Some spend lavishly up to their date with bankruptcy court

But the day of reckoning is coming for the boat, time share and 3 cars

To Her Credit columnist Sally Herigstad
Sally Herigstad is a certified public accountant and the author of "Help! I Can't Pay My Bills: Surviving a Financial Crisis" (St. Martin's Press, 2006). She writes "To Her Credit," a weekly reader Q&A column about issues involving women, credit and debt, for, and also wrote for MSN Money, and, and has guested on Martha Stewart Radio and other programs.

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Question for the expert

Dear To Her Credit,
My brother and his wife are filing for Chapter 7 bankruptcy. They went on a trip to Australia for a week and then filed. They also plan on keeping one of their credit cards (for gasoline) and want to keep their time share. When her mother died, they received a large sum of money ($10,000) and a 2010 car. They have a boat and three cars. They also have their brother-in-law living with them.

They both work and have exhausted their credit cards. Their lawyer told them not to pay any of their creditors, so they go to the casino!

What's wrong with this picture? It seems they have everything and won't have to pay a cent. They also own a house. -- Becky

Answer for the expert

Dear Becky,
Most Americans, like you, believe in paying their debts. You didn't describe your own financial status, but if you're working hard, brown-bagging your lunches and trying to pay your bills the old-fashioned way, it's irksome to see other people flying by in late-model cars with seemingly not a care in the world.

I firmly believe, however, that your financial future is likely to be brighter than that of your free-spending brother and his wife. Here's why.

A bankruptcy is a lot like a tracheotomy. When there's no other way to pay off monstrous debts -- for example, when a business failure, lawsuit or divorce has left someone with enormous debts and no hope of ever paying them back -- bankruptcy is a financial life-saving procedure. The results can be quite satisfactory in those circumstances. Free from overwhelming debt, the filer can recover and go on to a productive life.

Unnecessary bankruptcy, however, is like pulling out a penknife for a tracheotomy every time someone has difficulty breathing. If the problem can be solved any other way, I'd want to try that first!

I don't know your brother, but I know a few people like him and his wife. A $10,000 inheritance is nothing to them. It was probably spent before they got the check. I've known people who have gone through much larger, long-anticipated inheritances within months.

Their expenses have to be huge. Gas, insurance and upkeep on a boat and three cars are bad enough, and then there's the brother-in-law using utilities and emptying the fridge. Running through all that credit and inheritance, they became accustomed to an unrealistic lifestyle. They're going to have a hard landing.

And there will be a landing. They may think they can start the cycle all over again after the bankruptcy, but their high-flying days are numbered. Sure, they can get credit after bankruptcy. Some banks are more than willing to lend to people who can't escape debt by bankruptcy. That's because a bankruptcy reform law that went into effect in 2005 required that eight years must pass between Chapter 7 discharges of debt. But if they do get credit, the limits will be low and the interest rates will be high.

The big spenders may not keep as many of their toys as they think, either. It will depend on exemption laws of the state they live in. The time share may be sold to pay off creditors, which is just as well. They can't afford the time share fees. Chances are, they won't have three cars when it's over, either.

Approximately 14 percent of bankruptcy filers will file again. My hunch is that those who took their financial responsibilities lightly and learned nothing about living within their means from the process will be first in line to file for bankruptcy again -- and again.

Meanwhile, don't let their wasteful ways get you down. It may not feel like it when your brother and sister-in-law are traipsing around Australia, but people tend to reap what they sow when it comes to money. Spendthrift ways do not lead to a life of peace and financial success. Timeless values of thrift and responsibility do.

See related: Don't even think of spending frivolously before bankruptcy, 14 key factors when considering bankruptcy, Sometimes bankruptcy is the only way out

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Updated: 12-17-2018