Being involved in the apartment industry means I see all sorts of people suffering through hard financial times. I even see the occasional person who's recovered.
People who are afraid to file for bankruptcy because of the stigma it would cause are the hardest to rent to, because their credit just keeps getting worse, and they can't or won't face it.
People who've gone ahead and filed for bankruptcy have a much better chance of putting this problem behind them. There may be a period of a couple of years when they're too radioactive for most landlords; typically, if a bankruptcy is five or more years in the past, and credit has been good since then, that's far preferable to a landlord than someone who should have filed for bankruptcy and didn't.
I'm thinking about this because of this article, which shows that the new, more restrictive bankruptcy laws haven't really slowed filings. In fact, at the current rate of about 2,000 filings per day, we could be close to one million bankruptcy filings by the end of the year.
And I think that's a good thing.
Why? Because bankruptcy filers are required to undergo credit counseling. Many may find they don't have to file after all, but would never have submitted to counseling if they hadn't filed for bankruptcy.
And if people successfully file for Chapter 7 (debt liquidation) or Chapter 13 (which typically includes repayment plans) in near-record numbers, despite the tightening of the bankruptcy laws, credit companies may have no choice but to ratchet down their rates and curtail their aggressive collection policies. Bankruptcy laws may have changed, but reality has not.
Which leads me to the bad news. And the bad news is: we're idiots about money. Just as we think oil bubbles up out of the ground a la Beverly Hillbillies, we think currency grows on trees. The article mentions a recent survey which showed that only one-third of adults in a recent poll had a good understanding of basic economic and personal finance concepts.
Bankruptcy isn't leprosy. For the individual, it's facing facts, and a chance to get your act together. And for lenders, bankruptcies in ever-increasing numbers indicate the extent to which they're part of the problem.
--T.A.
Certainly lenders are part of the problem in that they aggressively keep pushing credit to people who obviously already have too much debt. They have policies designed to trap the unwary into paying higher interest. For example, offering checks at temporary or permanent low-interest rates. In the former case, rates revert to astronomical within a matter of months. In both cases, lower-rate balances will be paid off first, so that interest is squeezed out of the highest-rate balances for the longest. Obviously, the interest counts as profit for the credit card companies while the principal is working capital.
Paying for "credit protection" can quickly push you overlimit, at which point your interest rates go through the roof. Likewise with one late payment. If you're educated, it's easy to see these dangers coming, but if you're already overextended it's hard to avoid them.
It's difficult to avoid the impression that these tricks are all part of the racket -- ways of extracting the last juice of profit from the debtor up to the moment when he finally files for bankruptcy.
Posted by: amba | May 14, 2006 at 11:03 PM