creators home
creators.com lifestyle web
Mary Hunt icon

Recently

Clutter's Last Stand Clutter's Last Stand What would you do if you actually had to use everything you own, including all that stuff in the drawers, cupboards, closets, shelves and boxes in your kitchen, bedrooms, living room, basement, attic, garage, rafters, driveway, …Read more. The Best Inexpensive Stroller Update The Best Inexpensive Stroller Update One of the best money management tools I know is this rule of thumb: Match quality with need. In other words, don't buy quality beyond the need. Sometimes the cheapest option is the best choice. Other times, you'…Read more. 15 Minutes to Financial Freedom The email contained a single word in the subject line: Help! The sender, I'll call her Emily, had been asked to give a 15-minute presentation on how to achieve financial freedom. She was honored to have been asked, but panicked at the thought. She …Read more. Every Kid Should Have a Real Bank Savings Account Every Kid Should Have a Real Bank Savings Account Dear Mary: My son is saving cash in envelopes. That seems kind of cumbersome. What is your opinion? Why not in a savings account and keep track of the amounts for each category? — Dick Dear …Read more.
more articles

Which is Worse, Bankruptcy or Repossession?

Comment

Dear Mary: Which is worse, bankruptcy or repossession? There is too much negative equity in my car to sell it, and I cannot afford the payment since my husband passed away. The life insurance is not enough to pay all the bills plus the car. The finance company won't finance the negative equity so I can sell the car. Should I borrow the $12,000 from my 401(k), sell the car and pay the difference to the finance company? I really need help with this. — Bettie, email

Dear Bettie: I am so sorry to learn of your husband's passing. I can't imagine having to face financial problems and deal with unspeakable grief at the same time.

As for your question, bankruptcy is a lot worse than a repossession, not only for your credit score but for your personal feeling of wellbeing. A bankruptcy becomes a public record and a kind of stigma for life, even though it is reported to the credit bureaus for only 10 years. Repossession would be reported to your credit file for up to seven years, and that's it. You do need to understand that if you opt for a voluntary repossession, the finance company may sell your car to the first taker, then hold you financially responsible for the deficiency amount.

If you were to take a loan from your 401(k) to pay off the debt, that could actually boost your credit score because the debt would be reported "paid as agreed." While my advice would be to take that loan, please understand that if you were to leave your job for any reason before the loan was repaid, it would become due and payable.

If you could not do that, the remaining balance would be considered an early withdrawal, which would result in a penalty and taxes due on the remaining balance.

Dear Mary: Do you recommend gold as an investment? We hear so much about that these days. — Diane, Arizona

Dear Diane: It is always wise to diversify your investments over a wide-range of sectors. Allocating 10 percent to 15 percent of your portfolio to precious metals stocks or exchange-traded funds (ETFs) makes good sense to me. The reason you're hearing so much about gold and silver these days is that the U.S. dollar has weakened to the point of being on a collision course, while the U.S. debt has reached nation-destroying levels. Many people see owning some amount of physical gold and silver as a way to protect their net worth and to create a hedge against inflation. It's something you might want to consider, but only after you've done your own independent research and due-diligence.

Do you have a question for Mary? Email her at mary@everydaycheapskate.com, or write to Everyday Cheapskate, P.O. Box 2135, Paramount, CA 90723. Mary Hunt is the founder of www.DebtProofLiving.com, a personal finance member website. To find out more about Mary and read her past columns, please visit the Creators Syndicate Web page at www.creators.com.

COPYRIGHT 2011 CREATORS.COM



Comments

4 Comments | Post Comment
LW1 - I hope you're not taking what the columnist wrote too seriously. With all due respect, her advice is one-sided and misleading. TALK TO A BANKRUPTCY ATTORNEY!!!! You may be able to keep the car and write off most of what you still owe on it.


The only "stigma" attached to bankruptcy is the one manufactured by people who have a stake in trying to shame people into not considering it, i.e., the credit card companies (and some columnists who act as their shills, advising people in desperate circumstances not to consider the one solution that could resolve everything).

You'll never find a corporate-sponsored financial advice columnist who will admit this, but bankruptcy was designed to give people a fresh start. Declaring bankruptcy does NOT ruin your credit score; it resets it, so you then need to start rebuilding it. If you plan well, and learn from your mistakes, you will most likely end up with BETTER credit a year or so after your bankruptcy, than you have now. You do NOT have to raid your retirement savings! They cannot be touched by your creditors in a bankruptcy.

In short, please talk to a good attorney. Ask your local bar association for a referral to a qualified one who specializes in bankruptcies.
Comment: #1
Posted by: sarah morrow
Mon Jun 13, 2011 6:14 PM
LW1 - I hope you're not taking what the columnist wrote too seriously. With all due respect, her advice is one-sided and misleading. TALK TO A BANKRUPTCY ATTORNEY!!!! You may be able to keep the car and write off most of what you still owe on it.


The only "stigma" attached to bankruptcy is the one manufactured by people who have a stake in trying to shame people into not considering it, i.e., the credit card companies (and some columnists who act as their shills, advising people in desperate circumstances not to consider the one solution that could resolve everything).

You'll never find a corporate-sponsored financial advice columnist who will admit this, but bankruptcy was designed to give people a fresh start. Declaring bankruptcy does NOT ruin your credit score; it resets it, so you then need to start rebuilding it. If you plan well, and learn from your mistakes, you will most likely end up with BETTER credit a year or so after your bankruptcy, than you have now. You do NOT have to raid your retirement savings! They cannot be touched by your creditors in a bankruptcy.

In short, please talk to a good attorney. Ask your local bar association for a referral to a qualified one who specializes in bankruptcies.
Comment: #2
Posted by: sarah morrow
Mon Jun 13, 2011 6:14 PM
Yes, absolutely talk to a bankruptcy lawyer. Taking money out of a 401k plan is a very drastic step, one that should be a last step. And an attorney can look at your entire situation, not just the car. The first consultation is usually free, although don't try to over use it.

As for your credit rating, I would suggest that, after two years, many, if not most, lenders will treat you as if you never filed bankruptcy (even though the bankruptcy can stay on your record for 10 years). I add that I recently went to a seminar on credit issues and the speaker said that a bankruptcy will "increase" your credit score - - - although I have some doubt about this, he did say that credit score standards are a little like the old Casey Stengel quote at the beginning of spring training when he was calling over the rookies - "all you rookies, line up her, alphabetically, from tallest to shortest".

Comment: #3
Posted by: Louis Robin
Tue Jun 14, 2011 6:43 PM
A good friend of mine filed bankruptcy; I helped her prepare some of the papers. That was six months ago. The bankruptcy "ruined" her credit for exactly three months. Then the offers, from reputable lenders, started coming in. She now has two credit cards, at good rates. (The are not the horrible high rate cards, and she did not have to subsidize a card.) She was able to keep her house and car. The only thing she lost were $45,000 in crushing credit card debts, which she had borrowed planning to repay, but been unable to because of losses when the economy collapsed two years ago.


Before bankruptcy, she was working herself to death, working TWO jobs, to make the credit card companies rich, and they refused to lower her rates or negotiate with her. The last straw was when they RAISED her rate to over 30 percent, though she had never been late with a payment. They made it IMPOSSIBLE for her to keep paying. Now they've lost all of the money she could have been paying them, and it serves them right.


Bankruptcy is never anyone's first choice... it is by nature a difficult one. But it is a good choice in some circumstances. My friend was headed for homelessness, or an early grave, because of the greed and inflexibility of the credit card companies. Now she's solvent again, and is paying her bills. The bankruptcy laws are a GOOD thing, and columnists like this, who tell people to raid their retirement fund rather than considering it, are badly misleading people. They frankly disgust me.
Comment: #4
Posted by: sarah morrow
Thu Jun 16, 2011 9:10 PM
Already have an account? Log in.
New Account  
Your Name:
Your E-mail:
Your Password:
Confirm Your Password:

Please allow a few minutes for your comment to be posted.

Enter the numbers to the right:  
Creators.com comments policy
More
Mary Hunt
Nov. `14
Su Mo Tu We Th Fr Sa
26 27 28 29 30 31 1
2 3 4 5 6 7 8
9 10 11 12 13 14 15
16 17 18 19 20 21 22
23 24 25 26 27 28 29
30 1 2 3 4 5 6
About the author About the author
Write the author Write the author
Printer friendly format Printer friendly format
Email to friend Email to friend
View by Month