11/26/2012 2:45 PM ET|
When does bankruptcy make sense?
Deciding whether to file can depend on both the amount you owe and your need to avoid collectors.
A reader writes: I lost my job about seven months ago and as of yet have not been able to find another job. I have about $15,000 in credit card debt and have been able to make my minimum monthly payments using my unemployment check. My unemployment runs out soon, and I am wondering if I should or could file bankruptcy? I am 58 years old and do not have a personal savings account. I have a 401k and about $5,000 in a Roth individual retirement account.
My answer: Sorry to hear you are struggling right now. I can't imagine how frustrating the job market must be for you.
Hopefully, I can give you some direction as you make your decision about whether to file for bankruptcy. It appears you would be eligible for a Chapter 7 bankruptcy, which would wipe out your $15,000 in credit card debt and allow you to keep your 401k and the Roth IRA money.
Even if you decide to file for bankruptcy on your own, without the assistance of an attorney, you should confirm your eligibility with a five- or 10-minute consultation with a local bankruptcy attorney. It is always wise to receive some legal advice rather than relying solely on Internet research, advice from friends and family or even an answer from a columnist.
You don't have a ton of debt, and you could potentially remain in good standing with these creditors once you find gainful employment. If you had $50,000 in debt, that would be a great reason to file for bankruptcy now, but $15,000 could be manageable. You could also try to wait until you return to work and get caught up with your creditors later.
So you might be able to avoid using the bankruptcy card for now. That said, I would probably still advise you to file, since you have unemployment income to pay the court fees.
Many times the reason someone files is not due to the amount of debt. Instead, it's the amount of harassment you receive from debt collectors. Once you stop paying creditors, the phone calls begin. In many cases, my clients decide to file to stop the calls, lawsuits and generally uncivil treatment.
The process changes somewhat from company to company, but this what you can expect: Once you miss a payment, your account gets categorized as a "collection account" by the lender. The first collectors usually are civil. You will get calls, usually every day, asking for payment. You can choose to ignore those calls or take the call and explain your situation.
The challenging part comes after the original creditor decides to stop trying to collect. It will either assign or sell the debt to a collection agency. This is when the civil calls can turn nasty.
Collection agency employees will say some pretty outrageous things to people to collect a debt. That is not to say that the original creditor will always be nice and polite, either. It is just that collection agency employees are notoriously nasty. You will need a thick skin to tolerate some of the comments made in the attempt to collect a debt.
Of course, not all bill collectors say and do illegal things, but their reputation has been earned for a reason.
Your emotional strength will determine your willingness to tolerate the calls and comments. Maybe you have found a job by this time and can get onto a payment plan with the collection agency. Obviously, that would end the calls, because you would be paying back the debt you owe.
In the absence of paying, you need to determine whether bankruptcy is the lesser of two evils. Your credit would take a big hit, but you would gain some peace of mind from knowing you did what you could. Or, you can try to avoid bankruptcy by working out a payment plan that you can honor once you return to work.
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VIDEO ON MSN MONEY
I put $100K cash and took out a $200K secured loan on a franchise business. The business was never profitable and after 2.5 years I asked the prop. mgt. co. to renegotiate the lease to current levels to offset the $1K monthly loss, and I asked the franchier to reduce their 8% royalty fees. Neither party wanted to work with me with the franchiser stating "then I would be going out of business if I reduced your royalties.
THATS ALL IT TOOK FOR ME..I met with a recommended bankruptcy attorney, paid the $3100 dollar fee and informed the parties involved after I closed my bank accounts and moved my cash to another bank to block the franchiser from making an automatic withdrawl from my account. The property mgt. co. called me crying several times after stating they would reduce the rent but only for 2 years,,,I advised them it was a business decision and I would rather go out on my terms than someone elses..
everything was liquidated the bank got my secured property to sell, the prop. mgr, co. kept the $10K deposit and I kept my condo, my $23K in cash, my two vehicles and my $1 Million dollar pension and moved on into retirement..the only regret was having to tell my 12 employees I was closing most are still on unemployment 2 years later,,,the property I was leasing is still vacant 2 years later,,,guess they should have made a better business decision,,,,don't be shamed into thinking you are a loser for not paying out what you don;t have,,at the end of the day you have to take care of yourself because no one else will.
I just filed Chapter 13...................
I'm 67 years old........... 80% disabled Viet Nam veteran with PTSD, isamtic Heart, Blocked leg main arteries ..... And brain tumor .
After my heart attack in 2006 my wife of 38 years left me for her old college boy friend. That devastated me to the point of going to a mental hospital for 12 weeks as an out patient. After that I couldn’t think right and made some bad choices.
I stayed in my house and she moved out . It was suppose to be sold ,but never sold . I love my house …always did , so I tried to pay for it myself ,but fell behind on payments . My house was suppose to be auction this Dec 4th , but the filling of chapter 13 will stop that .
(At least , I’ll be home for Christmas)
My point here is ………….. I tried to get help with the house .. The State of Il., The VA, The local township………… No one really helped me. They just all gave me numbers to call . Numbers that I have already tried or didn’t help .
I found out that it doesn’t really matter what you did in your life, What shape that your in now . Medical or mental……………… No one really cares…………
All a bunch of talk…… sooooooooooooo, I did what I had to do ….. by my self. I don’t know if it was the right thing to do , But………………. My house won’t be sold … I can decorate the outside once again… It’s important to me …………Well, because it’s the one thing that I have left in my life. I’m telling all of you all of this because I want you all to know that the only person you can count on ….is yourself… . The foreclosure buyers (Vultures ) are out there in hordes ,just waiting and hoping that you make another mistake …that you have another misfortune ……. I have no love for these people.
I’ve learned a lot over this last year with my house ……. Foreclosure. I’ve learned to be more understanding of people in trouble ……… People that lost their jobs…. Can’t pay their bills ……… It’s a sorry thing to happen in our great country ……… It shouldn’t be allowed………….. Somehow the government should step in ….
Sometimes I loose faith in our government .country. Sometimes I’m not proud to be a Veteran……. God save us all…………. God save out country………..
God bless all of you out here that are facing hardships and misfortunes …
Remember one thing (As I do ) .. Smile, God Loves you .
Thanks for reading……….
"If you had $50,000 in debt, that would be a great reason to file for bankruptcy now, but $15,000 could be manageable. You could also try to wait until you return to work and get caught up with your creditors later."
Comment made by the author who obviously has never been in this position and has never done financial counseling. $15,000 in debt with no income might as well be 1 million in debt with income of 100k per year, this author doesn't get it.
The $15k in CC debt will soon be $20k and growing, with interest and fees tacked on.
It is an awful situation and bankruptcy would stop the collection efforts....The shame is the author is terrible biased against people paying their debts and against collection agencies. There are always bad apples but this author I am sure has given some bad advise that hurt the recipients interpretation or actual literal use the author's "recommendations".
people that are in trouble should be given a chance to recover. Too many people now think it isn't an obligation to pay what they owe. Mine and other parents instilled in our generation that you should not out live your means or feel entitled to things other people have. Nowadays this author and many other "leaders" want people not to feel responsible for their actions.
I love it when people buy food and clothes for 6 months on their credit card and then feel the bank is wrong for trying to get the money they extended and is eventually passed onto honest consumers.
Sad, sad, world we now live in.
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