financial foundation than they have now. He just needs to have the courage to do the right thing.
And that’s not easy for anyone in that position.
Related posts:
- The Scourge of Predatory Lending
- Predators in our Midst: A Warning for Homeowners Facing Foreclosure
- Redux Predators in our Midst: A Warning for Homeowners Facing Foreclosure
- Talking to your Kids
- Unintended Consequences in Estate Planning
Tags: Credit and Debt, credit card, debt, Yep. We're in trouble.
As a gentle push, I’ve found it’s helpful to remind people in that situation that they can indeed find “credit” again. It’s a tough process for the debtor because his/her pride has to get swallowed, and for you because you have to be the constant voice of reassurance. But, as soon as their discharge comes they can start again having (hopefully) learned from their mistakes.