‘œIn the business world, the rear view mirror is always clearer than the windshield.’ ‘“ Warren Buffett

As the media announces more and more bad economic news about the recession, the sinking real estate market and rising unemployment, I find myself growing anxious. As I read the stories of middle-class families losing their jobs, their savings and finally their homes, I can almost hear their cries of anguish. Their pain is real to me in a way that it might not be real to most people.

I have been there. I know firsthand what it is like to lose everything.

Although news articles might make it seem otherwise, financial implosions do not happen overnight, or even by surprise. In my case, it came about because of a combination of bad personal, financial and employment decisions, combined with a decline in real estate prices.

In the summer of 1997, I found myself divorced, and the proud owner of a failed small business and a double-wide mobile home that was worth roughly 30% of its purchase price. Bill collectors were harassing me at home and at work, I was making a hellish 55-mile commute to my job, and I had no time or money for friends, family or recreation. I was trying to do the right thing and pay my debts, but by the time I’d covered my house payment, space rent, utilities, minimum payments on the credit cards, commuting costs and everything else, I had very little money left for groceries, and none at all for entertainment.

I was over my head and couldn’t see a way out. I consulted two attorneys, a CPA and a financial planner, and they all told me the same thing: file bankruptcy.

Filing bankruptcy was, in my mind, morally repugnant and completely unacceptable. I had been raised with the idea that only deadbeats didn’t pay their debts. I had to figure a way out, so I sat down at my computer and built a complicated spreadsheet that took into account my income, assets, debts and liabilities. I plugged in the different interest rates for each debt, how much of an annual raise I felt I could expect, and how much the space rent on my home was scheduled to increase each year.

I realized, after loading everything into the spreadsheet, that it was going to take me 11 years to pay off my debt and have the mobile home paid down to what it was currently worth. Not only would it take more than a decade to complete my payoff plan, my financial model made several assumptions: It assumed I would receive a small raise each year, and my automobile and household appliances would never need a major repair. It assumed that I never went on vacation, that gas prices and inflation remained steady, and that I never became ill or unemployed. It assumed that I made little or no contribution to my retirement.

In short, it was based on assumptions that were completely unrealistic.

If my plan succeeded (and I had serious doubts that it would) I would be 43 years old before I would be out of debt and able to save for retirement. I realized I had to take the advice I was so loathe to accept.

I let the house foreclose and filed for bankruptcy during the summer of 1997. I was broke, and my credit was ruined. I was on the verge of becoming homeless, not only because I had no money and no credit, but because I also lived with a dog and a cat. To every landlord in town, I was poison.

By November, I was out of options, so I moved out of my comfortable double-wide mobile home and put my household goods in storage. I moved into the aging travel trailer I’d bought for camping several years before. I ended up parked at a local county campground with a three-month stay limit. My most important possessions, my two pets, and I were crammed into an 18-foot box.

It was scary, but I was free. I had a job, the collection calls had stopped, and the overwhelming pile of bills was gone. It was time to move forward and rebuild. Although I felt intense embarrassment and shame for what I had done, I also felt a sense of optimism that I hadn’t felt in a long time. I was starting over with a clean slate, and the possibilities were endless.

In this series, I’m going to talk about the mistakes I made that lead to my financial implosion, the lessons I learned, and what I could have done differently. I’m also going to share what I did to recover and the mistakes I’ve made along the way.

Next in series: Bad Relationships

Photo credit: US Dept. of Energy