NEAL CONAN, host:
This is TALK OF THE NATION. I'm Neal Conan in Washington. Bankruptcy offers people with nowhere left to turn an opportunity to cope with their debts and start over. It no longer carries the stigma it once did, but there is no way around the admission of failure. It also carries very real consequences. For most, it's a last resort and a couple of years ago, Congress passed a law that made bankruptcy more difficult. Even so, numbers are up. And in this economy, if you're on your way to broke, is too soon better than too late? Two views in a moment.
Later in the program, Monica Seles joins us to talk about her struggles with depression and binge eating. Her new book is called "Getting A Grip." But first, the case for and against bankruptcy. If you're there, if you've been there, would you have been better off taking the plunge sooner? Our phone number: 800-989-8255, email to firstname.lastname@example.org. You can also join the conversation on our Web site, that's at npr.org, click on TALK OF THE NATION. Earlier this year, Newsweek magazine contributing editor Jane Bryant Quinn wrote "The Case For Walking Away," and she joins us now from our bureau in New York. Nice to have you on the program today.
Ms. JANE BRYANT QUINN (Newsweek): Hello Neal, delighted to be here.
CONAN: And I know you didn't always feel that way. What changed your mind?
Ms. BRYANT QUINN: Well, I was on a radio show just like - in fact, it was another NPR show. And I was doing Q&A with the audience, and a man called in and said he was thinking of - maybe he should go bankrupt. Is it good to go bankrupt in order to protect your retirement accounts? And maybe he should do it now. And I sort of did the usual thing that I've always said, you know, is you really, you took out those debts, you owe the money, you should do your best to pay. But all the time, there was a little thing running in the back of my head - you know, maybe this guy is right.
And so at the end of the program, I called a couple of bankruptcy experts and said, maybe I've been saying something wrong all these years. Talk to me about it. And after a lot of talk, I concluded that he was right. So I guess I wrote the column as an apology to him, hoping that he would read it because I've - I have come to the belief that you should not be using savings that would otherwise be protected, which would your 401(k) or your IRA. You shouldn't drain those in order to make last-gasp payments on your credit card debts. That is your future and you should save them. You should go bankruptcy before that happens.
CONAN: And the other asset that you can save, of course, is your house.
Ms. BRYANT QUINN: And the other one is your house, which is - not that there is any bright side, Neal, to the fact that homes are underwater these days, and they're only worth half of what they were worth before. But if you are, say, current on your mortgage and if your house is worth less than the loan against it, or less than the loan against it plus most states have a - have a homestead exemption, so a certain amount of your home equity is also, you know, exempt from bankruptcy, you might be able to go bankrupt and completely save your house, get rid of your credit card debt, get rid of medical debt, which is also dischargeable if you've had that kind of problem. And this might clear you up so that you can continue to pay your mortgage and keep your house. So the case in - in certain cases, it gets very compelling to say I ought to sit down and think about bankruptcy as an intelligent financial plan.
CONAN: As an intelligent financial plan, sure, and I guess so, but going back to that argument you made initially: You ran up those debts, you're responsible for them, you should pay them off.
Ms. BRYANT QUINN: That's true, and the moral, you know, Massachusetts Puritan heart of me says, yes, that's absolutely true. On the other hand, we have always had bankruptcy in this country as a way to relieve people from debt so oppressive that it might break up the family, it might, you know - I mean, there are suicides, terrible things happen when people get so depressed and so underwater that for one reason or another, they cannot pay off these debts. And often it's - it's because of medical or that you lost your job. It's not that you ran around, you know, giggling and just running up credit card debt.
I think that one of the reasons we have bankruptcy laws is to give people a fresh start, and one of the things that can give you a fresh start is having - is preserving some of your savings in retirement accounts that were specifically exempted from bankruptcy for this reason. And if your house is underwater, you know, there is a specific equity exemption from bankruptcy for this reason, and I think you should use laws.
CONAN: Now, when the law was passed, I guess back in 2005, that there was some fear that people were using this too casually, and a law was passed that made it a little bit more difficult to file for bankruptcy and was supposed to encourage people to try Chapter 13 rather than Chapter 7; in other words, an organized way to pay back your debts as opposed to saying, wait, you know, I'm giving up everything and going debt free. Were you in favor of that law?
Ms. BRYANT QUINN: No, I wasn't in favor of that law, because I think a lot of the arguments that were being made by the creditors were simply false. There is simply not a lot of evidence that people are casual about bankruptcy. I mean, look at what you started with, Neal. People hate bankruptcy, they're embarrassed. I mean, you're there in the courthouse, they call your name. You don't want your friends to know. I mean, bankruptcy - and there are - there are consequences afterwards for your credit. I mean, bankruptcy is a misery. So the whole notion that people were just gayly running up debts and then running up bankruptcy, I think, was false.
Also, I think that the bankruptcy rates, that the lenders have a lot to blame themselves for because they were openly lending money to people who were already in trouble. They didn't care because they were earning very, very high interest rates on late payments, on overdrafts and all the things - actually, they're going to try to do something about that in Congress right now. The same way they were lending to people for mortgages who really couldn't afford them, but they were making so much money on it, they didn't care. You've seen a lot of that with credit card lending. So I don't have a lot of tears for the creditors, in this case.
CONAN: We're talking with Jane Bryant Quinn, a contributing editor to Newsweek magazine. If you've been in bankruptcy, if you're thinking about bankruptcy, is too soon better than too late? 800-989-8255, email us email@example.com. Let's start with Jim. Jim's on the line with us from Chicago.
JIM (Caller): Hi, Neal, and hello. I took, you know, I had a business that failed about two and a half years ago, and tried to hold off even after it was failing to somehow not go into bankruptcy and handle the debts, and it was just overwhelming. And one of the major deciders on that was that there was credit card debt, and that those interest rates due to late payments suddenly went up to close to 30 percent. At that point, I knew that there was no way to save this, and felt that - that and a couple of the creditors that I was dealing with were unreasonable at that point and actually sort of helping to move - move the failure forward.
JIM: So I felt that I just had no choice at that point but to take it, and I feel it was a wise decision. As far as did I wait too long. I would say I probably could've taken it a little bit sooner in hindsight. But overall it - it was the right decision. I've been able to put my life back together after the fact and it's - it's going much better.
CONAN: I'm sorry, Jane, you were going to say?
Ms. BRYANT QUINN: Yeah, I was just going to say, you know, Jim - what Jim started out with when he was talking here is just the way most Americans who are facing this problem feel. They really try to hold on as long as they can, and this whole, false idea that everybody goes whistling to bankruptcy court and says, say, you know, isn't this a lovely day - Jim tried, he really wanted to, he did the best he could; he said, I don't want to go bankrupt, I want to repay my debts. But at a certain time, you know, bank says we're going to charge you 30 percent on your credit card and you say, well, I'll never get out of debt there, and I'm going to be miserable for the rest of my life. And that's why the bankruptcy law exists, and he did the right thing.
JIM: I had successfully started and run two businesses up to that point. So it wasn't that, you know, I was just slip-shoddily going along and making these terrible decisions. There was some changes in the economy, and there were some bad business decisions, but especially with the credit cards hitting us with those rates, all of a sudden it was - we had a small hole, and then all of a sudden the side of the ship went away and we were going underwater, and there was no way to bail out of it.
CONAN: And today, have you got credit? Have you gotten out from under the cloud?
JIM: I would say I'm out from under the cloud. I'm a little shy about credit right now. It's amazing how one can live on a pay-as-you-go way (unintelligible). If you can't afford it, don't buy it. I did lose my home, so I am renting now. It's a great time to buy, but I don't have the credit or the funds to do it, but I do have more savings than I've ever had before, and I do feel that I will be in a position to buy within the next year or two. And that's the only, I would say, cloud that there is right now, is the ability not to have a home. But you know, had I gone right out and bought a house six months or a year ago, I would be in worse shape now…
CONAN: Well, that's for different reasons, Jim, but yes, indeed. Thanks very much for the call. Good luck to you.
JIM: Thank you.
CONAN: Bye-bye, appreciate it. Let's see if we can go now to - this is Donna, Donna with us from Cincinnati.
DONNA (Caller): Hi there. Talking about another cloud that can sometimes follow you after bankruptcy - after a long period of unemployment, I had considered bankruptcy but was afraid to do it because future employers often check your credit.
CONAN: Now that's a consequence you have to remember, Jane Bryant Quinn.
Ms. JANE BRYANT QUINN: Yes, future employers might check your credit. If you file for bankruptcy and you are applying for a job that involves handling money, you know, cashier, you know, count and this kind of thing, that could be something against you.
Any kind of federal or state government job, it's illegal to consider bankruptcy. It is not - you know, when making a hiring decision. It is not illegal for private employers, but you know, a lot of people who have gone bankrupt have then gone around and gotten jobs, too. So I think if what you're doing is weeping into your pillow at night and suffering and absolutely can't do it, and your family's falling apart, you know, you file for bankruptcy.
You file before you reach that. You do have to consider the fact that maybe for certain kind of employers and certain kind of financial jobs, it could be something against you, but there are lots of other jobs where I don't think it would be.
CONAN: Donna, how did it work out for you, quickly? I think Donna's left us, maybe to go file, I don't know.
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Ms. QUINN: Or to get a job, I hope.
CONAN: Or get a job. Well, either one. Jane Bryant Quinn's going to stay with us, and we want to hear from you, too. If you've been there, if you've considered it, give us a call. Bankruptcy too soon, too late? 800-989-8255. Email us, firstname.lastname@example.org.
When we come back, we're going to be joined by another voice, Gail Cunningham, the vice president of public relations at the National Foundation for Credit Counseling, who warns about the perils of bankruptcy. So there's another view to be heard. Stay with us. I'm Neal Conan. It's the TALK OF THE NATION from NPR News.
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CONAN: This is TALK OF THE NATION. I'm Neal Conan in Washington. It's the last resort for some. Out of options, deep in debt, they file for bankruptcy. We've been talking with Newsweek contributing editor Jane Bryant Quinn. She's been making the case that it's better to file for bankruptcy maybe too soon than too late, and we want to hear from you.
If you're there, if you've been there, would you have been better off taking the plunge sooner? 800-989-8255. Email is email@example.com. There's also a conversation at our Web site. Go to npr.org. Click on TALK OF THE NATION.
And now another view. Gail Cunningham is with us, vice president of communications at the National Foundation for Credit Counseling, with us from her office in Wichita Falls in Texas. Nice to have you on the program today.
Ms. GAIL CUNNINGHAM (National Foundation for Credit Counseling): Thank you for having me. I'm delighted to be here.
CONAN: And I know you've been listening. Is there an argument that you think we have not considered?
Ms. CUNNINGHAM: Well, I, interestingly enough, agree with everything Jane has said, but I would add to it the NFCC and the member agencies have existed for close to six decades with initially, the idea being we're going to help people find an alternative to bankruptcy. And as your first caller referenced, and it's kind of been a theme of your conversation so far, is filing sooner rather than later.
What I would add to that is, I don't want people down the road to start beating themselves up because they filed bankruptcy. There's going to come that day when they just think - why did I do that? Was there no other way out?
We feel that bankruptcy, unfortunately, is the right decision for some people, but it needs to be their last stop, not their first, and I don't think that a person should consider bankruptcy until he has exhausted all other options and marked them off the list as not viable alternatives.
CONAN: Do those options include drawing down your retirement plan, selling the house?
Ms. CUNNINGHAM: I feel that the retirement plan is named a retirement plan because that's what it's supposed to be. It's earmarked for retirement. Let's leave it alone. Let's pretend it's not there. It's not like any other savings account that you have. Let's lock it up.
Selling your home, yes. I think that when you are in deep financial distress, that everything ought to be on the table, and I like to picture it like this: that you've come to grips with your financial situation, you sit down at the proverbial kitchen table and you lay out all of your options in front of you. And you may start way over here with borrowing some money from your mother or having a garage sale, and simple solutions like that. And as you work your way along, then you would contact your creditors and talk to them about your situation, and then you would seek out legitimate credit counseling and spend an hour across the desk from an independent third party who is trained and certified to look at your situation and see if there is any way out.
And if that credit counselor has to give you the bad news that even after their thorough evaluation they feel that you should consider bankruptcy, then -remember that day when you're going to start beating yourself up? You can go back and fall back on all those other things that you tried first and go, okay, that must have been the right decision for me because I did. I tried everything else first. In spite of what my next-door neighbor says after he filed bankruptcy, and in spite of that shiny new vehicle sitting in his driveway after he filed bankruptcy - he wasn't telling the whole story. You know, because after bankruptcy you may have credit extended and be able to buy things, but at what cost?
CONAN: Let's see if we can get some more callers in on the conversation. Let's go to Sharon, Sharon with us from Des Moines.
SHARON (Caller): Hi, I'm - well, I'm kind of taking a little bit of issue with what your commenter just said, that - I've been on disability for years, and I live alone. I have tried to contact the creditor…
Well, let me first back up. While I've been on disability, I've constantly gotten applications for pre-approved credit cards. I ended up using them to stay afloat with everything because I'm living on a $630-a-month paycheck - or disability check.
And you know, things like dentistry, car repair, insurance, all this stuff, it's just - you know, it's got to be paid somehow or else I don't - I'll be on the streets. And I did contact creditors. I got nowhere with that at all.
I did contact a credit counseling, credit debt counselor, and was told that I should - there was no other way out but to declare bankruptcy. At this point, I am using more than I even have. I can't even make my - the past two months were the first times that I couldn't even make the minimal payments because the finance charges went up so high.
CONAN: And if you've gotten that advice, Sharon, what's stopping you?
SHARON: Well, what's stopping me is legal aid here in Iowa will not assist me because I'm on disability. So because they - because the creditors can't, quote, garnish my income, they can't help me. Then I contacted bankruptcy lawyers, who want upwards of $2,000 to do this procedure with me.
So you know, what does somebody do? I mean, it's like I can't even afford to go bankrupt.
Ms. QUINN: If I can jump in here for a minute, Neal.
CONAN: Jane Bryant Quinn, go ahead.
Ms. QUINN: Yeah, sorry. This is Jane Quinn. This is something that has indeed happened since the new bankruptcy law. It has become more expensive to file because there's more paperwork, there's more liability for the lawyers. There's just a tremendous amount of problems in here.
So you wind up finding people just exactly like this caller, who cannot afford even to go bankrupt. And when she talks about how she's been getting all of these pre-approved credit cards - I mean, this is what we were talking about before. This is shameful that the creditors keep on doing this, and then they turn around and say, oh, well, we're not going to talk to you.
CONAN: Do you have any advice for Sharon, Gail Cunningham?
Ms. CUNNINGHAM: Well, I think that Sharon illustrates what I was talking about beautifully. And Sharon, if you end up filing bankruptcy, you've done everything right, and again, I don't think that you can have any regrets. You're…
CONAN: But Gail, there's nobody willing to help her file for bankruptcy.
Ms. CUNNINGHAM: Exactly. She…
SHARON: How do I come up with the $2,000 to file, you know?
Ms. CUNNINGHAM: Exactly.
Ms. QUINN: If I can jump in here again, this is Jane Quinn. This is another off-the-wall idea that has sort of come to me, that nice personal finance ladies shouldn't say, but if you have no property, Sharon, you are judgment-proof, and so one thing you can do is nothing.
SHARON: And then have, like, my credit score just ruined for how many years versus it would be, like, damaged by bankruptcy…
Ms. QUINN: That's right - well, it's ruined already. So - I mean, I'm just saying that if you can't find a lawyer to help you, and if legal aid can't help you - now, you know, you can represent yourself in bankruptcy, and I might suggest - there's a place called Nolo Press, and they put out a book called "The New Bankruptcy."
You can, it's Nolo.com, and that gives you a lot of information about representing yourself in bankruptcy, what the forms would be, what you have to do, and so if you - clearly, if you have some time and are interested in - obviously, you've looked everywhere. I might suggest that you get that book and see if you can do it yourself.
CONAN: Sharon, good luck to you.
SHARON: Thank you very much.
CONAN: This email from Bob in Tucson: In 1996, I closed my company. My bank immediately hit me with $50,000 in company debts that I had unknowingly signed for while conducting business with the bank.
Against the advice of my attorney, I did not declare bankruptcy. I wanted to be a CEO again and thought, wrongly, that bankruptcy might count against me. In fact, it would not have.
Fifty thousand dollars was a crushing burden to carry as I remained an independent consultant with limited means for a decade. Yet every month, $500-plus had to be paid.
I eventually got a new CEO job and paid off the $50,000 debt, including interest in 2007, fully 10 years after I agreed to retire it. He says the bank was in the wrong but clearly, he should have - he didn't file, but maybe he should have 10 year before that.
Gail Cunningham, had he tried everything?
Ms. CUNNINGHAM: Well, I couldn't tell from the email that - does he feel good that he paid it off? Is he patting himself on the back?
CONAN: I'm sure he feels good that he paid it off. I'm sure he feels a little frustrated that he had to carry all that debt for all those years, though.
Ms. CUNNINGHAM: Well, sure, but you know, and we've touched on this a little bit today, that I feel that people out there still feel not just a financial obligation to repay their debts but a moral obligation to do so.
And again, I think we need to approach it with that mindset, that I want to pay back that good - for that goods or service that was rendered to me. If the situation were reversed, I would want to be paid, too.
But you know, I think one thing that sticks out to me from the NFCC data - and by the way, we counseled about three-quarters of a million people on bankruptcy last year. With the 2005 change in the bankruptcy code, pre-filing counseling and pre-discharge education were mandated, and a full 25 percent of those folks listed as the reason for filing bankruptcy that they had poor financial skills. They just didn't even know how to manage their money, construct a budget - and per budget category.
CONAN: All right. Let's see if we can get another caller in. And this is Liz(ph). Liz, with us from Bloomington, Indiana.
LIZ (Caller): Hi.
CONAN: Hi, Liz. Go ahead, please.
LIZ: Yes. I declared bankruptcy in 1990 after I had graduated from college with a whole bunch of student-loan debt - $30,000 worth - and had been divorced and had medical bills that, you know, were shared bills that ended up being my bills.
And most of my credit card debts were in my name but they were shared bills. So, I had a whole lot of debt, and my job didn't pay very much. So, I had a car but no property. And I was able to…
CONAN: And Liz, how did it work out?
LIZ: Well, I was in bankruptcy for 10 years and wasn't able to get any credit during that time. But, you know, I still have my student loan debts and they're now up to, with the interest, they're over $100,000 because I have never been able to pay them. You know, you can't bankrupt your student loan debts, and I was never able to pay them…
CONAN: Pay them off.
LIZ: …enough to keep it amortized or whatever it's called, deamortized. And so, you know, I now have excellent credit, I have to say. I learned my lesson. I've never gotten into debt unless I knew that I was going to be able to pay it off in a short period of time. And I have a home and I have, you know, a paid-off car. And I use my credit card but only - I pay my credit card off every month.
LIZ: But I'm still stuck with these horrible student loan debts that I'll probably never get out from under because I'd have to be paying a huge amount every month to get out from under just the interest.
Ms. QUINN: I'm interested that you have a good - this is Jane Quinn - I'm interested that you have good credit while you still have those student loan debts on your record.
LIZ: Yeah. What happened was that somehow, those got turned over to the Department of Ed. And so, the Department of Education now owns my debts. And when you go to look at my credit record, they don't show up.
CONAN: But don't they have the ability to garnish your salary and take that car?
LIZ: Yes. If I did not pay that, they could garnish my salary. And I get a little nasty gram from them every year, reminding me that that is their option should I not pay my - the amount that I've agreed to pay every month.
Ms. CUNNINGHAM: Well, at the NFCC - this is Gail - we, unfortunately, see people with monster student loan debts all the time, six-figure like yours. So, if misery loves company, know you're not alone.
But it is a terrific problem, particularly in this job market with students graduating and - with no guarantee that they're going to get a job and what that job is going to pay, if they are able to land one, to be able to repay that student loan debt. It is becoming a bigger and bigger problem each day.
Ms. QUINN: I have to say - this is Jane again - I have to say, now I'm going to argue the other side of this, that if you are able to get a mortgage and, you know, have a car loan and, you know, pay the debt, that you did have some ability to pay off your student loan debts.
So, here I've been saying go bankrupt, go bankrupt. But on this case, I'm saying, you know, I think you probably should have been paying something on that debt, too. It's a very low-interest debt.
LIZ: Well, I'm paying - I mean, I've always paid - since the bankruptcy, I've always paid, per month, a certain amount on the student loan debt. But I couldn't go any higher, and the amount that I was paying was not enough to keep me out of, you know, from the interest from amortizing or whatever every month.
Ms. QUINN: Mm-hmm.
CONAN: From spiraling upwards, yeah.
Ms. QUINN: Yeah.
LIZ: It spiraled upwards from 30,000 to over 100,000 now, even though I've never stopped paying ever, once, the amount that I agreed to pay.
So, yeah, I have a home and I have a modest - both are modest, my car and my home. But I don't see how I can ever get out from under my student loan debt now because it's more than my house is worth.
Ms. QUINN: Mm-hmm.
LIZ: And also, I wondered how the people who are…
CONAN: Liz, hold on just a second, please. We're talking with Jane Bryant Quinn and Gail Cunningham. You're listening to TALK OF THE NATION from NPR News.
And Liz, quickly if you would.
LIZ: Just - what is - please explain what would have happened to me had I gone bankrupt in the last, like, three years after they changed the law so that people who go bankrupt cannot, you know, lose their debt. In other words, they go bankrupt but they still owe all the money on their credit cards and still…
CONAN: I think here, we're talking the difference of Chapter 7 and Chapter 13. Is that right, Jane?
Ms. QUINN: Yes. And also, Liz, a lot of people misunderstand the change in the bankruptcy law, and they think it means they can't get rid of their credit card debt. That simply isn't true.
Most people who file for bankruptcy are still eligible for Chapter 7. You can get rid of your credit card debt, your medical debt. The people who can't - who don't qualify for it generally have very high incomes, and their debts aren't too bad. So there's a means test. So they go into Chapter 13 bankruptcy and they pay reduced amounts on their credit card debt.
But if they can't make it, they can still go into Chapter 7. So, the vast majority of Americans who file bankruptcy do do Chapter 7, and they do get rid of their credit card debts.
LIZ: Oh, I am glad for them.
CONAN: All right, Liz.
LIZ: I remember thinking that was unfair.
CONAN: Good luck, Liz.
LIZ: Thank you so much,
CONAN: Bye-bye. Let's see. We get one last question in, and this is Eddie(ph). Eddie in Monroe, North Carolina.
EDDIE (Caller): How you doing? Yeah. I - about six or seven years ago, I did Chapter 7 bankruptcy. And it saved me from many problems. You know, I was fighting with my wife and we were drowning in debt. And - but there's a backside to that, you know? There's - right now, the mortgages are - that we get for the house is more expensive. The car loan we get is more expensive. So, you know…
CONAN: Oh, because you have a record of bad debt, they charge you more interest.
EDDIE: Yeah. They charge - they don't charge us too high, but they do charge us a little bit more than if you have good credit.
CONAN: And Gail Cunningham, that's one of the downsides of…
Ms. CUNNINGHAM: Absolutely. But the good news for your caller is that time and responsible behavior are going to be your best friends in re-establishing your credit.
The farther you pull from any financial hiccup on your credit report and say, we have handled our obligations responsibly in the interim, the less impact that's going to have on your credit.
CONAN: Gail Cunningham, thanks for your time today. Appreciate it.
Ms. CUNNINGHAM: You bet. Thank you.
CONAN: Gail Cunningham, vice president of communications at the National Foundation for Credit Counseling, with us from her office in Wichita Falls.
And Jane Bryant Quinn, nice to talk with you again.
Ms. QUINN: Nice to talk with you, Neal.
CONAN: She joined us from our bureau in New York. She's a contributing editor at Newsweek. You could find a link to her article, "The Case for Walking Away," at our Web site.
Coming up, Monica Seles joins us.
This is TALK OF THE NATION from NPR News.
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