Bankruptcy

So here is another post in my series on personal finance.

A brief recap (and to my non-myspace readers, this is the first time you're hearing this) I will be writing about personal finance, my own life, and science in that order each blog.

At least until I flake out on that plan.

But I plan on doing it this way for a while.

I have become obsessed with my personal finance, I love writing autobiographically, and I also want to write more about science (since that is what I've been working on doing for a living for the last 3.5 years).

But this is one on finance for the cycle.

Why bankruptcy?

Well, its because I'm writing from where I am.

I would love to write about Roth IRAs and 401Ks and mutual funds and money market accounts, but those are concerns for people who have money.

Allow me to emphasize now, just so no one misunderstands, the point is to get to a position where Roth IRAs, 401Ks , mutual funds, etc. are my primary concern because I have become so good at saving money that the time has come to invest it.

Instead I am in a position where the most important factors in personal finance for me are budgeting, controlling my own spending, saving, getting out of debt, and things that affect people who, like me, have just pulled their heads out of their asses and decided that the time has come to take their money seriously. To not see it as a necessary evil, but rather as the tool that it is, and take proper control of it.

With all that said, lets talk about bankruptcy, since I am a lot closer to bankrupt than I am to having a healthy mutual fund.

I am not close enough to bankruptcy to take it seriously for myself however, and the reason for this is because when I wanted one, I could not get a credit card with any decent limit on it.

I got a credit card with about a $100 limit on it, and it nearly killed me. I paid it in full, and threw it in a camp fire in my early 20s.

My total debt outside of student loans is less than $5000, a lot less actually, and student loan debt is not bankruptable.

I wouldnt bankrupt it even if I could though.

Bankruptcy is a legal tool to escape ridiculously high levels of debt. There are other definitions but this is the one that I like.

When you are extremely deep in the hole, there is no chance of you getting out in this lifetime, and you absolutely need a fresh start you declare bankruptcy.

Does that sound tempting?

It shouldn't. All of the authors I've read on the subject make it sound a little like  a cross between being subjected to water boarding, and getting a root canal. Dave Ramsey likes to compare it to divorce.

The number 1 cause of bankruptcy in the US is medical debt.

There are lots of different kinds of bankruptcy.

But for people in my end of the financial world, meaning that you are not considering bankruptcy because your television network or your international chain of stores did not do so well, or to try to prevent a hostile takeover of your company, etc. etc. then you only need to consider chapter 7 and chapter 13.

What are these. Well chapter 7 is you loose all your debt except for anything owed to the IRS, child support,  and student loans (neither of these threekinds of debt are bankruptable). And then you get ass fucked without lube!

What I mean with the "ass-fucking" statement is much of your property can be siezed to give the creditors some of what you owe. And your credit is ruined for the next 10 years.

Here is a good opportunity for us to learn a personal finance term, that term is "lien."

Sometimes you hear these finance guys talk about leaning on a house.

Well clean your ears out numbnuts! they are saying "lien."

(when I make jokes like this its only because I misunderstood the term myself so many times.)

A lien is a security interest granted over an item of property to secure the payment of a debt.  This means if you dont pay for something you owe they can take your shit, usually your house.

I bring this up, to say that some kinds of liens will survive a chapter 7 bankruptcy. This varies from state to state.

Ass-fucking with lube is Chapter 13 bankruptcy.

Chapter 13, you agree to pay your creditors back in a period of 3-5 years, but they dont get to take any of your stuff.

Your credit is still shot for 10 years.

I think bankruptcy is generally not necessary.

Most people who are in debt, are in debt because of simple money mismanagement.

And having crappy medical insurance is a form of money mismanagement.

I know, I know, I'm hurting some of your feelings here, but as someone who has a certain amount of specialization in biology allow me to assure you:

YOU WILL ALWAYS GET SICK!!!!!!!

Get medical insurance, decent medical insurance.

For everyone else, there are some terms you need to know.

Cash Flow: the amount of money you have at the end of the month after you pay your bills.

Net Worth: The amount of your debt minus your assets.

I have a negative net worth. I reckon most of my readers do, if not, then I am shocked and am not  reaching people in my age bracket.

(which would be interesting to know)

If you have zero or negative cash flow, you have a financial emergency, but the answer is probably not bankruptcy, it is probably that you need to get a new job and get rid of some of your bills (eg. cable, cell phone, Ford F-150).

If you have a negative net worth you need to start to respect your money, be more frugal, and come up with a plan to achieve a positive net worth.

If you declare bankruptcy you will still have to follow the above advice, eventually.

Respecting your money, being more frugal, and having long term plans for our money is something we must all eventually deal with.

We may deal with it when we're 67, eating Alpo at the homeless shelter, trying to get a job as a greeter at Wal-Mart, but we must all learn it sometime. Lest death bring us its cruel mercy before we do.

It is better to do so now.

If you are in your 20s or 30s, you could have total control of your money in a timely fashion and with a good plan be investing wisely for your retirement.

This is not a pipe dream, or even that difficult.

One of the most mind-boggling things I've learned about personal finance is its sheer simplicity.

If you want to get into day trading, and individual stocks, and that stuff, its interesting and do as you wish.

But just being smart with your money, and retiring wealthy, is well within the reach of everyone in their 20s and 30s who lives in the US.

Now I am not doing any better than any of you, but I do have a plan, and a budget, and am willing to share my thoughts with any and all of you.

Especially those of you who want to get control of your money and can admit that control is yours to be had.

In psychology there is a personality theory which states that people fall in a continuum of having either more of an external or internal locus of control.

Those who tend towards an external locus of control and everything happens to them. They live their lives waiting for something to happen to them or for them, and they do not believe that there is much they can do.

I wish them luck, but not believing in luck I believe this attitude is a recipe for an unhappy life.

Since I do not believe in an afterlife, I believe screwing up this life is losing in the worst possible way.

People with an internal locus of control realize that there is always something they can do, that they always have some level of personal power in the situations life throws at them.

If this is you, it is you I'm trying to talk to.