Thought Question: Advice from a Saver to the "lost" in this economy?

[JourneyCC]

I continually get asked by friends and family "what should I do?" type financial questions, since they know I'm a saver and "wise" with my money. That said, lately the question in this economy is more often about debt settlements and bankruptcy advice.

I think it's easy for us Savers to get a little snooty with how others might spend their money less frugally and find themselves in a world of hurt.

So, I'm wondering what other financially wise people would advise about Bankruptcy in terms of how much debt to income?

I have 5 sets of family and friends right now and truthfully, I'm not sure if BK or debt settlement or take 10yrs to get current is in their best interest? Since they are familiar to me, I tend to make my advice on their "styles" and discipline levels.

But it got me thinking.........what would you guys (gals) advise, even if crapshoot, as to the breaking point of filing BK? Would it be 1x, 2x, 3x debt ratio to income level?

Here's what I have so far:

#1 Couple make 120K yr, with 105K in recent c/c debt due to house issues (responsible couple who pay on time never late but really struggling).
#2 Couple make 150K yr,plus 50K yr in under table money (not responsible) with 65K in credit card debt, already have 3/5 cards in settlement but are thinking BK now?
#3 Single parent with 22K in c/c debt (mostly attorney fees) who is responsible but only makes 38K a year.
#4 Single person, 19K in c/c debt, makes 55K a year, but can't make a payment on time to save their life.

I know what I have or want to tell each, but wondered what you guys thought?

So, my main question is what is your BK breaking point? What is the monetary number? (in regards to income level)

[maat55]

We would have to see actual numbers first, then make recommendations based on what we would do.

Some have more stomach for getting out of debt than others. Some are willing to sell houses, cars etc. some are more bound by their morals than others.

I see BK as failure and would fight not to do it, but I am cautious not to put my self into that position. Sometimes good people are forced into by circumstances beyond their control, that's where seeing the numbers come in.

You can only say to them what you would do in their situation with full knowledge of their situation.

[disneysteve]

I agree that there isn't enough info there to say anything one way or the other. We'd need to see the whole picture - income and expenses.

Just with the info presented, at the very least, couple #2 shouldn't have any trouble. With an income of 200K, debt of 65K shouldn't be an issue. Of course, that depends on the big picture. Do they have a mortgage? For how much? How about car loans? Have they trapped themselves into a lifestyle that they can no longer afford?

[Seeker]

Not really enough details to advise anyone here.... but generally I feel that BK is a very last resort. It ruins everything for ten years after the fact, and makes it difficult to obtain employment, rent, get insurance or loans of any reasonable kind.

To me, people whom are working or are able to work, should be doing anything and everything they can to meet their debts and providing for themselves and their families, to include selling of any assets that are not necessities.

If they cannot meet debts & provide due to no fault of their own (accidents/loss of health, acts of nature,loss of work, loss of property, loss of family/divorce, etc), BK can be a way to start-over. If they cannot provide because of their own fault (poor decisions), it's another matter.

To me, your groups of people, are working. Some have already modified and agreed to some changes. They may need to agree to more changes.

There's not enough detail to make a determination... and certainly the courts will ask for all the details. I don't think it's as easy to get a pure dischange today as it might have been years ago.

So, my main question is what is your BK breaking point? What is the monetary number? (in regards to income level)

But there's no monetary value that we can provide that will "fit" all cases.

Different states and locations within each state have different COL, and numbers do not mean anything by themselves. It's not a ratio of income to expense.... it's a ratio that's individual, based on the whole of their situation.

It's not purely a question of numbers, but very much also a question of what got them to the BK point.

[PetMom]

These are some good points the commenters are bringing up.

What is the financial personality of each case. Their detailed lifestyle spending habits and expenses. What assets do they have that could be confiscated or protected.

I would also be cautious about advising BK to someone that even though a friend could later blame you that what you advised was not in their best interest in their opinion.

Some people through total carelessness, wild spending and a deliberate denial of the realities of money get broke and file for bankruptcy. Then they go right back to their spendthirft ways as soon as they can and think of bankruptcy as a way out of their problems.

And, true, some really do fall on hard times and may have little choice.

The laws about bankruptcy have supposedly changed and it is possible these people may need to speak to a bankruptcy attorney about their options.

Just because a person makes an appt. with a bk att does not mean they have to file.

[lovcom]

It sounds as though the list of folks in trouble provided by the OP shows typical Americans, sadly. Lots of consumer debt. There is not enough info on their plight, however there is the obvious advice which might apply to some or all of them:

1. Build 6-9 months of savings/reserves.
2. Pay off aggressively the lines of credit.
3. Place a moratorium on descretionary spending.
4. Get a good plan and stick with it.

[Seeker]

It sounds as though the list of folks in trouble provided by the OP shows typical Americans, sadly. Lots of consumer debt. There is not enough info on their plight, however there is the obvious advice which might apply to some or all of them:

1. Build 6-9 months of savings/reserves.
2. Pay off aggressively the lines of credit.
3. Place a moratorium on descretionary spending.
4. Get a good plan and stick with it.

This is not a "typical American" only trend.... it's a "typical human" trend in these days of competition, comparing and greed.

Humans are fallible, it does not matter their ancestry, creed, nor where they reside.

[snafu]

Age is a major factor in the decision making process as there will be consequences for 7 yrs. DTI [debt to income ratio] is the math formula for unsecured debt, 36% is a tipping factor but it depends on the median income in the area. Most states/provinces require applicants take a 'Means' test to determine their eligibility to file for BK.

[maat55]

Personally, I don't see any of them needing to file BK. It all comes down to how badly do they want to straighten up and sacrifice to do so.

#1) Adjust their lifestyle to live on 40k and they could be out of debt in less than two years.

#2) Should be able to cut their budget to the bone and be out of debt in a year.

#3) Adjust lifestyle to 28k and be out of debt in about 3 years.

#4) Adjust lifesyle to 40k and be out of debt in less than two years.

Adjusting lifestyle could mean selling homes, cars, working extra etc. Problem is that too many people don't won't to deviate from the status quo. They feel entitled to what they have and will not make big changes to pay their debts and build savings.

When someone is motivated and does not care what others think, they can move mountains. Iv'e seen people with real character toil for years to pay back their debt and then those who feel entitled to run up debts and file BK.