Dear Secretary Betsy DeVos: Please do the right thing and allow distressed debtors to discharge their student loans in bankruptcy

Dear Secretary DeVos:

You have been Secretary of Education for about  a month, so you know the federal student loan program is in shambles.

Eight million borrowers are in default, millions more aren't making payments while interest accrues on their debt, 5.6 million people have signed up for income-driven repayment plans and are making payments so small that their debt is negatively amortizing even though they are faithfully making regular payments.

Obviously, there are dozens of things the Department of Education can do to address this crisis, but you can easily do one thing to help alleviate mass suffering and it is this: Please direct DOE and all its student-loan debt collectors to stop opposing bankruptcy relief for distressed student-loan borrowers.

In 2015, Deputy Secretary Lynn Mahaffie issued a letter stating DOE and its debt collectors would not oppose bankruptcy relief for student-loan debtors if it made no economic sense to do so. But in fact, both the Department and its agents oppose bankruptcy relief in almost every case.

And here are just a few examples:

• In Myhre v. U.S. Department of Education, the Department opposed bankruptcy relief for a quadriplegic who worked full time but could not make student-loan payments and still pay the full-time caregiver he needed to dress him, feed him, and drive him to work.

• In Abney v. U.S. Department of Education,  DOE urged a bankruptcy court to put a destitute student borrower into a long term payment plan even though the debtor was living on $1200 a month and was so poor he could not afford to drive a car and was riding a bicycle to work.

• In Roth v. Educational Credit Management, ECMC fought an elderly woman's efforts to shed her student loans even though the woman had a monthly income of less than $800 a month and suffered from several chronic health problems.

• In Edwards v. Educational Credit Management Corporation, ECMC argued to an Arizona bankruptcy judge that a 56-year-old counselor who owed $245,000 in student loans should be put in a 25-year repayment plan whereby she would make token payments until she was 81 years old!

Some of these cases were decided before Mahaffie's 2015 letter and some were decided after, but the dates are immaterial. DOE and its agents almost always oppose bankruptcy relief for student-loan debtors, no matter how desperate their circumstances.

In fact, DOE's position is essentially this: NO STUDENT DEBTOR IS ENTITLED TO BANKRUPTCY RELIEF. Instead, everyone should be placed in income-driven repayment plan  (IDR) that can last for 20 or even 25 years.

But you could change DOE's position simply by signing your name to a single letter. That letter should say that DOE and its debt collectors will no longer oppose bankruptcy relief for student debtors who cannot pay back their college loans and still maintain a minimal standard of living. And DOE will no longer argue that IDRs are a reasonable alternative to bankruptcy relief.

If you did that, hundreds of thousands of insolvent college-loan borrowers could discharge their student debt in bankruptcy and get a fresh start--a fresh start the bankruptcy courts were established to provide.

Your advisers may argue that the IDR program offers college borrowers a reasonable way to ultimately pay off their student loans, but that's not true. Do you think Rita Edwards would have ever paid back the $245,000 she owed the government by making payments of $81 a month in an IDR as ECMC proposed in her bankruptcy case? Of course not.

Do you think Janet Roth would have ever paid back her student-loan debt of $90,000 if she had been put in an IDR that would have set her monthly payments at zero due to her low income? No, and it was absurd for ECMC to have made that argument in Roth's bankruptcy case.

The stark reality is this. Millions of student borrowers have seen their loan balances double, triple and even quadruple due default fees and accruing interest. Putting these people into 20 and 25-year repayment plans that only require them to make token payments is insane.

Secretary DeVos, you could eliminate so much suffering if you would simply write a letter stating that DOE will no longer oppose bankruptcy relief for people like Myhre, Edwards, Roth, Abney and millions of other people in similar circumstances who will never pay back their student loans.

Please do the right thing.

References

Abney v. U.S. Department of Education, 540 B.R. 681 (Bankr. W.D. Mo. 2015).

Annual Report of the CFPB Student Loan Ombudsman. Consumer Financial Protection Bureau, September 2016.

Ann Carrns. How to Dig Out of Student Loan Default. New York Times, October 21, 2016.

Rohit Chopra. A closer look at the trillion. Consumer Financial Protection Bureau, August 5, 2013.

Edwards v. Educational Credit Management Corporation, Adversary No.. 3:15-ap-26-PS, 2016 WL 1317421 (Bankr. D. Ariz. March 31, 2016).

Lynn Mahaffie, Undue Hardship Discharge of Title IV Loans in Bankruptcy Adversary Proceedings. CL ID: GEN 15-13, July 7, 2015.

Myhe v. U.S. Department of Education, 503 B.R. 698 (Bankr. W.D. Wis. 2013).

Roth v. Educational Credit Management Corporation, 490 B.R. 908 (9th Cir. BAP 2013). Available at http://cdn.ca9.uscourts.gov/datastore/bap/2013/04/16/RothV%20ECMC%20opinion-FINAL%20AZ-11-1233.pdf

Matt Sessa. Federal Student Aid Posts Updated Reports to FSA Data Center. U.S. Department of Education Office of Student Aid, December 20, 2016.

Newman University and Paula Maxine Edwards: Does a college have a moral duty to warn students that some of its programs are not financially worthwhile?

Paula Edwards attended Newman University to become a school teacher. 

Paula Edwards, a single mother with two children, obtained a bachelor's degree in education from Newman University, a small Catholic college located in Wichita, Kansas. Newman's tuition rates are higher than public universities in Kansas, but Edwards chose Newman because she could take most of her classes in the evening while continuing to work as a paralegal.

Edward's education degree qualified her for a job in education, and in the fall of 2016 she was in her fourth year as an elementary school teacher in Wellington, Kansas. Edwards' teaching job does not pay well; she makes only $35,300 a year. Moreover, unless she obtains more education, Edwards' salary will not go up much. In fact, her salary is capped at $35,700--only $400 a year more than she is making now.

Most people who choose the teaching profession are attracted by the intangible rewards of educating children; they realize they will never become rich. Unfortunately, Edwards chose to get her teacher training at an expensive college, and she had to borrow a lot of money to get her degree. In fact, in 2015, when she filed for bankruptcy, Edwards owed $151,000 in student loans.

Obviously, there is no plausible scenario whereby Edwards can pay back $151,000 on a salary of $35,000. In fact, she seems like an ideal candidate for bankruptcy.  But when Edwards filed for bankruptcy in 2015, she was confronted by a major obstacle. Under Section 523(a)(8) of the Bankruptcy Code, debtors cannot discharge their student loans in bankruptcy unless they can show undue hardship. And this is very hard to do.

Remarkably, Edwards won something of a victory in a Kansas bankruptcy court. Although the bankruptcy judge refused to relieve her of $72,000 in federal student loans, the judge did discharge her private student loans--about $58,000.  Essentially, the judge forced Edwards to sign up for an income-driven repayment plan (IDR) for her federal loans with monthly payments set at only $21 a month based on her current salary. If she makes regular payments for 20 years, the balance of her loan will be forgiven.

But here's the problem with  Edwards' IDR--assuming she enrolls in the plan the government offered. Interest is accruing on the $72,000 Edwards owes on her student loans, and $21 a month doesn't begin to pay that interest. All unpaid interest will be capitalized and added to her loan balance.

Given her likely income trajectory as a Kansas school teacher, Edwards will probably owe twice what she borrowed when her 20-year repayment plan comes to an end in 2036.

But it gets worse. The federal government considers a forgiven loan as taxable income. Thus, Edwards could be forced to pay taxes on $150,000 in so-called "income," because that is probably the amount she will owe when her 20-year repayment plan is concluded.

If Edwards were indebted for any reason other than her student loans, she could shed her debts in bankruptcy and get the "fresh start" that bankruptcy is intended to provide. But the "undue hardship" rule in the Bankruptcy Code has probably forced her into a repayment plan that will stretch over the majority of her working life. She will be 56 when her payment obligations stop and she will face a whopping tax bill.

Newman College bears some responsibility for Edwards' plight.

Tuition and fees at Newman amount to almost $28,000 a year; and that does not include books and living expenses. No wonder Edwards owes $151,000 in student loans.

Does Newman University bear any responsibility for what happened to Edwards? I think it does. Surely Newman officials should have warned Edwards that it would not work out for her financially if she borrowed money to get a Newman degree in order to become a school teacher.

Nicholas Eberstadt, writing for zerohedge.com, reported recently that a lot of graduates believe their college studies were not worthwhile. People who graduated in liberal arts or social studies were particularly dissatisfied. In a survey of 1800 graduates, more than two thirds of psychology graduates said their degrees were "not worth it."  And almost half the people who graduated in fine arts, history, geography, and politics expressed the same view.

Eberstadt's report did not include any data for people who graduate in the field of education, but I feel sure a great many people who chose to get education degrees from expensive private colleges regret their decision.  More than 20 years after getting a doctorate in education policy from Harvard, I can assure you that my Harvard experience was extravagantly overpriced.

Eberstadt argues persuasively that the federal government has fueled the demand for postsecondary education by offering students cheap money to go to college. "Loaning these funds at below market interest rates and backing up these risky loans has led to massive malinvestment . . ." Eberstadt wrote.

Eberstadt is right. And Paula Edwards, who borrowed more than $100,000 in good faith to attend an expensive private college in order to become an elementary-school teacher, is just one among millions of casualties of our disastrous federal loan program.

Harvard Graduate School of Education: an elite school for suckers

References

Tyler Durden. The Most (And Least) Worthwhile Degrees. zerohedge.com (March 5, 2017).

Edwards v. Navient Solutions, Inc., 561 B.R. 848 (D. Kan. 2016).

Edwards v Navient: A single mom's private student loans are discharged in bankruptcy but not her federal loans

Edwards v. Navient Solutions, Inc., decided last November, contains both good news and bad news for distressed student loan debtors.

The good news is this: Paula Maxine Edwards, a single mother of two children, was able to discharge $56,640 in private student loans under the Bankruptcy Code's "undue hardship" standard. Judge Janice Miller Karlin, a Kansas bankruptcy judge, ruled that Edwards had managed her private loans in good faith, in spite of the fact she had made only a few payments on them.

And this is the bad news: Judge Karlin ruled that Edwards could not discharge $72,000 in federal student loans because Edwards was eligible to enter an income-driven repayment plan (IDR) that allowed her to make loan payments based on her income over a 20-year span.  At her current income, Edwards would only be obligated to pay $21 a month. Obviously, this token monthly payment will not cover accruing interest on $72,000, which means Edwards will never pay off her federal loans.

The Edwards case: Another chronicle of student-loan misery

Paula Edwards, age 36, obtained a bachelor's degree in education from Newman University, a small Catholic college located in Wichita, Kansas. Newman University is expensive; currently, tuition and fees total about $28,000 a year. Although Edwards worked as a paralegal while she was in school and took no unnecessary courses, she wound up owing $151,000 in student loans.

Edwards' degree from Newman qualified her for a job as an elementary school teacher. At the time of her bankruptcy proceedings, she was in her fourth year as a teacher, and her annual salary was only $35,300. Unless Edwards obtains more education, which she cannot afford, her salary is capped at $35,700.

Edwards' student-loan debt fell into two categories. First, she borrowed $72,000 in federal student loans, which were eligible for modified payment terms. Second, she took out  private loans totally $56,640 from Navient Solutions. Her private loans contained no provision for modified payment terms and bore interest at the rate of 9.75 percent. (She also borrowed $8,354 from Navient for Stafford loans, which she did not attempt to discharge).

Judge Karlin refused to discharge Edwards' federal loans. The Department of Education represented that Edwards was eligible to participate in the Department's REPAYE program, which allowed her to make payments based on her income over 20 years. At her current salary, DOE told the court, Edwards would only be obligated to make payments of $21 a month.  Edwards admitted she could make payments in this amount, and this debt was not discharged.

Applying the Brunner test, Judge Karlin discharged Edwards' private student loans

However, Judge Karlin discharged Edwards' private loans owed to Navient. The judge noted that private loans, unlike federal loans, contain no provisions for alternative repayment plans such as REPAYE. Applying the three-pronged Brunner test, Judge Karlin concluded that repaying the private loans would be an undue hardship for Edwards.

Judge Karlin ruled that Edwards met the first prong of the Brunner test, which required her to show she could not maintain a minimal standard of living if she were forced to pay back her private loans. Moreover, in Judge Karlin's opinion, Edwards met Brunner's second prong by showing that her financial situation was not likely to improve any time soon. As the judge pointed out, Edwards worked in a low-paying profession, and it was "highly unlikely" that Edwards' salary would increase significantly.

Finally, and perhaps most importantly, Judge Karlin ruled that Edwards met the third prong of the Brunner test, which obligated her to show she had made a good faith effort to repay her student loans. Although Edwards had made no payments on her private student loans over the previous six years, her payment history did not preclude a good faith finding.

As Judge Karlin explained, the Brunner test "requires the Court to determine if the debtor has made a good faith effort to repay the loan as measured by his or her efforts to obtain employment, maximize income and minimize expenses . . . .  A finding of good faith is not precluded by a debtor's failure to make a payment."

In Judge Karlin's view, Edwards had demonstrated "that she was really unable to make anything but a de minimus payment, if at all, on her student loans during the last six years." While it was true, the judge acknowledged, that Edwards had received tax refunds from time to time, good faith was not precluded by the fact that she had used the refunds to meet other pressing financial obligations rather than apply the refunds to her student loans.

[W]hile it would be better for her case had she paid even $10 a month from her tax refunds, in light of her life situation--attempting to raise two children on her own with very little child support, and with a small income even giving her teaching degree--her minimal efforts should qualify under the totality of circumstances. There was no evidence she willfully or negligently caused her own default, and the Court does not believe she did.

Conclusion: A Pyrrhic victory 

Edwards v. Navient Solutions, Inc. is a mixed bag for student-loan debtors. On the positive side, the court interpreted the "good faith" prong of the Brunner test in a sensible way. A debtor's good faith is not determined by the number of loan payments made but rather on whether the debtor made good faith efforts to repay student loans by maximizing income and minimizing expenses. In Judge Karlin's view, Edwards met Brunner's good-faith prong even though she made no payments on her private loans for six years.

Unfortunately, Judge Karlin refused to discharge Edwards' federal student loans due at least partly to the fact that Edwards was eligible to participate in REPAYE, which allows Edwards to make minimal payments of only $21 a month based on her current income. Since monthly payments of $21 won't cover accruing interest, Edwards' federal loans will negatively amortize--her debt will grow larger with each passing year.

Other courts have rejected creditors' arguments that college debtors should be forced into income-driven repayment plans as an alternative to bankruptcy relief. In the Abney case, the Lamento case and the Halverson case, courts explicitly recognized the psychological stress a long-term repayment plan can put on a debtor.

Paula Edwards won a Pyrrhic victory in a Kansas bankruptcy court. She shed $58,000 in private student-loan debt, but she was forced into a long-term repayment plan for her federal loans that will require her to make token payments for 20 years. Given Edwards' likely income trajectory, she will undoubtedly owe double the amount she borrowed at the end of the 20 year payment term--not a just outcome for a single mother of two who made a good faith effort to pay off her student loans.

References

Abney v. U.S. Department of Education, 540 B.R. 681 (Bankr. W.D. Mo. 2015).

Edwards v. Navient Solutions, Inc., 561 B.R. 848 (Bankr. D. Kansas 2016).

Halverson v. U.S. Department of Education, 401 B.R. 378 (Bankr. D. Minn. 2009).

Lamento v. U.S. Department of Education, 520 B.R. 667 (Bankr. N.D. Ohio 2014).

Hillary Clinton had a good idea for addressing the student loan crisis: The Trump administration should implement her plan

Although many people have forgotten, Hillary Clinton introduced a sensible plan for addressing the student loan crisis while she was campaigning for the Presidency. She proposed a 90-day moratorium on student-loan payments to give college debtors an opportunity to refinance their loans at a lower interest rate.

This is a good idea. Forty-three million people have outstanding student loans, and many borrowed at high interest rates--much higher than today's rates.

For example, in the Murray bankruptcy case, decided last year, a married couple in their late forties consolidated their student loans at an interest rate of 9 percent.  At the time of consolidation, the Murrays owed $77,000; and they paid back 70 percent of that amount. Nevertheless, there were periods when the Murrays did not make payments due to financial stress; and they now owe $311,000, with the growth largely due to their loan's high interest rate.

Likewise, Brenda Butler, whose bankruptcy case was also decided last year, borrowed $14,000 and paid back $15,000. Like the Murrays, Ms. Butler's loans were in deferment from time to time. By the time she entered bankruptcy--almost 20 years after graduating from college--she owed $33,000, more than double what she borrowed. Again, the growing loan balance was largely due to accrued interest.

As Senator Elizabeth Warren has pointed out, millions of student-loan debtors took out student loans at interest rates far above the federal government's current cost of borrowing money.  Therefore, if these people were permitted to refinance their loans at a lower interest rate, as Hillary Clinton proposed last year, their student-loan debt would be a lot easier to manage.

As I said, Hillary Clinton's idea is a good one, but I would like to propose an amendment.  In addition to allowing college borrowers to refinance their loans at lower interest rates, the government should forgive all the default penalties that have been assessed against student-loan  defaulters.

Currently there are 8 million people in default on their student loans, and most of them had a 25 percent penalty attached to the amount they borrowed plus accumulated interest. I have a friend whose daughter borrowed $5,000 to attend college, made loan payments for awhile and then defaulted. How much does she owe now? $12,000!

Are there any downsides to Hillary Clinton's proposal as I have amended it? Yes, the student-loan collectors who have gotten rich chasing down student-loan defaulters would make less money.

But there are no downsides for the government. Why? Because millions of student-loan defaulters and millions more in income-driven repayment plans will never pay off their student loans.  The income-driven repayment plans are nothing more than a fraud on the public that allows the government to claim that people in these plans are not in default.

But in actuality they are in default. Educational Credit Management Corporation, for example, wanted to put the Murrays into an income-drive repayment plan that would cost them around $900 a month. The bankruptcy judge, to his credit, rejected that idea, pointing out that the Murrays' debt was accruing interest at the rate of $2,000 a month. Even if the Murrays made regular payments for 25 years, their debt would balloon from $311,000 to about half a million dollars.

So here's my suggestion. Senator Elizabeth Warren should dust off Hillary Clinton's moratorium idea and propose it to the Trump administration, adding a proviso that default penalties would also be waived.

Donald Trump is not everyone's cup of tea, but I believe he comprehends the world of finance.  He will understand that the government is running a shell game, telling the public that the student loan program is under control when in fact it is a train wreck.

If Republicans, Democrats, and President Trump would adopt Hillary Clinton's amended plan, they would provide immense relief to millions of Americans who are being buried alive by their student loans.

Wouldn't that be a lovely outcome?

References

Butler v. Educational Credit Management Corporation, No. 14-71585, Adv. No. 14-07069 (Bankr. C.D. Ill. Jan. 27, 2016).

Anne Gearan and Abby Phillip. Clinton to propose 3-month hiatus for repayment of  student loans. Washington Post, July 5, 2016. Accessible at https://www.washingtonpost.com/news/post-politics/wp/2016/07/05/clinton-to-propose-3-month-hiatus-for-repayment-of-student-loans/?

Murray v. Educational Credit Management Corporation, Case No. 14-22253, ADV. No. 15-6099, 2016 Banrk. LEXIS 4229 (Bankr. D. Kansas, December 8, 2016).

Ruth Tam. Warren: Profits from student loans are 'obscene.' Washington Post, July 17, 2013.

For-profit college owner pleads guilty to "pay to stay" scheme, but perhaps he's not the only offender

Hee Sun Shim, who owns three for-profit colleges in Los Angeles's Koreatown, pleaded guilty to immigration fraud in federal district court a few days ago. Shim was accused of operating a "pay-to-stay" scheme whereby foreigners obtained study visas for a fee that allowed them to reside in the United States. However, according to federal prosecutors, some of these so-called students weren't attending classes.

Obviously, helping foreigners get visas under false pretenses is reprehensible, and Mr. Shim will probably do some jail time. But a great many reputable colleges and universities are doing something similar to Mr. Shim. They are admitting foreigners to graduate programs simply to capture the revenue and keep their enrollment counts up.

And here's a story that may be an example of what I'm talking about.  My university has a doctoral program in Educational Leadership. Awhile back we received an application to our doctoral program from an African man. The application form indicated that the man had received an undergraduate degree in law from an African university and a master's degree in law from a reputable law school in the Boston area.

I recall looking at the applicant's academic transcript for his undergraduate degree from the African institution. The grades were distinctly unimpressive--a lot C and D grades. How, I wondered, had this person gotten accepted to a graduate program in law from a respectable American law school? And how had he managed to get through the demanding American curriculum?

Then I looked at the applicant's American law school transcript. He attend the law school for one year, but he had not been graded rigorously. Instead, all his course work was evaluated as either satisfactory or unsatisfactory; and all his grades were reported as "satisfactory." And after receiving a master's degree in law, this man then applied to a doctoral program at my university in a completely different field.

What is that about?

I can't say for sure, but I speculate that the law school offers a low-quality master's degree program in law that caters to foreign students who pay full tuition--almost $50,00 a year.  The program does not demand much in faculty time. These foreign students probably sit in the back of the class and patiently wait for their "satisfactory" grades and ultimately their degree.

This is not a "pay-to-stay" scheme exactly, but it is not a noble way for a university to generate revenue. I think if we looked closely we would see a lot of American graduate programs that are fighting declining enrollments by admitting foreign students with little aptitude and perhaps little interest in their studies. Many foreign students simply want to make their way to the United States, obtain an American academic credential of some kind,and perhaps find a way to obtain permanent residency.

Indeed academia's outrage about President Trump's travel restrictions might be as much about protecting their revenue streams as about concern for justice. But perhaps I am being too cynical.

References

Elizabeth Redden. College owner pleads guilty to immigration fraud. Inside Higher Ed, February13, 2017.

Louisiana man gets 10 years in prison for stealing a toolbox from a church: A plea for bipartisan cooperation to promote justice

Michael Duplessis, age 34, was sentenced to 10 years in prison for stealing a toolbox from Holy Rosary Catholic Church in St. Amant, Louisiana. Duplessis was sentenced after he agreed to a plea deal to avoid the possibility of  a life sentence.

A life sentence for stealing a toolbox! How could that be?

Michael Duplessis: Sentenced to 10 years in prison for stealing a toolbox from Holy Rosary Church

Apparently, Duplessis is a repeat offender. He had previously been convicted of stealing a cellphone charger from a residence and later a boat battery. Under Louisiana's habitual offender law, Duplessis is a three-time loser and could have been sentenced to life in prison for lifting that toolbox. I imagine the plea bargain looked pretty good to him.

Obviously a law that can send a man to prison for the rest of his life for stealing a cellphone charger, a battery and a toolbox is unjust and inhumane. In fact, Pope Francis has said that life sentences are essentially death sentences.

Surely, reasonable people can work together to repeal such a barbaric statute.

So why aren't Republicans and Democrats working together to do that? In fact there are dozens of unjust laws that could be repealed. As I wrote awhile back, Senators Elizabeth Warren and Claire McCaskill introduced a bill to stop the federal government from garnishing the Social Security checks of elderly student-loan defaulters. Who in Congress could oppose such a bill?

Unfortunately, our elected representatives at the state and national level are so caught up in political warfare that nothing gets done. And the mainstream press has become so obsessed with criticizing President Trump that it has abandoned its traditional role of advocating for justice.

Just today, in my local newspaper, Richard Cohen, a syndicated columnist, published an essay that was nothing more than warmed over criticism of President Trump. In case the public had forgotten, Cohen reminded us that Trump unfairly criticized Senator John McCain and the Hispanic judge who presided over the Trump University litigation. Isn't there something more timely and important that Cohen can write about?

Enough already. Republicans and Democrats should look for problems they can solve together, and the press should resume its traditional roll of publicizing injustices like the one perpetuated on poor Mr. Duplessis. This is how democracy works after all, or how it used to work, before everyone in public life began behaving like children.

References

Richard Cohen. Can't anybody play this game? The Advocate (Baton Rouge), February 17, 2017, p. 5B.

David J. Mitchell. Man gets 10 years in burglary of church. The Advocate (Baton Rouge), February 17, 2016.

Kathy Schiffer, Pope Francis Opposes Capital Punishment; Calls Life Sentences for Violent Criminals "A Hidden Death Penalty." Seasons of Grace blog site, October 23, 2014.

"Debt and Introspection Are More Related Than You Think": Essay by Steve Rhode

This excellent essay by Steve Rhode originally appeared on the Personal Finance Syndication Network, PFSyncom.  Mr. Rhode also maintains a web site titled Get Out of Debt Guy that contains a variety of good advice and information about all manner of consumer debt problems, including student loans.  You can learn more about Steve Rodes here.

 **********

Debt and Introspection Are More Related 

Than You Think

by Steve Rhode

Steve Rhode

Why are people victims? Why are some people always the brunt of pranks, jokes, gaffes and catastrophes and others are not? Over the years of helping people with financial problems I’ve observed that many people experience not only a financial disaster event but also difficulties in other areas of their life. Is this a coincidence or are there underlying issues that cause us to sabotage our ability to achieve happiness and financial success? Are some people just victims of affairs that involve credit, debt and money? They answer is yes, but why?

There has been little study of victim profiling and when we think of someone as a victim the first thoughts that are present are those of people who have suffered a terrible misfortune beyond their control at the hands of some external event. There are people who are victims of events and situations beyond their control.

For example, people who are randomly murdered, raped, abused, injured or harmed, physically or emotionally. Take disorganized killers for example, their victims are selected because of the opportunity to carryout their act rather than because of anything unusual about the victim themselves. A disorganized killer, as categorized by a serial killer profile, may simply walk up to the next door they come to, ring the bell and kill whoever answers the door. If your time is up, it’s up.

A rape victim may just have simply been the next target of opportunity. Sometimes there is no greater explanation or rationale for their misfortune other than “wrong place, wrong time.” And while we search for a deeper or greater meaning why their life was altered in such a fundamental way by grotesque violence, sometimes life is simply random and chaotic.

Victims of financial problems present similar rationales, Sometimes they were truly disadvantaged by people who duped them.

Recently, a furniture store went out of business, there was no indication that it was in trouble. Every outward sign indicated that the company was stable. Suddenly they go out of business and furniture that previous customers ordered will not be delivered and the status of the deposits left for those orders is undetermined. These folks are truly victim of the transaction. There is no doubt that sometimes events are random and can leave you in financially deficient position. Here is an example that almost everyone has experienced where we lose 100% of our money, vending machines. Sometime they just take your money and don’t deliver the goods. Some people attempt to deliver a couple of well placed smacks and move on. We just accept that it happens sometimes because it does.

In my work helping people with financial problems I’ve observed that while some people suffer from random financial misfortune, there truly is a pattern of financial victims who are often found to repeat the same or similar financial mistakes over and over again. Rather than learn from the situation, they can be seen waving the flag of entitlement and summoning up an army of excuses for this weeks episode of financial misfortune. Can’t you picture the commercial for next weeks show? Stay tuned for up scenes from next weeks show when Bob will lose his job and not have any savings to fall back on because he blew it all on day trading last week. What will Mary say when she finds out? Tune in Tuesday at 8 PM Eastern Time.
What is striking is the number and severity of poor financial decisions some people make. It’s too frequent to just be a random happenstance.

To what degree do we hold people accountable for their individual actions? Is the recipient of misfortune ever to be responsible for their misfortune? Early victim theory in the 1940s actually labeled the person to whom misfortune befouled as a hapless person who brought it on. Since then victim theory has swung to the opposite direction and essentially anyone who is the recipient of anything negative or unexpected is to be cuddled and cajoled and not accept any responsibility for their actions. But it that realistic or healthy? Whatever happened to personal responsibility?

I’ll be honest with you. I hate personal responsibility. I don’t mind accepting responsibility for my actions and the way things turn out. Certainly, life is not always rosy and we don’t always make the best decisions but cut me some slack.

Modern American life not only does not encourage you to be personally responsible, it makes you run from it. We live in such a litigious society that I’m wondering when toilet paper manufactures are going to get sued for excessive chafing. I’m sure they have been already. Maybe toilet paper made out of sawdust wasn’t such a good idea after all gentlemen. Not that I’m bitter about it but ouch, that’s all I’ve got to say on the subject.
My office overlooks the 18th hole on a golf course. I’ve seen all sorts of unusual things on that course. I’ve seen guys playing golf in the dark, near typhoon weather, wearing shorts in sub zero weather and there is even this woman who walks down the center of the fairway from the green to the tee during lunch. For some unexplained reason she has a golf ball, throws it up in the air and smacks it with her hand. She walks to where it lands, picks it up and continues towards the tee. I keep waiting for her to get hit with an oncoming golf ball one day. In my past life, when I was in ophthalmology, I had a patient who was stuck in the eye with a tee shot. It ruptured the eye and she was blind. This is why I never look back on the golf course or in life. I’d much rather get hit in the back with a ball than lose my sight.

When the weather is dangerous, like a big electrical storm, the course blows a siren to warn golfers to get off the course. Most golfers do, some don’t. Some just continue to play so let’s take the golfer who stands with his metal club (lightning rod) pointing skyward during a tremendous electrical storm. If he is struck by lightning, is he partially to blame or is the gold course going to get sued also? Other golfers sought appropriate shelter during the storm by this one places himself in a position of danger, greatly increasing his chances of getting struck and does. Can a victim contribute to the outcome and if so do we serve the victim by simply saying, “don’t worry” or “that’s OK”?

Wouldn’t we serve the victim more by consoling them in their time of need and help them to accept responsibility for their actions which allowed them to be harmed in the first place? Hopefully, they will learn from the error of their ways and not repeat the same mistake again in the future. We do this with children, why not adults?

Financial victims often cry foul because of the actions of others. In fact, they frequently contribute to their misfortune by simply not participating in their financial lives.

For many years I worked in an office. One day in the late 1980’s I decided to pursue my dream and left. I started a real estate company, The Great Virginia Land Company. I thought it would be really cool to work outside all day long. Walking through the country, enjoying nature and making money at the same time. I bought and sold country acreage. When my real estate company was going full force I wanted to make very sure that purchasers of property from me clearly understood the contract they were about to sign which included financing. At first, I would read the contract with them, explain every detail and be available to answer any questions they had. They typically glazed over by the third paragraph. That approach wasn’t working so I made myself available as they read the contract to answer any questions they had. Nobody asked questions and just wanted to know where to sign. I even asked them questions to make sure they had read the contract. Most were put off by my inquisition. Finally, they trained me to just hand them the contract. They would look up and before they could say anything I’d say “here” and point to the signature line. They would look up again and I’d say “here” and hand them a pen.

I used to get excited when I thought someone was going to ask a question about the financing, I wanted to explain it all to them but finally I was beaten into submission by the public’s lack of caring about the contract or financing. The prevailing question was never what the total cost would be, but “what will my monthly payment be?” They didn’t want to be bothered by actually reading or understanding the damn thing. They just wanted what they perceived to be the benefit once they signed the contract.

One day I sold fourteen pieces of property at one time. There were so many people wanting to purchase property from me that I passed out blank contracts, stood on the trunk of my car and as the purchasers all gathered around, like a concert in the park, I shouted out instructions on how to fill in the blanks. “In the first blank, put today’s date.” It was insane but I could not stop the frenzied action. If I had not done it this way, it is very possible that I could have been physically injured. People would get in such a tizzy if they could not sign the contract as quickly as possible. It was frightening at times. One day two people wanted to buy the same piece of property. One person decided to buy it first and the other said they were going to kill me and he had a gun in the back window of his truck. I decided it would be a good time to leave so I calmly walked to the car, jumped in and turned the ignition. Trust me, wrrr-wrrr-wrrr is not the kind of sound you want to hear at a moment like this, the car would not start, the battery was dead and I didn’t want to be. The guy in the pickup truck pulled up and said, “I kill city boys.” To which I could only respond, “Awesome but can I get a jumpstart first?” He gave me the jumpstart and I drove away.

So what did I learn from my experience. I learned people don’t like to see snakes in the grass when they are walking through the woods and they aren’t that interested in understanding consumer transactions.
Inevitably, if a problem ever latter arose from the transaction; the perception was always that they, the purchaser, were the victim, even when the exact and specific situation was clearly spelled out in the contract that they refused to read.

The same is true for almost all consumer credit transactions. People don’t read the agreements they sign and if they do read them they will not or do not ask questions and if they even ask a question and understand the answer, the vast majority of people will sign the agreement anyway as long as they want what they get when they do sign it. So, what level of responsibility do we have to adequately prepare for our financial lives?
Legislators and lawmakers think consumers are too stupid to accept responsibility for their situation. They feel that people don’t read the agreements they sign so we need to protect people from themselves. Is that really how we want to be treated, as stupid lemings?

Recently, I spoke to Richard. I’d had the opportunity to review his credit report before we spoke so it was clear to me that Richard had experienced two episodes of financial trouble in his life. The first about four years ago, the second about two years ago, but why? The debts were for unsecured credit cards, some utilities and local stores. Generally, that indicates someone moving into or out of a new area that is unprepared financially for the event. Clearly Richard’s credit report reflected an episodic history of financial trauma. After talking with Richard I learned that about four years ago he had relocated from Illinois to Iowa. He left behind some unpaid bills and had increased his debt load through the move to a point where he could not repay his bills. Once Richard found a job in Iowa he was able to stabilize his finances and repay most of his debts, he still had some old, very small debts outstanding. He also had some utility bills that were unpaid from his stay in Illinois. Richard said he forgot to change his address so the old bills did not follow him to his new address. In spite of Richards’s inability to notify his creditors, he feels it is unfair that they are hounding him and sent him to collections.

Richard said that he learned his lesson from that move and said he believed he would prepare better next time he relocated. Guess what, Richard did the exact same thing two years latter. He up and moves to California without prior planning. He leaves behind a wake of unpaid obligations and is again unable to find suitable employment in the area he has relocated to. Richard moves back to Iowa. Now, the first time Richard made the mistake of impulsively up and moving, you might say he was young, a few years out of college, and inexperienced in the ways of the world. How can we rationalize making the exact same financial mistakes again? Richard clearly knew what the results of his actions would be. He had lived through them once but yet he did not learn from his mistake and repeated it.

When I spoke to Richard he was clearly angry at his creditors for not being more reasonable when he fell behind on his bills. He was angry and belligerent and felt they should be more understanding.

When Richard moved from Iowa to California, he did not make any prior effort to find employment before he left. He just moved. When Richard arrives in California he is unable to find jobs that pay him even half of what was making before in Iowa. Big surprise. Bet you didn’t see that one coming did you? Now, not only does Richard have to pay for the cost of his move and getting started in a new area, he also has previous obligations he had not yet satisfied.

Soon Richard becomes dissatisfied with California, gives up and decides to move back to Iowa. During the course of his move out and back Richard accumulates approximately 25 thousand dollars of debt on credit cards. He financed his move with credit since he did not have any available cash. He stated “I had to use the cards to live on.” Again, Richard leaves and does not notify his creditors where he is going. Again, Richard ends up on the other end of a collection telephone calls and is sought after for unpaid bills. Is Richard really a victim of his creditors?
Richard has a responsible job but yet cannot exhibit responsible behavior in other parts of his life. Sadly, Richard will probably live through another couple of similar events until his financial situation becomes so fucked up that he files bankruptcy (aka financial cleansing) and possibly begins his cycle of debt over again.
I’ve even had one client who had 78 unsecured credit card accounts totaling a million dollars of outstanding credit card debt. This does not include his other outstanding indebtedness. Is he a financial victim or a credit predator? At what point does a reasonable person stop applying for additional credit?

Consider the following story from Carla who contacted me recently. “My car was repossessed on the 31st of January, on Monday I spoke with the bill collector from the car lender, I informed him of my job, the location, everything down to what I did. He demanded that I Western Union him $126 to him within the hour, even though I told him I get paid on the 1st of Feb. (which was only 5 days from that point) he told me this before just as I have twice promised a payment by Western Union and did not comply. I understand that the bank must repossess the car and I’ve heard horror stories of individuals losing personal items kept in the car at the time of repossession. To the repo man himself or whomever else may like that “pink sweater” for their neighbor. I had piles of clothes in my backseat, a satchel, a stethoscope, a sweater of the utmost sentimental value, a gun, college books, and a CD player that I’m sure they plan on selling to make the money while the factory stereo is in the trunk. (also a gift from a friend.) I will be 21 years old this month and am already in a bad situation, forced to live with a man twice my age, which in the beginning was and I suppose still is by my choice. I recently got a job and had thought things were beginning to look up for me, now I don’t even know where my car is, which impound lot or where I mail payments to? My makeup bag was also in there with around $200.00 worth of makeup not to mention documentation and things of that nature I had in a backpack.”

As an impartial third party, you’ve have to marvel at the dysfunction in this persons financial life. I think the most startling statement is the admission of previous failed promises to pay. Can you really be surprised that the collector ordered the repossession of the vehicle after Carla clearly had make promises to pay and then did not honor them. Several other facts in her email are telling also.

Broken promises are going to come back to bite you in this situation. Did she not understand that when she made payment arrangements with the creditor and failed to meet them that it had a higher probability of not turning out well?

She kept personal items in the car in spite of knowing that a number of payments had been missed and repossession was a definite possibility and imminent.

She keeps a gun in the car. Is she feeling vulnerable and unprotected?

Carla mentions living with a man twice her age and that in the beginning it was her choice. Is she a victim of her relationship? It truly sounds like a relationship of convenience. Carla seems to indicate that she is a victim of the relationship since she is “forced” to live with him. She has created a situation where she has no other place to go so she lives with someone she does not care for simply because he took her in. She admits it was and is her choice to be there, so is she forced?

She got a job and thought things were beginning to look up. This is irrational optimism when it comes to the vehicle situation. Things will only look up when either the missed payments are brought current or an agreed repayment plan is in place. Just because she secures employment she feels the lender should back off. A good example of fantasy thinking.

Carla appears to be helpless in the situation. Does not know where to send payments and has not thought to contact the lender to ask.

She has also been damaged by the loss of stuff in the car. How about the damage caused to the lender by the loss of payments not received? This is not a consideration or point of view of Carla’s.

People commonly refer to “being forced” to do things in their financial lives. Certainly “being forced” is an example of victim thinking. “I was forced to hand him the money.” Generally, people who are forced are not operating under their free will and are under duress.