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WALL STREET, CALIFORNIA | Money-Make-Over / Southern
California Learning HJow to Succeed in Personal Finances

Saying No to Bankruptcy, She Chooses to Try Paying Off Debts


Kay Larsen is more than $50,000 in debt, and her life is on hold.

Larsen, a deeply religious person who also considers herself careful, ended up in this position through an all-too-familiar double whammy. After a brief (and, for her, uncharacteristic) period of out-of-control credit card spending, she was injured on the job and couldn't work for several years.

Before long, $11,000 owed on credit cards and in personal loans multiplied almost fivefold as she charged groceries and gasoline and borrowed thousands of dollars from family members just to survive.

For Larsen, 40, who lives in Glendale and now makes $24,960 a year as a secretary at Glendale Adventist Medical Center, the quick, obvious solution would be to declare bankruptcy. But she'll have none of that. Defaulting on a debt is simply not right.

"I should have declared bankruptcy years ago," she mused, "but I try to be a good person, and I pay my debts."

It won't be easy. Another quick and obvious suggestion would be for Larsen to make it easier on herself by reducing the tithe she pays the Seventh-day Adventist Church. She's currently contributing $2,544 a year, or more than 10% of her gross pay.

But Larsen regards that expenditure the way a working parent would child care--it's not optional, it's necessary.

"I consider it my responsibility as a Christian to return to my church as much as I can," she said. "It's something I need to do to remind myself I'm part of a community, part of a greater whole, not just in my own little world."

A Dream Deferred

Sharon Rich, a fee-only certified financial planner in the Boston area, believes that from a strictly practical point of view, Larsen is being overly generous, but "her spending reflects her personal values, really nice values."

"If she follows a bare-bones budget for six or seven years," Rich added, "she can avoid declaring bankruptcy."

Larsen's unexpected health problem and the spiraling debt that grew out of it have stalled the plans she had for her future.

When Larsen graduated from Walla Walla College in Washington state and moved to California in 1982 to live with her sister and divorced mother, she had a mission: to get a job that would help her pay off her college loans and then to move back to her hometown. Larsen was reared in the village of Stanwood, Wash.--where she attended a church elementary school that had four grades in one room--and she wanted to return as soon as her financial situation was stable.

Through a combination of strict budgeting and a little help from Mom, in two years' time Larsen had repaid her college loans.

"I never spent a dime on myself until two days before my next paycheck," she said. But before Larsen could pack up her debt-free status and move back to Washington, all that penny pinching gave way to a spending binge. She qualified for several credit cards and started using them willy-nilly.

"We were so poor growing up that we always made our clothes," she said. "When I got my credit cards, I stopped sewing, because it was just so wonderful to buy clothes." One wardrobe, a bedroom set and a computer later, she owed $11,000.

Recognizing that she was in over her head, Larsen began doubling up payments in 1991, but it was only a few months before she was confronted with the medical crisis that would sink her financially.

In early 1992, she suffered a repetitive-motion injury--tearing the cartilage in her right wrist--while opening tuition statements at the private school where she worked. Administrators denied that the injury was work-related and fired her, arguing that she was ineligible for the workers' compensation benefits she would need to have her wrist repaired surgically.

She went to a workers' comp attorney, who took her case for a percentage of any judgment she might receive. Thus began a four-year odyssey of unemployment, pain and courtrooms as Larsen waited for her lawsuit to make its way through the system and for her wrist to be mended.

In the meantime, Larsen had to deal with her debts.

She began by calling her credit card companies and other creditors, telling them she'd been fired and asking to have her monthly payments reduced. The interest on those debts would continue to compound, however.

All creditors but one--ironically, the credit union that serves members of the Seventh-day Adventist Church--were willing to work with her. That's nothing unusual, since a creditor would rather get something than the nothing at all it might if the debtor declares bankruptcy.

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