Our readers no doubt are familiar with the saga of the Detroit, Michigan, bankruptcy several years ago. The good news is that the city was able to emerge from that bankruptcy in 2014.
Certainly, an individual’s financial problems aren’t going to be on the scale of those of a large city. Further, there were factors such as residents, businesses and investors leaving the area that contributed to the city’s financial struggles.
However, some of the mistakes that Detroit’s mayor at the time, Kwame Kilpatrick, and other city officials made as the city fell into debt can and should be a cautionary tale for how people can better handle their own debt to help prevent it from spiraling out of control. Moreover, the often-tough decisions made that got the city out of bankruptcy are worth learning from.
First, the mayor tried to hide the city’s financial problems, just as people often try to hide their financial problems, even from their spouse. In fact, a third of respondents to a 2014 survey admitted that they lied to their spouse or partner about money.
Second, like many individuals, the city was making minimal payments on its $1.44 billion loan that it took out to cover the city’s pension funds. If you make only the minimum payments on your credit cards, you may keep the creditors away, but you’re adding significantly to your overall debt because you’re not paying down your balance.
Thirdly, that $1.44 billion loan, like much individual long-term debt, was a mistake. Individuals should only take on long-term debt for things like education and a mortgage that will eventually have a payoff. Further, financial experts warn that just because you’re approved for a loan, that doesn’t mean it’s a wise decision. Case in point is the subprime loan crisis of nearly a decade ago where people were approved for loans they couldn’t afford.
If you find yourself in financial difficulty, there are resources available throughout Arkansas to help you work out a financial plan. If you believe that bankruptcy may be your best option for getting out from under your debt and making a new start, an experienced Arkansas bankruptcy attorney can help you make the best choice for yourself and your family and guide you through the bankruptcy process.
Source: Huffington Post, “6 Things Detroit’s Bankruptcy Can Teach You About Money,” Kate Abbey-Lambertz, May 24, 2016