patrick.net

how much tax do you owe on all that forgiven debt?

Bravo!! You are definitely one of many in this Great Country we call America. People the Government
and the Banks have let all of us Down the toilet because the stimulus was only a bailout for the Banks!

Banks were Bailed out and are now sticking it to the American Consumer by creating the illusion that
they are going to help us ? They are not!! Ok the only solution would then be to write down all current Mortgages to the current Market Value and Modify the loans so the whole Mess could be cleaned up!! The Banks already wrote down the Value of all their current Assets ie ( Bad Loans )that was what the Bailout was for!! Yet they have not and probably will not pass those write downs on to the consumer because they want to devalue the Assets (ie loans) but not Modify loans at any reduction of principle only interest. So why should I keep my Home which is currently under water lets say I owe 500k but the Value is only 300K. The bank is only offering to Modify at the 500k and will not reduce principle because they want to strap you with a long term note in the hopes that the value will come back someday??? The only option is to Short Sale the property and go Buy A Foreclosure which they are selling at the Current Market Value ie 300k or less. I have more... got to go call my Bank and start the Short Sale.....

The banks most definitely calculate in exactly how many people aren't going to pay. They also calculate in how many they can say "you have to pay us!" and will actually do it. They calculate in lots of factors. If they completely fail, they can close up shop or they can talk to the government and say here are the options we close up shop and destroy the American economy or you help us out. The government weighed it's options and said it's too expensive not to prop you up.

The home owner might not have to legally pay back the loan, but it's a business decision for them as well. How much will this cost to walk away from? How much of their time will be spent trying to get rid of debt collectors? How much will it cost to get a lawyer to sort through everything? For most, it's not worth it, and just the banks letting it be known they're going to make it hard is enough to keep many people paying. They don't have to, but they've decided it's the best path for them. Unfortunately many simply don't understand their options because they're not business minded people, they're consumers.

MM isn't necessarily bragging, but could be. She played by the business rules that the banks and credit cards set forth, which they deemed to make them the most money and didn't do too badly in the end. Had some of her investments paid off, she would have made a fortune.

A venture fund company is looking for something like 1 in 20 businesses to succeed and 19 to fail. Their biggest gamble is knowing when to pull the cords on the 19 bad ones, when they're sure they're dead. They openly gamble with their money, knowing 1 will succeed and make them extremely wealthy. It's the same systems banks, and credit cards use. They enter in all the facts and figure out which bets are the best.

If regulation changes, then those companies will go away and new ones will form. They've always been there. Thousands of years they've been practicing.

People don't have to use their products, they just do it because they want to. No one is forcing credit cards on someone, no one is forcing them to charge big bills up. They do it themselves. It's unfortunate that they don't understand it's healthy for them. But they will take anything that is offered to them.

Two wrongs don't make a right but I don't hold any real grudge against Malcomb, though
I hope that the lesson of frugality is the best strategy, or he will eventually get trapped in
financial mess if not careful.

The bigger issue is the system, guys like Malcomb are small numbers in a very corrupt system.
Malcomb had no bailout money, loss of income, and unsustainable lossed to stocks and housing.
The big fish run the country, make no doubt about this, they have all kinds of options and
free government guaranteed bailouts, bonuses, salaries, and other entitlements.

I think it is safe to say that Thomas Jefferson would be far more concerned with the elite society,
than some guy who made a few bad judgements and was able to find the light of day.

If you really want to stick it to the credit card companies - STOP USING THEM. If everybody stops using them, they're gone.

Our economy will be dysfunctional until people can find stability in their lives. A family is a long term commitment. A mortgage is a ( if you can't get out of it when you need to) long term commitment. But on average, jobs last only a few years now. How can anybody KNOW whether they're going to be able to meet a long term commitment successfully with it all dependent on something that has become progressively unreliable. In ten short years, huge numbers of people had to shift from being dot.com engineers to real estate brokers - jobs which have little to do with each other. Just as in Weimar Germany, as people found their incomes could not support the basic necessities of life, they turned to speculation. Gaming the system. Just like we are doing now. The ones who smugly proclaim they "live within their means" come out of the woodwork during the bust period, the ones who make millions on things like Pets.com come out during the boom. But beneath it all is a system rotten to the core. A system, a government, a central bank who cares nothing for the American people.

Is it perhaps the attitude of the MM 'haters' that creates the opportunities for the Banks to play the system to its advantage?

This is an excellent post by MM. It is an example of how moral hazard is created through easy credit. The problem is that when the loses started, the financial institutions needed to be accountable for the failure by failing. But the loses instead were socialized. The justification by the government was TBTF or systemic risk (barf!).

What MM did was allowed by corporations that knew they could do it without any downside risk or the real possibility of failure. This is corporate communism. Any real company that was lending with the real danger of the possibility of failure would have pulled back and not made the large unsecured credit card extension or mortgage loans to MM without a great deal more scrutiny.

Two things happen in communism as we are starting to see. One is that people stop working hard and doing the right things because they are not going to benefit from doing the right thing (MM is a perfect example). The second result of corporate communism is that our currency eventually collapses due to the weight of failure it continues to socialize.

Corporate communism is the result of people pursuing unrelenting personal self interests. And then people and corporations justify their actions by saying it was for the public good (corporate) and by playing the victim (personal) as MM did with his example. Both actions by big corporations and individuals are taken without regard to the right and wrong of such actions in a communist system.

The federal government only reflects the lack of moral convictions that our electorate possesses, and as a result our elected officials have allowed the corporations to grow without controls and without failure.

Capitalism without failure will eventually lead to communism or socialism. In essence, we have become here in the US at least partially a communist state. Once this process starts, as is has, it is difficult to prevent this process from continuing without a great deal more pain than if we would have done the right thing in the first place. The right thing was not allowing big corporations to become so big and so influential that they become “too big to fail.”

Welcome to the second American revolution. Right now communism is winning hands down. MM is only a symptom for the ongoing plundering of our once great society.

One bankruptcy, one foreclosure and you are out of credit market for life. That's the way to fix broken credit system.

a bit harsh, but I do agree with dadab.

Give me a break, if that were true of the banks that were just bailed out I would say fine. Also include Doctors, one malpractice incident and give up your license.

nubbers says

Is it perhaps the attitude of the MM ‘haters’ that creates the opportunities for the Banks to play the system to its advantage?

Wow - you just hit the nail on the head. Exactly !!!! Incredible observation.

m. m. i approve of your gambit,although i have been meeting all my own financial obligations. when the bottom really falls out of this economy many will follow your path. A debt jubilee is probably where we are headed in this country in next two or three years.

I must be from the old school. I remember years ago, to get a credit card you need to qualify. Example: Where you work, Salary Amount, work history, etc. I remember being excited getting my first credit card in my 20's to establish my credit. At that time the Banks had to know everything about you. So my first Credit Card was a Mobile Gas card. Later, Master Card and Visa's were born.
I have to blame the Banks for not doing their part, they started giving money away without question, or just a few simple questions, nothing like the old days. How does someone get a Credit Card if they are not working? Today, friends would tell me they would received a credit card in the mail and all they need to do is answer a few questions, Bingo the card was ready to charge until their hearts content. The Bottom line. the Banks stop doing buisness the old fashion way and got really greedy by collecting more and more on the interests.

Geez, I hope the "debt jubilee" can wipe out my $86k+ in student loans that I'll be paying off until I'm eligible for Social Security.

I applaud you MM. Almost three years ago I was up to $29K in credit card debt. I had been a perfect credit consumer up to that point. But after coming to the Bay Area to go to grad school and enter into a field where I get paid peanuts I knew I was in trouble. See, I went to school and worked full time. I finished my 3 year grad school degree (I had a specialty that required an extra year) in 3 years. I worked my a** off. I made only $12 an hour because that's what people get paid in my industry to do some really difficult work that needs to be done by somebody (mental health field).

BTW, I spent the $29k on rent, groceries, gas, health insurance, etc. I got nothing glamourous and I took no fancy trips. I just needed to meet basic living expenses which were exhorbitant here in the good ol' Bay Area.

Then I spent over 7 months after graduation without the aid of student loans to cover living expenses and credit card payments looking for an internship where I could be paid a living wage (not a high wage at all, since they don't exist for my line of work). I was still making $12 an hour. Obviously I had to use more unsecured credit. Once I finally landed that paid internship I was so far under I couldn't possibly keep making payments on a debt that just kept building due to increased interest because all of a sudden the banks discoverd that my "debt ratios" were "undesirable" even though I paid on time every time on each of my credit cards. I think I was up to 30% on most of my interest rates even when I was paying everything on time. I got very disgusted and discouraged. I tried negotiating with each bank and credit card to bring payments in line with what I could afford so that I would actually be able to pay down balances. Do you know what the banks did? They raised my interest rates again and increased my minimum payments.

That put me in the position of having a job where I was paid just enough to finally meet living expenses and to make only some debt payments like my car loan and student loans, but not enough left over for the close to $1000 in total minimum payments on my credit card debt. What was I to do? I had played by all the rules so far and the banks weren't willing to negotiate with me in good faith so we could work something out so I could meet my financial obligations.

Instead of going bankrupt I signed up for a debt settlement program. I stopped making any payments because I was advised that banks won't negotiate until you are behind in payments. Isn't that ridiculous? And they created much of the problem in the first place by raising all my interest rates and minimum payments just because they didn't like my "debt ratio" even though I was making on time payments for all cards. So, I decided to stop paying. It was the best thing I ever did. I paid $400 a month into a trust account that would build until I had enough money to bargain with each credit card company as they were willing to settle.

It took 3 years, but now I'm credit card debt free. I've settled with all of these banks and cards. Yes, I borrowed from Mom to help with the last one, but bank Mom has great interest rates (0%) and I can pay her back over time and she won't raise my minimum payments. I give her payments each month toward my debt to her and I'm slated to be done with paying her back in a couple of years.

I can get a credit card now. My "debt ratio" is now favorable and my credit scores have come back because I'm paying off my car loan on time, every time and I'll be done with that in April 2010. Do I want a credit card again? Hell no! I don't want to get into that trap again where I hand my power away to banks who don't care whether or not I can eat or put a roof over my head while paying them back. They showed me no mercy or compassion as a loyal "on time" payer on my accounts for years.

So MM, my hat's off to you. Just don't get another credit card again. I won't. Hopefully that will change things so that these banks will start offering cards with terms that make sense for both parties. If (and it's a big if) the banks ever offer any cards that have fair lending practices again where they can't change the contract at a whim every time the wind blows in a different direction, then maybe I'll consider getting a credit card.

I won't hold my breath.

Nomo,

I am sorry about your son.

Your letter reminds me that Bush's daughters did not serve in Iraq, nor did many other close family of the Congress that authorized that adventure. It's a safe bet that no kids of senior execs in companies that got taxpayer bailouts, and yes, are getting their bonuses partially paid with taxpayer bailout money, had any kids go to Iraq either.

How would you feel about a "wealth tax" (different from an income tax,but maybe a high-income surtax, too) to help out the families of our enlisted, who may have stressed out spouses trying to make loan payments and juggle child care while they're serving in hostile places? Maybe if those elites could make a small sacrifice like that, our military can reserve its stress for the job they're doing instead of the financial pressures they leave (actually, carry with them) during their deployments.

sybrib says

How would you feel about a “wealth tax” (different from an income tax,but maybe a high-income surtax, too) to help out the families of our enlisted, who may have stressed out spouses trying to make loan payments and juggle child care while they’re serving in hostile places? Maybe if those elites could make a small sacrifice like that, our military can reserve its stress for the job they’re doing instead of the financial pressures they leave (actually, carry with them) during their deployments.

I'm not a big fan of taxing. We pay, and pay, and pay. However, we are paying our military next to nothing to defend us (and also to go places we have no business going, imho). We expect them to act like machines and place them in horrific circumstances, and their families go without them for months or years. All of this while we pay them hardly anything.

We should beef up VA benefits, provide better housing on base and better subsidies off base for our military. We should honor these young men & women who give up a chunk of their lives and blindly go where they've been ordered to go. We owe them as much. I think we should spend less on bullshit and more on supporting our military men & women. And we should treat them with the respect that they deserve.

Nomo, I read your post about how you didn't stick it to the cc companies, and you have my sympathy. If only you had someone as savvy as the OP to help you through, you'd be the owner of nothing (maybe some cheap land somewhere) with lousy credit and a bad attitude. You're a victim of your value system (which you passed along to your children) - and where did that get you? Oh, yea, you can sleep at night. But sleep is over-rated.

:)

Hats off to Patrick and MM for posting this great viewpoint and huge gold stars to Nomograph, Elliemae and all other participants for a great slice through our problems today. At least a few of you have provided a moral light that so many seem not at all concerned about. If the Banks and the Goverment is full of slimebags must we all be? They set no example for correct moral behavior so we are left to our own devices. Personal integrity still matters, no matter how much money one has in the bank and shame to those who don't recognize it.

Blue Swan says

I started the decade out $40,000 in debt to credit cards.
Today I have thousands in savings.
I use my Chase Card and get Rewards points for every dollar I spend.
I recently bought a Dynex 32″ LCD TV on sale at Best Buy for $300.
My Chase Rewards points added up to a $100 Best Buy gift card, so it only cost me $200!
I hooked it up to my PC and now stream Netflix movies in big screen.

YOU ARE AWESOME !!!

Or you could have just not done all those things with your credit and been just fine too.

wbmoran says

Hats off to Patrick and MM for posting this great viewpoint and huge gold stars to Nomograph, Elliemae and all other participants for a great slice through our problems today. At least a few of you have provided a moral light that so many seem not at all concerned about. If the Banks and the Goverment is full of slimebags must we all be? They set no example for correct moral behavior so we are left to our own devices. Personal integrity still matters, no matter how much money one has in the bank and shame to those who don’t recognize it.

My grandparents taught me that it's dishonorable to not pay your bills. If you don't pay a credit card payment, somewhere down the line someone can't eat. Of course, it's not that simple, but applying that concept in all my dealings has made it easier for me in the long run. I've had some very rough times, hopefully they're in the past but you never know. I do know that I will continue to try to honor my family and live to my values. If I ever do file bankruptcy, it will be because of circumstances well beyond my control and not because I was proud to have screwed the system.

Perhaps honesty, ethics & morals aren't someone else's forte. I get that. But bragging about it invites people who disagree. The OP wanted attaboys, and imho came to the wrong place for them.

dont_getit says

I personally think only the people who met with unfortunate events(widowed, health issue etc) should be allowed to bankrupt. All others, they should keep paying the price long, so they can teach their kids to be responsible.

We don't apply this standard to banks and corporations, we give them all kinds of handouts and do-overs when they are in a hole. Why apply this harsh standard to individuals? If we "lead by example" it must start from the top. The Bankruptcy Act of 2005 does precisely what you say, tries to make sure NO CITIZEN ESCAPES their debts. In fact it seems to be backfiring. The law of unintended consequences applies.

We already pay a war tax. We call it an income tax but it's a war tax. Notice how we've never really not been at war since it was invented or made permanent. Something always comes up to keep the corportate voters in California happy. I know, that's not fair because by now that virus has spread to the entire country.

Okay, I'm adding one more thing, but because I do pay all my obligations, so internet time is of essence. The banks of today (deregulation/ I think Reagan) and credit card companies prey on people like mm. They don't prey on people like Nomo and me, but Nomo where you and I differ is that I don't see people like mm 100% percent responsible the first time around. And, once he got into trouble I'm glad his pride took a back seat and he decided he could work it out less screwed than more morally correct. (Especially since he contacted them when he first lost his job) Suzy Orman has been saying for years that you should dump on your unsecured credit cards to keep your house, I respect that advice because anyone in the industry knows that the banks/credit card companies will slime anyone susceptible. As for all the upstanding, morally in tact who have worked hard and never had a problem, I'm glad your retirement and savings wasn't tied to Enron...the peak of the corporate iceberg we have hit. And, yes before Enron there really was a Santa and all Americans were solvent and our financial morality was in tact.

MM, with all due respect, if any of your creditors could trace this post to you, they may be inclined to attempt to bring you up on fraud charges. The fact that you "Deposit[ed] some of this money into [your] sister-in-laws account in Mexico." Makes it sound as if you knew full well that you had not intention of paying the money back, and attempted to hide it in advance of your bankruptcy. Certainly, that may not be the case, nor I am trying to say that it is. I am simply pointing out that the way your initial point comes across, such an argument could be made.

Best of luck in Mexico.

EastCoastBubbleBoy says

Makes it sound as if you knew full well that you had not intention of paying the money back, and attempted to hide it in advance of your bankruptcy

The original post was written in haste and with cynicism and sarcasm. Nothing was illegal. Nothing was planned. All monies were moved a year or two before the bankruptcy. No laws were broken. All the money would have been paid back if the condo in the story was sold and if the stock market didn't crash. I lost over 25k just in the market - probably all went to Government Sacks. All the debt was "covered" +/- 10k.

I make mistakes and fail and I am tossed into the wood chipper feet first. The million dollar a year Banksters fail and it is just business as usual.

Bank Failure Friday Roars Back: Six Banks Fail, Costing FDIC $2.6 Billion

MacombMichgan says

dont_getit says

I dont understand why you were laughing all the way to the bank

The debt would be impossible to pay back at the rates the banks were charging – not possible. I am laughing because I am trying to understand the logic the banks are using. I have read many stories about the same situation. People can’t pay when the payment triples. If they didn’t raise the rates maybe people could pay because it IS possible. What is their strategy, to make it impossible to pay? What is the logic?

Honest I can't say I blame you, I might have done the same thing myself. I'm not thrilled about the level of debt you gotten yourself into, but you were making the payments. It wasn't until the credit card companies universally decided to shaft you that you decided to shaft them. Honestly I don't know where there logic is. My guess is they did a cost/benefit analyst and found that when they raise the interest rate to 29% that enough people continued to pay to cover the people that defaulted on there Credit Cards. If everyone universally defaulted on there cards when they raise the rate, you can sure as hell bet they wouldn't do it.

Interesting enough, in most states, cap interest rates at 42%, any more than that, it's considered Loan Sharking. In Japan the rate is set at 29.2%.

This post shows how a minor event can trigger a person's financial collapse if they have a high debt level. A similar thing happened to me... lender misplaced a check I sent for a business line of credit pay down. I sent another with clear instructions to not cash the first. They cashed both, one check bounced, the lender gave no consideration and closed the account without warning. Without the ability to carry employees through the off-season I eventually had to lay everyone off and close the business. Now the lender is coming after me personally and I will declare bankruptcy if necessary. Wells Fargo by the way - one of the recipients of taxpayer bailout money.

Banks have no morals. Borrowers are at a distinct disadvantage if they moralize. I am in Professor Brent White's court - think the same way as the banks.

"Playing by the rules is obviously for suckers like me"

You aren't a "Sucker" for playing by the rules. Just don't get too far into the game. If you're one of the dwindling few that still have a conscience, you'll be able to look in the mirror and feel ok; you'll sleep at night; people (who count) will talk about you with respect and admiration--when you're not around (the people who don't count will despise you for having honesty, integrity and the admiration they'll never receive)..

We've eroded into an increasingly narcissistic, lazy, sociopathic culture. TV makes me sick. It's a non-stop ad blitz for loans, cars, homes, toys, clothes and other wallet emptying scams. Bread and circuses. There are those who can be brought back from the abyss, but its going to take some serious pain first to open eyes IMO. Unfortunately, many who seek high levels in politics and business are pretty scary critters...they don't give a s**t about long term...its all about the short term bottom-line and sticking it to the other guy.

Keep the faith. Your integrity is worth more than selling your soul.

DOC

"21. Soon all other cards raise their rates to 29%.
22. Panic for about 1 minute.
23. Reduce my hours at work and stop all payments to all credit cards and condo.
24. File for bankruptcy.
25. Return security deposit I received from my condo tenants and tell them to live there rent free for as long as they can.
26. Bankruptcy finished (about $90,000.00 debt erased). Increase hours at work. Continue building house in Mexico.
27. Laughing all the way to the bank."

Even a child can glean from your post that you're seriously lacking in integrity. To borrow so much money against credit cards speaks volumes. To engage in such spurious transactions wreaks of irresponsible, unaccountable laziness.

For ANYONE to assert that these traits are limited to their incredibly lame financial acumen is wishful thinking. I pity those who get close enough to such people and discover what they're all about. If they're smart they'll RUN.

God forbid one actually SAVE first then buy something...

Laughing all the way to the bank you say? Clearly, 29% credit card rates is insane, but still, the only laughing I can fathom is others laughing at you behind your back when you try to cry foul--at getting where you got. If you had used your cards the way they should have--you could have paid them on the spot. If you can't pay your cards in full ANYTIME--then don't have credit cards.

DOC

It funny listening to the outrage - all he did was beat them at the game by deciding that it was time to stop playing. The company extended an absurd amount of credit, and in true capitalism, mistakes like that are punished, i.e. he takes a hit to his credit score and the credit card company takes their lumps. Ultimately we need less credit out there, so ideally more events like this would happen until the credit card companies either smarten up or go bankrupt.

For anyone having moral issues with this, remember that they're in it for the money 100%. They are not your friends. Don't forget that aspect.

It funny listening to the outrage - all he did was beat them at the game by deciding that it was time to stop playing. The company extended an absurd amount of credit, and in true capitalism, mistakes are punished. Ultimately we need less credit out there, so ideally more events like this would happen until the credit card companies either smarten up or go bankrupt.

For anyone having moral issues with this, remeber that they're in it for the money 100%. They are nnot your friends. Don't forget that aspect.

MacombMichigan says

I make mistakes and fail and I am tossed into the wood chipper feet first. The million dollar a year Banksters fail and it is just business as usual.
Bank Failure Friday Roars Back: Six Banks Fail, Costing FDIC $2.6 Billion

Don't brag about being a loser, and we shant toss you into the chipper feet first. By the way, it's more like head first, so we don't have to listen to you brag about how you screwed the system. wjm456 says

For anyone having moral issues with this, remeber that they’re in it for the money 100%. They are nnot your friends. Don’t forget that aspect.

Neither is MM - he manipulated the system and brags about it. I would prefer to have friends who I can trust.

I think it's seriously ironic anyone who defends the banks. All the financial problems that we are going through you can attribute to the banks being greedy and finding new ways to screw you out of your money. If you think that fair play is involved you people are serious idiots. The way eveything works in the world is how can I screw you out of your money. People are brought up to think that you must play fair, pay your debts etc, crapola. Thats just what corps and the rich tell the middle class to keep them complacent.

msmonroe says

People are brought up to think that you must play fair, pay your debts etc, crapola. Thats just what corps and the rich tell the middle class to keep them complacent.

I agree people should play fair... when the banks do. When they all jack up there interest rates when you were late on some other bill, that's complete bullshit. Most banks are looking for any excuse to make more $ off of you, if they don't play fair, why should we?

iluv2padl says

This post shows how a minor event can trigger a person’s financial collapse if they have a high debt level. A similar thing happened to me… lender misplaced a check I sent for a business line of credit pay down. I sent another with clear instructions to not cash the first. They cashed both, one check bounced, the lender gave no consideration and closed the account without warning.

A smart person would have issued a stop payment on the first check. Your not dealing with a Mom and Pop outfit there. The person that answers the phone isn't the same person that deposits the checks, they may not even be in the same state. This is partly your own fault.

Credit card companies make their money on the weak. How many of us have had lines of credit cancelled in the past 18 months because we were paid in full? I know I have, and I've got a credit score over 800.

Just to throw a little gas on the fire ......... The laws of nature and survival would put your self-interest above all else.

Professor White says:

Giving up, then, would be bad. Unless, of course, giving up on a debt, i.e. walking away from your mortgage, is the soundest financial decision you can make. Professor White would suggest it is OK—smart even—to give up strategically, when doing so is in your self-interest.

It is amazing how much morality gets brought into debt payment discussions.
What is immoral is that MM had access to $90k of unsecured debt. From the minimal information provided a rational level of unsecured debt for someone like MM would be about $5k. This is an amount that a creditor could lend and re lend to MM forever and have a very good expectation of re payment. Lending sums like $90k to financially unsophisticated people - which is 99.99% of the population - is wrong morally and also just plain stupid. This is like putting a kid in a room with candy and saying that they will have to do an hour of chores for every candy bar two years in the future.

m1ckey6 says

It is amazing how much morality gets brought into debt payment discussions.
What is immoral is that MM had access to $90k of unsecured debt. From the minimal information provided a rational level of unsecured debt for someone like MM would be about $5k. This is an amount that a creditor could lend and re lend to MM forever and have a very good expectation of re payment. Lending sums like $90k to financially unsophisticated people - which is 99.99% of the population - is wrong morally and also just plain stupid. This is like putting a kid in a room with candy and saying that they will have to do an hour of chores for every candy bar two years in the future.

Yea, he's a victim. and stuff.