Walking away from your Debt

[Matt71]

I have a mortgage that is underwater and a college debt that I can never hope to pay off. I'm in a position where I can make all of my payments, but more often than not I feel that I'm living my life for Sallie Mae and Wells Fargo rather than myself. Sometimes I feel like just saying to hell with them.

I'm curious if any of you guys have simply walked away from your debts.How that has it gone for you?

 

[compassrose]

At one time, over 75% of the people who lived in Chattanooga had filed for bankruptcy at least once. My husband used to sell home security systems and ran people's credit all the time. That is what the credit outfit they used told him. The people in Chatt said it was a great place to start over. Your debt will haunt you for decades (contrary to what you are told as, in the real world, the debt restarts everytime it is sold). I suggest you look into filing for bankruptcy. You will have sucky credit anyway if you become mobile. It will not stop you from getting insurance. Nor will you have expensive insurance. My insurance is thru Geico. I have sucky credit because they cannot keep up with my address (and I have been in one spot since the end of 2011) and I pay cash for everything or do without until I save up the money for it. So far the only problem I have had was when I recently opened my Schwab account. Seems they needed me to clarify my address. I had to call them and answer several questions so they knew that I was who I said I was (thank you Patriot Act). I have to buy my own Sat dish instead of "renting" it due to my "insufficent" credit. I prefer to own rather than rent. So that's not a biggie.

 

[mconlonx]

My now ex-wife and I crashed hard last year, going through foreclosure (2nd mortgage on my end) and bankruptcy (mutual)... And divorce. Which was easier, since we didn't have much left...

We had been moving toward a tiny house, but the split meant I could do my own thing, so I went with a van. Learned my lesson, I'm now debt free and pay with cash. I could get credit at exorbitant rates, and am told it will take at least 7 years to get right with credit agencies, if I make attempts to do so, like getting and paying loans (did I mention exorbitant rates?), secured credit cards, and the like.

No thanks. Now that I'm on the other side of the credit game, with a positive net worth for the first time in ages, I think I'll stay here.

However. I don't plan on ever financing a residence or vehicle again. If I was, I'd be going through the motions to repair credit now, hoping for the best a decade or so down the road. If anything like that is on your horizon, then you want to carefully consider walking away from debt. Especially the educational loans -- pretty sure you can't just bankruptcy those away, but check with legal advisement on that.

So yeah, I walked away from debt and think I'm better for it, but there's many, many reasons why it works in my situation, but may not work in yours.

 

[GrantRobertson]

In 2005 I lost my house and my car. I could not find a job to save my life. I was fortunate enough to be able to get into the local college and did pretty well but eventually ran out of financial aid money just before I finished. So now I have tons of school loan debt too. Thankfully, no credit card debt.

Most importantly, I was up front with the Savings & Loan who held my mortgage. They were very understanding, and even told me how long I would be able to continue living in the house after I stopped paying (almost a year, in my case). I prepped the house well and told them when I was moving out, so they could do what was necessary to protect their investment.

I have yet to be able to get back on my feet. However, that is NOT due to my bad credit. I have not had a single creditor call me about the home loan or the car. As far as the school loans go: All you have to do is file for "income based repayment." If your income is low (and it doesn't even have to be poverty-level) then your payment will be zero. It is not hard to do. If you call them up, they are very understanding and will walk you through the process. Of course, my school loans were all consolidated under the Federal Direct Loan program.

The big problem that my bad credit causes is that I have to pay higher deposits when getting an apartment. If you aren't going to be getting an apartment, then that won't be a problem.

If you have a job, keep it for as long as you can. These days, getting a job is really hard. Cut your expenses to the bone. Get roommates if you can stand it. Give yourself time to prepare for the huge transition to nomadic living. If possible, line up work-camping jobs ahead of time OR set yourself up to earn money remotely or freelance.

 

[Matt71]

Once I leave my job, I won't be able to though.

College loans can't be nullified through bankruptcy, but there are income based plans where you pay $20 of your disposable income for 20 years and then they forgive the rest. The catch is that everything they forgive is counted as income that is taxed, and then you're dealing with the IRS.

I'm also not sure how to prove your income living on the road to determine what 20% of your disposable income is.

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[jimindenver]

In the late 90's I broke my back and being self employed means no sick pay etc. By the time I was up and around again we couldn't keep up with the fees on our credit cards much less the payments so we ended up in bankruptcy. No creditors came, it was over in minutes aside from paying the lawyer. Up would have thought we would have been untouchable credit wise but it was the opposite. Even before the bankruptcy went through I had a loan offer for a new van and a house. Coming out of bankruptcy they knew we had no bills and wanted to be the first on the gravy train and even credit card companies were sending us pre approved applications.. We got the van at a high rate, a year later a new car at a normal rate and a year after that a house. The rate on the house was higher not just because of the bankruptcy but also being self employed. Once we got a year of payments in on the house and a few years on the cars we refinanced the house for a normal rate. A few years later the bank sent us a new sign on the dotted line loan that dropped the rate even farther.

Only once did the bankruptcy keep us from getting something, that was with Wells fargo and they were trying to get our business until they learned of it. It's been 15 years since and now we both have credit scores high enough to shock a few lenders. When we bought the trailer regular rate at the time was 7.99%, they had 6 offers for us down to 4.5% which we took. Outside of the house any more, we pay everything off monthly. When I think of a new truck or trailer I remind myself that just because I can easily sign on the dotted line doesn't mean it will be easy to sign those checks monthly for five years.

So if you HAVE too, it's not the end of the world. It is intended to be a way to start over and many have done it over the years if they had to or not. Consider all of your options carefully though, it will affect you for some time. Oh and talk to a lawyer, it's worth it.

 

[GrantRobertson]

If you do decide to go the bankruptcy route, there are a lot of lawyers who will do a standard package for a flat fee. Look around.

 

[akrvbob]

You only mention two debts. A mortgage is the easiest of all, you simply stop paying, that's all there is too it. They'll start hounding you but they won't actually knock o your door to physically remove you after many months, 9-12. You can live in it the whole time while it winds through the court process.

You mentioned school debts. It's impossible to walk away from school dept. They can simply garnish your wages wherever you are. I think it's a low percentage, like 10% but they will get their money if you ever work again.

The only way out is to get on SSDI (disability). And for that they will require their own proof of the disability separate from what you show the IRS

Bob

 

[thatchickinpa]

Sorry, I've never walked away from any debt. I did dream of a debt free life each month I wrote a $1000 check to the Department of Education during my student loan repayment though.

I've known several people who have simply stopped paying their mortgages. In all cases their credit was destroyed for years.

I have also known many who ditched their student loans. Well, even though it usually took a few years for the government to catch up with them, they all ultimately had their wages garnished and their tax refunds taken. Not only did they have to pay back the original loan amount, but there was also a 20% default fee tacked on [so for example, the fee would be $4k on a $20k loan].

Any loan that is backed by the taxpayers, ie the government, is unescapable. Even creditors that offer student loans that aren't guaranteed by the government have been granted laws giving them loan shark type powers in order to collect.

As Bob said, disability can get you out of education debts, but every dime you get will be scrutinized. Disability payments will be garnished for any money that is deemed "unnecessary" for basic existence - and their allowances are quite frugal. Bankruptcy clears all debts EXCEPT any student loan debts. The only way to get out of the obligation of an education loan is to pay it off or die.

I've read that some have simply left the country in order to start with a clean financial slate. They seemed to have found a way out so far, but creditors are currently trying to find ways of hunting down student loan defaulters in foreign lands.

Whatever you decide, I hope things work out in your favor.

Have a great day!

Chick

 

[gypsychic]

As many have stated before me there is little recourse to completely walk away from your student loans. Here are some nonprofit organizations that you can research some options for your student loans:

National Consumer Law Center
American Student Assistance

or look for a nonprofit debt counseling service in your area. There is a world of difference between a nonprofit and for profit debt counselor. If you are having trouble locating one, PM me your area and I can find one for you. This advocate may also help you navigate your option for your upside down mortgage.

@gsfish - I understand what you are trying to say and I agree that walking away from debts shouldn't be done lightly. I just want to offer my (different) perspective on your examples for anyone who may read this thread in the future:

If I couldn't easily make the payments I would be eating PB&J and Ramen trying.

I truthfully think this is very foolish and short sighted, although I'm sure the debtor would be all in favor of this. Your future health is dependant, in large part, on your current nutritional inputs and physical outputs (which are also dependant on your nutrition.) If you eat poorly in order to be able to pay your bills, you are sacrificing your future ability to earn income. In the future if you are sick because you have neglected your body you may be debt free but you will have no ability to pay your day to day living expenses if you can't work. The safety nets that are assumed to be there don't kick in for a while and if you can't pay for a dr to document your inability to work it becomes an endless catch 22.

I have never heard of anyone being forced to take out a loan against their will.

It might not occur to you that this could happen because (I presume) you are a man. It does happen, fairly often, in abusive relationships. The coercion can be overt or subvert, but it does happen. While it happens most often with women being the victims, men can also be victims. Men are just much less likely to report.

At some point one needs to determine how much they value their word and signature on a contract.

Money is such a loaded subject to begin with. Where we each get our individual values surrounding money is as individual as we each are. I don't believe that blanket shaming to someone who is asking for advice is helpful. Stating what your values are and what you would or could do is slightly, but importantly, different. Everybody has to be able to look at themselves in the mirror. What is acceptable for you may not be acceptable to me and vice versa. Again, I understand the point you are trying to make and my above points may not apply to the OP, but I don't believe making blanket statements about a subject as if there are no shades of grey in life is helpful to the OP or anyone else who reads this thread.

 

[Matt71]

Just to to be clear, I'm interested in advice so much as hearing about people's personal experiences.
I'm quite aware of the risk, the options and all of that. I literally want to hear from people who have walked away and what effects that has had on their lives, legally, financially, emotionally, and socially.

I figured there would be at least a few people on here that have just said screw it and started over.

,Matt

 

[SoulRaven]

I'm not sure if this fits what you are looking for but...In 1983 I walked away from a wife I hated, a job I hated and started over. I went from District Manager of a full service restaurant chain to being a truck driver. I took a tremendous cut in pay but my ulcers went away.

I declared bankruptcy and wiped the slate clean as far as my overextended credit cards went. Wife kept the house ( I had to make the payments for three years) and the car. I hit the road and never looked back. I didn't have any student loans, the VA paid for my schooling, but I had a huge amount of child support and a judge who didn't much care for me, miss one payment and off to jail.

Not exactly your circumstances but only you know if you want to take the plunge. Reading your posts you seem like an intelligent person who plans ahead, just figure some sort of contingency plan should things go in the dumper.

I wish you well in your decision making. Travel Safe, Bob J.

 

[Matt71]

Thanks Bob. That's what I'm looking for.

 

[Canine]

I had some serious legal troubles with child support despite not having children. (Long story for another thread.) That cost me a decade of my life emotionally and upwards of $70,000 fighting it only to lose in the end. (Boo hoo! Call the Waaambulance. LOL) I also had medical bills and a student loan. I had every intention of paying my bills, but just couldn't do it while maintaining some semblance of a life, so I filed bankruptcy. Everything was erased except for the student loan and the child support. The child support was eventually stopped. The people at the student loan (SAF) are awesome to work with. I've not always been able to pay every month, and they've worked with me more than they probably should've. Rarely have I put myself in a position where I screwed up on payments, in fact I pay more than the minimum, but it is nice to know I can slack off if needed and not have to be put in a vise.

I still don't feel good about the bankruptcy, but things happened that were beyond my control. I am only one man and did the best I could. Now I live without fear of garnishment except for a highly unlikely, but always possible, bureaucratic misandry. You probably won't be able to wipe the slate clean, but you can wipe it off a lot. It will take some elbow grease to wipe out the student loan, but that is a lot better than the whole thing.

Bankruptcy is a personal choice, so I don't look down upon you if that is the road you take. Only you know if that is a good choice for you. It should be a last resort, though. I know of one person that has declared bankruptcy 3 times in her life, yet she still spends her money the same way and will eventually be in financial ruin. Again. She almost brags about it, so perhaps the 3 times thing is an exaggeration. I suspect it is possible, though.

I know of another lady that has declared bankruptcy twice. The second time her boyfriend offered to pay for legal fees, which was around $1700. She took part of that money and spent it on something else. The result was she didn't have the money to pay for the legal fees, so she started having problems with creditors again, which sucked what little money she had. She was able to work it out with the attorney, but instead of Chapter 7 (clean sweep) she had to do Chapter 13 and is paying a monthly payment for a few years. She is making the payments, but, like the previous example I gave, she is spending her money just as poorly as she ever has. When she completes the Chapter 13 requirements, she will be just as broke as she ever was. I'm not intimately familiar with her situation, but the way she described it to me was that if she had taken care of her legal bankruptcy obligation in a timely manner, she would've been eligible for Chapter 7.

I have another friend who ended up with a medical bill she probably will never be able to pay, but she ignored it. She likes to save money by getting a large refund from taxes at the end of the year. Last year it was garnished and she couldn't believe it. She was so angry, but I couldn't understand how that was a surprise. I have a current medical bill that I don't pay an appropriate amount on (until I take care of other bills first) but I pay every month. They don't hassle me in the least bit. I've always been upfront about any aspect of my bills and that has helped out a lot. It is super awkward telling your creditors that you're only going to pay a small amount or not pay at all, but being respectful while not backing down has worked well for me. I suspect if I had been a jerkface or ignored them, I would've gotten different results.

For me life is much better. I've made some mistakes with finances along the way, but nothing major. I've been in the hospital only once since my bankruptcy and haven't had any other huge expenses either. Definitely some setbacks, but can see the light at the end of the tunnel. (The light being completely debt free.)

 

[akrvbob]

I've walked away from a house and done a bankruptcy--I'm not proud of it, but it's true.

It had much less negative impact on my life than you are led to believe. Surprisingly soon you will be getting credit card offers again.

Mainly I learned I'm not a person who should have credit--that was a blessing in disguise for me.
Bob

 

[flailer]

Well, if it is personal examples you are looking for: 

I was ALWAYS dutiful, and ALWAYS faithful :
- Paid off student loans within 1 year. (STEM degree)
- Paid off all credit cards, in full, monthly. (same as paying cash, but builds credit) 
- Bought 8 homes over the decades
- NEVER late on a payment (all accounts, not just house payments)
- Supported a wife, 2 kids, house, cars, consumer goods.  
- Worked out, rollerblade, mtn bike, ran, lifted, karate, motorcycle, etc,etc. 
- I stayed true to my Marriage (yes, we took an oath to each other) , the Kids, the Job, and even the most minor of commitments: Debt (listed above).

Then, the person I devoted my life to stabbed me in the back, & brought herpes into the marriage bed.  
Then, for gynocentric reasons, she believed herself to be faultless, & turned even more hateful & entitled than ever before, & stole tens of thousands $$ from joint accounts before running off.  (No, I never cheated, & am still fully (FULLY) sexually functional, thank you very much)

So, to answer the question: Yes, I walked away.  But not before (stupidly) settling all debt.  

Stupid Stupid Stupid me!!!  Being "honorable" even in the face of the most dishonorable thing. 

Did I did do something WRONG??!   What was it?   
Answer: I should have "absconded" with $140,000, leaving her with house payment, the day I learned of her mistreatment !! 

Lesson #1) Even if you have someone watching your back, you still have to watch your own back. 
Lesson #2) Gynocentrism.  (research it. learn it. it is in your biology!  it is institutionalized for ****'s sake!!! ) 
Lesson #3) Rising above our biology is the mark of Higher Humanity.   
Lesson #4) Rising above the Cultural Narrative (& the leveraging of gyncocentrism) is the mark of a HAPPY & FREE MAN 

Thanks for listening, regards to all,
flailer

p.s.  just to be clear: 
Absconding would have been the best thing I could have done.
Becoming a Sovereign Man is the BEST thing I have done. 
I have peace now. Now that I have chucked it all, and moved on.  
My life has been two HUGE thumbs up ever since I turned my back on those that used & abused me. 

 

[HarmonicaBruce]

I'm not proud of everything I've done.  I paid my own way through college, no loans, by working 70-80 hours / week.  I had to go to college, or go to viet nam.  I paid my own tuition, but I stole my books from the bookstore.  I was really good at it.  I should not have done that.  I'm 67 and I recently got my first car loan, because the interest is 1.8% / year.  I've always paid cash for my cars.  I've always lived way below my means.  My credit score is 810, and I'm proud of that.  I've walked away from debt, but not in the last 20 years.  I feel it's kind of like stealing.  But, that's me, I'm not like other people.  

 

[compassrose]

I feel that more folks ought to be doing CASH not credit. I know that "the world runs on credit" but I feel it is not a good thing. I have had my life dictated by credit. Never again. Yet I have been called nasty names on RV forums because I say, in my case, credit is not good and I refuse to have any more credit, it's cash or do without until I save up. I have been called... "Unamerican", "stupid", "moron", "financially irresponsable" and worse. I like Dave Ramsey's advice. I owe no one, nothing. The only "bills" I have are utilities (site rent and a no contract wifi hotspot) plus my insurance. I have enough savings that I paid off the funeral costs for my husband without incurring debt. Gotta love those employee stock purchase plans. Makes a great savings account and pays better "interest" than the bank. Downside is it takes me a little time (few days) to gain access to my money. That may have changed since I now have a Schwab checking account linked with a brokerage account (HD stock bought then sold, money moved to Schwab where it gets invested in mutual funds). I can no longer buy a piece of land to park the bus on but that may turn out okay. I will have to save for at least another year, probably more before I can buy a place with cash. I may not like where I am moving to. But it will not involve life sucking credit. I may not have new shiny stuff, but what little I have is mine and the bank can't take it away from me. I doubt my no debt stance will be the cause of the American Economic Collapse (actually I think all the debt is the reason we are in such bad shape). But I say this from experience. Get your debt under control and learn how to pay it off and keep it off. Your life will be much better without debt.

http://www.daveramsey.com/blog/debt-is-normal-be-weird

 

[Patrick46]

" I feel it's kind of like stealing.  But, that's me, I'm not like other people. "


You & me both.

if I brought on a debt into my life, it's from something I've chosen to do, and therefore, my own responsibility to pay it off.
Nothing in my debt pile was forced onto my life.

 

[Almost There]

After an adult lifetime of debt, never overwhelming but debt nonetheless, I was finally debt free just over a year ago.

The mental freedom is awesome.

No car payments, no line of credit, my credit card bills are paid off each month...and a reserve in the bank because I earn my living on commission.

I don't care if I am the enemy of the Canadian economy, there will never be a debt burden in my future...I swear!

AND, I'm mentoring a single mom who is in the same spot as I was for all those years - constantly robbing Peter to pay Paul....she's got 2 more months of payments on an old, old debt and then other than her mortgage she will be debt free. That's going to be one big celebration.

Her next step is to pay down that mortgage. She's on disability benefits and when the kids leave home in a few years, she'll see her monthly payments chopped in half and still be too young for retirement income. If she's to hold on to the house, having a minimal mortgage will be the key!