Bank runs don't worry me. All I have is consumer debt. Some options in light of Y2K.. then some paranoid [I hope] musings...

A. File for bankruptcy?

B. Keep paying minimum payments and spend everything on preparation?

C. Try to pay down debt as much as possible?

I tend to go with choice B. If Y2K turns out to be a blip on the screen, then I can gear up after 2000 to focus on paying down debt (should take me about 3 years of intense work). But now in the precious time left, I can't see working 2 jobs just to pay into into a banking system that may collapse, and forfeiting the money I could have used for preparation. HOWEVER... there's a scenario that scares me no end, which is that of credit card companies recalling their loans, and my not being able to cough up anything - no assets. What legally can they do? I have fantasies of forced labor camps or who knows what special legislation may be enacted for those millions of us who are in trouble with credit cards. (And why is this rarely talked about re Y2K? It's always when to get your money out! I feel left out!)

I disapprove morally of bankruptcy and don't believe I am incapable getting out of debt (learned a lot of things the hard way lately, and want to pay back) .. but it's starting to look like maybe I should file. Y2K seems like a scary time to be in debt.

Feedback appreciated. Esp. as to the bit about banks recalling their loans.

-- D B Spence (dbspence@usa.net), November 14, 1998

Answers

I too, am in the same position with the cards. Can someone also tell me what would be the rules regarding debt and property, ie. If I jointly own property, can my debtors, including IRS force the sale of property to satisfy the debt?...Also, what if a corporation was formed; would this offer protection?.....( by jointly, I mean 2 people, not related, and not living together) Thanks

-- The Jokers wild (BingoRacetrack@Lotto.Crapshoot), November 14, 1998.

"B" is the correct answer. Pay a little off each month, try not to use cards anymore and see what happens next year. They cannot "call" your debt as long as you make the payments. They are also limited in what they can charge for interest (there won't be many 5.9% till 2001 offers next year) If TSHTF, you won't get any bills come 2/1/00. You will still owe the $$, but how will you pay (no bills, no banks, no electricity) I would rather be prepared with lots of food, wood, ammo, etc... in 2000, than to be walking around looking for food and water with a sign around my neck saying "Debt Free".

One friend of mine is going the complete opposite. Cash advances, run the cards up, cash out refi. on the house, etc... His idea is he can keep the cash and gold stashed at home. If we just have economic problems (which we are both convinced of) the gold will be worth more. He can use the cash to pay down his debt, sell the gold he has bought and make a profit. If TSHTF, he has cash and gold, and the golden rule will kick in (He with the gold, makes the rules). Worst case, gold drops in value (y2k is a non-economic event), he pays back the credit cards with the cash and gold proceeds. Then his house will appreciate to cover the cash out refi of his equity. His plan actually makes sense, and he has almost got me convinced this is a sound investment strategy. One could cover the gold downside risk with put options which rise in value if gold prices fall. Many of us here in the working middle class, have credit cards which will allow us to do something like this. I have a feeling cash advances will be eliminated or reduced dramatically next year. What do you think?

-- Bill (bill@microsoft.com), November 14, 1998.

Been living on a cash basis since mid '80's. Makes life much simpler. Recommend strategy B, this week. Stash most the cards you don't use, don't keep running up your debt, you can always pull them out if you need to prepare rapidly.

I wonder if in addition to fears about bank runs, our government has any fears about stampeding bankruptcy filings?

Diane

-- Diane J. Squire (sacredspaces@yahoo.com), November 14, 1998.

Bill - your friend is a clever guy - say no more!

Diane - yes you are right! The powers that be intend to pass a new law in Congress in Jan/feb '99 to stop/limit the rapidly spiralling number of US bankruptcies. What they are effectively saying is - "hey, you owe us (the usurious banks and credit card companies) money, at exorbitant interest rates, and you *WILL* pay us back no matter how long it takes"...

Morally who is right and who is wrong? I know who's side I'm on. Yes, Joe Q. Public. The money "they" are lending you is not "their" money in the first place - see the Fractional Reserve Banking System Explained thread in this forum.

Bottom line - if you are going or need to go bankrupt do it as soon as you can as in '99 the new laws will be means-tested and draconian.

-- Andy (andy_rowland@msn.com), November 14, 1998.

This is going to sound amoral, and it probably is; I wouldn't do it myself.

Bank runs will happen because banks keep all their records -i.e. our savings- on computers which may crash in 2000. But if there is any basis for these runs and the computers do crash and all records are wiped, our debts will go blooey along with the savings.

Thus it could make sense, if you want to screw the banks, to get the biggest loan you possibly can. Mortgage the house, get another loan. Use it all to buy gold. Come 2000, the bank's computers go down and there is no way they can prove you owe them money. Essentially, you might have acquired free several hundred thousand worth of gold.

Would this nasty little trick work? I don't see any reason why it wouldn't..

--Leo

-- Leo (leo_champion@hotmail.com), November 14, 1998.

Concerning the morality issue: Let's assume you book a cruise and consume everything in your stateroom's mini-bar. You acknowledge the tab and agree to pay the obligation at port tomorrow. But the ship suffers an explosion below the waterline and sinks that night (you barely escape with your life). Are you ethically obligated to pay the tab?

If you cash-advance cards to the limit there is an obligation to repay as agreed. However, if the entire financial system goes down -- I'm not sure it makes any difference. IMHO I'd get the cash now (but not more than you reasonably expect to be able to repay).

-- Dave (dwood@southwind.net), November 14, 1998.

We don't know for sure what the financial situation is going to be. It's a gamble either way. Since I am not a gambling person because I hate losing my money, I would do "B." And it is dishonest to borrow money that you have no intention of paying back if and when TSHTF. Find the cheapest credit card interest rate you can and transfer your debt of the high one to the low one. This will give you more money to prepare for the worst case scenario. Even if some banks go under, another will come along and you will have to pay them for the debt. Of course, if no one has a job, then it's highly unlikely that any of us will be needing money. If there's no manufacturing, services, imports, farming, etc., then what are you going to spend money on? Bartering items will be the way to go. So use what little money you have now for your own survival and some for barter.

-- bardou (bardou@baloney.com), November 15, 1998.

Sorry, the banks won't forget about your mortgage obligations. They may be unable to get statements to you for a long time, but the paper work won't disappear. Defaults will skyrocket, forclosures will take forever (years and years).

If you do the cash advance trick, please keep it in cash or gold. That way you can pay it back, if TSDHTF. I know of people who have bought stocks using credit card cash advances during this bull market, so now I think it is our turn.

-- Bill (bill@microsoft.com), November 15, 1998.

Those credit card cash advances are expensive, they get you in deeper and you lose money. We had to borrow $6,000 2 months ago for an emergency. It cost us $125.00, and if you don't pay it right back, your interest starts building on the balance daily! We paid them right back when I got the statement, but when I received the next statement, there was $35.00 more due. That was the interest owed from the time they received the money until the next statement. If your going to borrow, borrow against your house. If you lose it, you can always move into an apartment, but credit card debt just follows you wherever you go. If your that desperate for money to buy goods, have a yard sale.

-- bardou (bardou@yahoo.com), November 15, 1998.

>>They cannot "call" your debt as long as you make the payments.<< Bill, I didn't realize this, this certainly is a little reality check, thanks. I imagined that at their whim, legally the bank could call the loan in at any time (but they don't because the interest is too darn lucrative).

I should have made clear when I set out the choices: choice B means I pay the minimums and invest in preparation using whatever cash I earn.

I guess I could have added a choice D: max out the cards! Did not seriously consider that -- morality aside, that is sure to come back and bite anyone who does it in the rear end. (Unless it includes clever investing that succeeds in paying it off ) Bank records aren't going to just go poof! "Oops, it's gone." They'll be busy getting stuff documented on PAPER next year if they don't already. It might take years to straighten it all out, though. It's going to be interesting...

Seriously, it is very good to talk about this. I carry it around like a dark secret. So ironic, but I now fervently look forward to paying back my debts .. not cuz I'm so virtuous but because I don't like the looks of the alternative. Deflation, anarchy, worse.

As I heard, the anti-bankruptcy law would force payment plans on some who would otherwise walk away from their debts. Not too clear on this but I would hope this would include radical cutting of the interest owed, as a compromise. (I wonder if the credit card cos. have a reverse psychology here. "Come tomorrow this person may never pay all this back, so today let's make hay while the sun shines, pile the interest charges higher and deeper...")

-- D B Spence (dbspence@usa.net), November 15, 1998.

DB Spence: That's exactly what I would do, loan out risky money and charge bug bucks? HMMMMMMM Yeh, that's what they are legally, they are loan sharks! There outta be a law against it! Just wait and see, bankruptcy laws are nothing if over half the population are unemployed. Can't squeeze blood out of a turnip, but don't expect to get away with it either.....it just keeps following you.

-- bardou (bardou@baloney.com), November 16, 1998.

Hey - what a bunch of virtuous dudes (dudettes) you are:-). I think you should all maybe revisit the fundamental question - is it gonna hold or not?

Let me ask that question again - is it going to hold or not?

I don't wanna preach, but...:--)Use your best judgement based on your own research. What I am finding is that *some* people are reacting as if - yes, this is gonna be really serious, I'm gonna make sure I'm ahead of the line - etc. But, "I'm gonna play the game, do the done thing......." In a normal situation this would be laudible, expected, necessary.

This is not a normal situation (my take).

My advice is not amoral at all - my advice is to maximise the amount of leverage you might have to do the "best" that you can do on an individual basis for the common good. You be the judge. When you are starving in 16 months time don't say "I wish that I had ......"

Of course if you rack up a few debts in the next 15 months and "it" holds, you can do the necessary when the time comes to pay the piper.

But if the shit hits the industrial hollywood mega-blowing apparatus- type fan in 411 days, you can rest easy(.......!) knowing that you've done tne right thing.

Sorry for the diataribe but I'm on a logic trip at the moment:-)))

-- Andy (andy_rowland@msn.com), November 16, 1998.