Six and a half years. That’s how long it has taken us to completely recover from a Chapter 7 bankruptcy. We now have credit scores comparable to our peers who never declared bankruptcy. This is a post in which I bare all, with Jared’s permission, about the taboo bankruptcy stuff.
Left to my own devices, I do not manage money well. Even now, Jared takes all my cards—credit and debit— away when I am not well mentally. When I am psychotic, I go on spending sprees— some things I perceive we need, most things we definitely don’t. I’ve spent thousands before my mindset became apparent.
However, my spending was a fraction of the debt that got us to bankruptcy in 2012.
Medical debt and childcare debt was the bulk of the bankruptcy debt. I worked full-time until June of 2011 and got approved for SSDI in September of 2011. So, there was a short span of time when we were a completely single income household. There were short spans of time before that, as well, when I was unemployed and either sick or looking for work. And, even when I was working, childcare was not really affordable for two kids given that I never really held a job above entry-level pay. We would have been much better off financially if I had stayed home and been able to care for the kids at home.
Oliver is the only child I stayed home with. I was not really emotionally stable enough to care for Porter and Liam on my own when they were in their preschool years. So, employed or not (mostly not), they went to daycare. I have no idea where we would have been without the wonderful people who cared for Porter and Liam in their preschool days. The people who really raised Porter and Liam in those early years are still some of the dearest people in the world to me.
And even with Oliver, there were short-term times when he went to a different daycare on a drop-in basis. It was just few and far between and the times he went were more strategic, centered around mental health break days for me.
Really, it’s hard to look back to the pre-bankruptcy days and know what we could afford and what we couldn’t because we didn’t budget back then. We just looked at the accounts and if money was there, we spent it. It’s crazy to me now to look back and think about how we did that and how ignorant we were about the state of our finances. It gives me serious anxiety to think about because as bad as the bankruptcy situation was numbers-wise, it could have been So. Much. Worse.
$41,000 in credit card debt is the amount we declared bankruptcy over, in case you were wondering. We had pretty well maxed out both of our credit cards, and I remember our minimum credit card payments were around $900 combined every month. And we prepared to surrender the house, though we reaffirmed Jared’s car loan. And Jared had a student loan at the time from his Master’s which we had no choice but to continue paying on. Which was more evidence of us living beyond our means because Grinnell actually paid for his tuition while he was employed there.
It happened fast— Jared started talking about the possibility of declaring on a Saturday and it happened on the next Tuesday. Now that it is all in hindsight I can see that the rush decision was for the best— we only got behind marginally on a couple of credit card bills and never behind on our mortgage or car payment before we filed. At the time, I felt like Jared rushed to the decision in haste, making a decision that would trash our credit for what felt like at the time would be the rest of our lives. I thought we’d be stuck renting for the better part of ten years, all through Porter’s school years, never qualifying for car loans much less a mortgage. I’d always heard bankruptcy was not a last resort— it was a never-resort. It was an end-of-the-world resort, I’d always assumed.
The church happened to host a Dave Ramsey Financial Peace class the winter that all of it went down. We enrolled. The idea of budgeting and knowing where every dollar was spent was a completely foreign concept to me. It was hard, and very scary. It became apparent very, very quickly how frivolous and loose we were with our spending.
That class taught us how to budget, though, and we have never, ever looked back. We actually took Financial Peace a second time, when church offered it again, just to make sure we had the basics solidified.
However, the all-cash method that Dave Ramsey promotes didn’t work for Jared and me. We despise carrying cash at all. However, Jared stumbled upon a similar system that also promotes a zero-based budget, called You Need a Budget, or YNAB.
This is not a sponsored post. I probably should have looked into being able to make it a sponsored post before going through all this, but I didn’t. Dave Ramsey gave us the basics, but we’ve been using YNAB as our financial tracking software since late 2012 and it has saved our financial life, no exaggerating.
We don’t follow Dave Ramsey’s plan strictly, nowadays. We do actually have credit cards again, though we pay the balance off now within the month whenever humanly possible. We have taken out car loans, which would be frowned upon in Dave Ramsey’s method. Basically, we feel like credit is a tool we can use to our advantage but we know what we can afford and what we can’t now. Because, you know, budget and all.
We don’t follow YNAB strictly the way the creators would have you do it, either. YNAB is intended to only budget the dollars you have in hand. We do that in the current month, so all is accurate and we know what we have and what we don’t when we go to the grocery store and stuff like that. But, I like forecasting and playing “what if” too much. So I do months-ahead and years-ahead projections, with different scenarios. The great thing about it is if I screw it up too much, we can just make a new budget, with the same categories, etc. I can spend a whole afternoon playing “what-if” in YNAB.
We probably wouldn’t have gotten back into a mortgage as quickly as we did, but the bank offered us a loan modification instead of foreclosing on the house, in July of 2013. All the housing decisions we made were backwards, but Jared appeased me and my irrational fears. I was terrified of showing up and someone not letting us into our house (we lived a gated community at the time) some random day. I didn’t understand at all how the foreclosure process works. We could have saved so much money even after declaring bankruptcy by staying in our house, but we moved out and rented for nine months.
It wasn’t an ideal loan modification and we might have chosen to foreclose on the house anyway…..Jared had a job offer on the table with a federal agency that would have seen us moving to Washington, DC….but in July of 2013, we found out Oliver was on the way. That same week the loan modification offer came via certified mail. Jared made the decision then to not take the job in Washington, knowing that we would need the support of our community, not starting over somewhere fresh, with a baby on the way. And we were renting a two-bedroom house for us and Porter and Liam, which would have seen us putting a makeshift nursery in a dining room. So rather than continue with that idea, we agreed to the loan modification and walked ourselves into a then 40-year mortgage on our old house. Porter and Liam shared a room and Porter’s old room became Oliver’s nursery.
In 2015, we began exploring the idea of moving. We hated the 40-year mortgage and though we didn’t hate our house, we really hated being tied to that 40-year mortgage. I had been studying minimalism and had this romantic notion of buying some tiny house and all three boys sharing a room and buying a house we could pay off in five or ten years. That’s what started it all. I would get so despondent about that 40-year mortgage and feeling like we’d never qualify for another mortgage– I wrote about it here: When Things Are Really Messy. Jared and the boys had a thirty minute commute to work and school and we got to liking the idea of cutting that shorter by some degree or another. So, we started working with a lender to see what we could qualify for. In late April of 2016 we listed our house and started looking. We only looked at two houses, the house we eventually bought being the second one we saw. It was far grander than anything I had ever anticipated owning and it came with a price tag that scared me, quite frankly.
My generous family made it possible for us to have enough for the downpayment. An FHA loan wasn’t ideal either but it was a far cry better idea than the loan terms we had before, and we qualified, closing three years and three months after the discharge of the bankruptcy.
We are now exploring the possibility of refinancing our house. It is still hard to believe it might be possible to get into a conventional mortgage with a decent interest rate, with no PMI associated with the loan. I’ve carried such shame around surrounding our handling of our finances for so long, but we have, with lots of help and education, climbed our way out of a big mess.
This is our journey, shared in hopes that it can give hope to someone else.