3 Things I Learned From My Bankruptcy

I’ve posted about my experience with Chapter 7 bankruptcy several times, including a detailed explanation of how bankruptcy works. One thing I haven’t done, though, is talk much about how that experience affected the way I look at my finances nearly 6 years later.

I wish I could say that the shame of bankruptcy instantly reformed me and changed my life, but unfortunately that’s not quite how it worked out. In fact, it took 4 more years for me to really come to terms with my spending problem and make lasting changes. Still, at this point I can look back and see lots of ways that Chapter 7 taught me various financial concepts - it just took awhile for the lessons to sink in.

3 Things I Learned From My Bankruptcy

1. Financial problems are more widespread than you’d think. It was beyond humiliating to go tell an attorney that I’d racked up so much debt I couldn’t buy groceries. I can’t even describe how it felt to see my name in the newspaper under bankruptcies (and this is a small town, so everyone saw it). But I wasn’t alone.

When my ex-husband and I went to court for our 341 hearing, we saw several people we knew personally. They were just as surprised to see us as we were to see them - I never would have guessed that those people were in such dire straits. One guy in particular had a VERY nice house and a high-paying job. That didn’t make him immune to debt, though.

Today I try very hard not to make assumptions about a person’s life (or bank balance) based on outward appearance. I didn’t look like the “type” of person who would file for bankruptcy, but that didn’t mean I could afford the lifestyle I was living. Bankruptcy can happen to anyone, and it can happen for a lot of different reasons.

2. You can keep most of your stuff in bankruptcy. People always have this fear of someone taking all their things away. I know I did! But the exemptions for personal property are more than generous - I didn’t have to answer for a single purchase or give up any of the junk I bought on credit cards. While that sounds like a great thing, it’s really not - it was like holding a “get out of jail free” card.

Don’t get me wrong; I’m glad I didn’t have to box up my clothes and furniture. I got to keep all the stuff I couldn’t afford, AND I didn’t have to pay for it! For a spendaholic, it was kind of like Christmas. And it made it all too easy to get more credit cards later, because I still didn’t believe there were consequences for my habits. Then I got divorced and had to pay back all that credit card debt on one income, and let’s just say it was a lot less fun at that point.

I haven’t gone minimalist by any stretch of the imagination, but I do make an effort now to buy only things I need (or things I will use) instead of spending blindly for the 5-second high of getting a new shiny object. So many of the things I bought back then have been sold in yard sales, brand new, for a fraction of what I paid for them. I don’t ever want to go back to thinking I can have whatever I want.

3. You will never regret paying for something with cash. At the time of my bankruptcy in 2006, it was very rare for me to be able to pay for anything with my debit card. If I did, that usually meant using a credit card later anyway, to make up for what I spent out of my bank account. Even after the bankruptcy was discharged, I immediately started applying for new cards because the concept of living within my means was so foreign.

In late 2010 when I decided I was tired of playing catch-up all the time, I stopped using credit cards cold turkey. I just stopped one day. I was tired of rejoicing every time I had enough available credit to buy something else, then realizing I had no backup plan because all my money went to debt payments.

I do use credit cards occasionally now, but in a totally different way than before. Now I save up for what I want to buy ahead of time. When I have enough money, I buy it with the credit card, then pay the balance off as soon as it hits my card account. Strangely enough, I get as much gratification out of saving for things as I used to get from charging them. And I spend a lot more time thinking about purchases - do I really want to keep saving for this item, or should I put the money toward something else I want or need?

The Aftermath: Better Than I Thought

As I said, at the time of my bankruptcy, my behavior really didn’t change much. The required “credit counseling” was a complete joke, and knowing the right answers didn’t mean I was ready to put them into practice. But as the years passed and the real consequences of bankruptcy (ruined credit, limited housing options, worry about what I’ll do without high credit limits to fall back on) became more apparent, it’s amazing how much I was able to change.

Filing for bankruptcy was a terrible experience, and I never plan to go through it again. But in a lot of ways, it was a good decision for me in the long run. At the time, the only alternative would have been a bailout from my parents or my ex’s parents, which would have taught me nothing at all. So I’ll take the delayed lessons over a lifetime of debt and overspending any day!

Have you ever learned an important financial lesson way after the fact? What did it take for things to change for you? What do you still need to work on?

14 Responses to “3 Things I Learned From My Bankruptcy”

  1. Lance@MoneyLife&More says:

    Sounds like a tough lesson but I am glad it finally settled in. No matter how hard someone else wants you to change it won't happen unless you can see it for yourself.

  2. Canadianbudgetbinder says:

    Mrs. CBB has a mate that went bankrupt almost 7 years ago and it's been a constant struggle for her. The funny part is she has not learned from her mistakes. She does not budget for one and she blows money like it's water. She lives pay to pay and still complains she has no money. Although Mrs.CBB has offered her tips and advice she feels it's not worth it for her to budget. She says she has no credit rating and there's no point.

    People need to stop feeling sorry for themselves and pick themselves up like you have. If budgeting was so bad then no one would be doing it. Paying by cash is a good thing for people who struggle with credit and if that's what it takes do it. Sometimes people focus so much on the negative that it sets them back for life.

    Sharing experiences is very important for the readers so they understand that not all is lost. Thanks for sharing this post, I'm sure many people will benefit from it.

  3. queenlbee says:

    I'm glad you have such a positive attitude about the bankruptcy. I know PLENTY of people who would have taken the bailout. Good for you!

  4. Budget & the Beach says:

    Glad you found important lessons from your experience! Although I've never had that happen, I've been seriously broke where I didn't know how I'd survive until the next paycheck (and that was when I was working full time and knew when the next pay check would be). That was in my 20's though and I got way better as I moved into my 30's. But as a freelancer I'm re-learning these lessons again because I don't have a steady paycheck. I'll get there. (and hopefully I will have a full time job soon!)

  5. Modest Money says:

    This sounds like a truly life changing experience, even if it took several years to realize it. I know I personally have assumptions about people based on outward appearances. I wouldn't expect people who seem well off to possibly be facing big debt. So you've got the improved awareness of people and the wake up call about your spending. I am surprised they let people in bankruptcy keep everything they bought though. I think that limits the initial lesson a lot.

  6. @frugalportland says:

    I did not know you went bankrupt — that you are so with it today is inspirational. You are right — it sometimes takes these hard lessons to learn how to be less of a spender. Kudos for coming out on the other side!

  7. Crystal@PET says:

    We invested $15,000 in a friend's business in 2007 and watched it crumble despite our best efforts. We learned to only trust ourselves when it comes to our money.

  8. Simple Finance says:

    My aunt went through bankruptcy almost a decade ago, and I was shocked at how much she was able to keep.She lived in Florida at the time, and was even able to keep her main residence!

  9. SB @ OCAAT says:

    I didn' t know about ability to keep personal belongings including your primary residence in bankruptcy. The way I see it people may exploit the system. Its one way to get every for free, using credit cards and never paying them.

  10. BalancingMoney&Life says:

    While I've never filed, my husband did with his ex-wife. Did he learn from it? Yes, but not at the time. Even now we have tons of debt, we're just still at a point where it is manageable and we are working to pay it off because it hasn't overwhelmed us completely yet.

  11. Monica says:

    I always try and put some of my salary away in my savings and then ill spend the remaining on bills and then will treat myself with any money that is left over. It usually does work. I think i learned from my mistakes before where i was out of a job, didnt have any savings and was using credit cards and my debt just grew!

  12. kathryn says:

    Bankruptcy is a joke. It is exactly a "get out of jail free card" except for the people who you owe the debt to. We have a business, and when our customers declare bankruptcy, we don't see a penny of any repayments. No % on the dollar. We are just required to absorb the loss, with no recourse.
    The person should be required to give up almost everything and start from scratch.

  13. Teinegurl says:

    My mom just filed for bankrupcty. Then me and her got into an arguement because she wanted me to change schools thus adding more debt to me which i refuse to do and she doesn't understand why. I'm not going to take advice from someone who just filed bankruptcy and her student loans are deferred (hopefully not defaulted) so in my eyes she is not repaying ANY of her obligations which i am committed to doing. The only reason why i say that is because I KNOW for a fact she didn't learn any lessons. It has made it hard for her to get a good car and that has cost her $$$.

  14. Charlotte says:

    Good Job on recovering from the bankrupcty. I don't know if I could have done that. I wish you all the best in coming back from those times.

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