Day 241 – Bankruptcy

           My wife has convinced me that we need to file bankruptcy. I’ve been resisting that route for some time. I want to avoid the associated stigma, although I have to admit that it’s already a little late for pride. The fact is, although we have disposed of a lot of stuff—including our good car—and cut or eliminated a lot of our expenses, we still have $65,000 in credit card debt and our monthly payments to service that debt are over $2,000. The highest interest rate we pay is over 30%. The lowest is 23%. These rates are in spite of the fact that in 20 years we have never missed or been late with a payment.

          While that much credit card debt is astronomical and suggests a profligate lifestyle, unfettered by temperance or good sense, such is not the case. I’ve been overextended on my credit cards for over 20 years. I got that way when a business that I got into failed back in the late eighties. I elected at the time to pay all my business creditors off by using the generous facilities offered by a handful of bank cards. I should have filed bankruptcy back then, but I didn’t.

Since that time, I’ve been at the mercy of the credit card companies. Most of the cards I had back then were subsequently bought up by either Bank of America or Citibank. In 20 years time I’ve used the cards, but I would not characterize my usage as extravagant.

My wife and I lead fairly staid lives. We don’t drive fancy automobiles. We don’t take vacations. We don’t throw lavish parties. Neither one of us wears jewelry. We don’t own a boat or a timeshare or expensive clothes. We have however, by my estimate, paid the credit card companies about $240,000 in interest in that time.

That’s money I’d like to have back. That’s a burden I’ve been trying to get out from under for approximately forever. I couldn’t make it happen, though. I was in too deep, and the banks knew it. They were more than happy to have me paying all that interest. They thought up ways to get me to pay more.

More than once they offered me credit card consolidation loans. Sweep everything under one debt umbrella at a reasonable rate, make one payment, and watch my principal balance fade away. That was the pitch in the mailer they sent me. When I actually called them to take them up on their offer, however, it was a completely different story. Then it was more like, gee you’ve got an awful lot of debt, what kind of collateral can you offer us? This was Bank of America. Most of what I owed was to them. Didn’t they already know I had too much debt? Wasn’t that why they were offering me a consolidation loan? Apparently it was not.

They ended up telling me I was a high risk candidate and offering me a loan at a significantly higher interest rate than I was paying on average at the time. I declined their kind offer. I’ve continued to make timely payments on all the cards. I always make more than the minimum payment when possible.

Sometimes it’s not possible. When I was facing high out-of-pocket medical costs because of the cancer surgery I had in 2007 for instance and when I was getting multiple lithotripsies for my kidney stones in 2008, making more than the minimum payments due was not a viable option. Now I’m jobless for an extended period of time. Things don’t look like they’re going to improve anytime soon. Continuing to make the minimum payments isn’t just a burden under my current circumstances. It’s nearly impossible. It will be absolutely impossible when my unemployment benefits run out or when my COBRA insurance subsidy runs out.

Better to file bankruptcy now than to wait until I’m in arrears and truly underwater. I still don’t want to do it, but I’m warming up to the idea. The more I think about it, the more attractive it becomes. The more I learn about the current economic crisis and how it came about, the less concerned I am about the poor banks to which I owe money. They may be my good faith creditors, but they are also the proximal cause of my inability to pay as well as my considerable misery.

The banks have not been doing their job. According to economist specializing in monetary policy, Warren Mosler, in a January 2010 article on banking reform in Huffington Post, “the public purpose of banking is to provide for a payments system and to fund loans based on credit analysis.” What we have instead, for the last 10 to 15 years, is a banking system increasingly involved in the creation and trading of arcane financial instruments such as securitized mortgages and derivatives.

Even while they have been reaping huge profits and paying huge bonuses, the banks have fallen down on their basic public utility, which is providing financing for business innovation. So while the bankers have been buying big houses on Long Island, vacation homes and boats in the Caribbean, and filling their wives’ closets with Jimmy Choo and Christian Louboutin shoes, American business innovation has been left to decay to the point where it is unlikely to recover anytime soon. Until it does, we will not see a return to full employment.

I’m not very sympathetic to the losses that Bank of America and Citibank are going to suffer when I file bankruptcy. They’ve got hundreds of thousands of dollars of my money already, and they used it to tank the economy and my future along with it. You won’t see me weeping if Ken Lewis’ wife has to settle for 600 thread count sheets because I get discharged in bankruptcy and effectively default on the credit card loans I owe to Bank of America.

I’ve imagined what it would be like for a representative from Bank of America to show up at my bankruptcy hearing to give me a lecture on not borrowing beyond my means to repay, or honoring my good faith obligations, or some such drivel, when it is clear from the news that the banks themselves have been guilty of a ridiculous overextension of their own ability to make good on their obligations. In fact, if it weren’t for the errant risk taking and unmitigated greed of the banks, it would currently be much easier for me to find a job and to continue to remit their usurious loan payments. Up to now the banks have left me holding the bag for their greed and excess. Now it occurs to me that it may be my moral responsibility to hand the bag back to them.