Dear Liz: My husband and I are struggling with whether to file for bankruptcy. We have $80,000 in credit card debt, which has ballooned because of high interest rates and our paying only the minimum. My husband and I were both laid off in 2008. I collected unemployment for not quite a year and still have not been able to find work. My husband found a job after a year and a half, but then was injured at work and faces another four to six months of recovery, so he is receiving only 67% of his former wage. Now we can’t keep up with our bills. We have stopped paying three of our credit cards and are getting hounded to no end. We are trying to sell our house but even that is not selling. We have nothing left. No retirement, no savings, just debt. We are drowning. We both have such a hard time with the idea of filing for bankruptcy, but is it time?
Answer: People can sometimes avoid bankruptcy if they seek help early enough. If they’re able to pay more than the minimums on their credit cards, for example, they may be able to use a legitimate credit counselor’s debt management plan to pay off their debt.
But debt management plans require that you have at least some disposable income. If you can’t keep up with your bills or find employment, that doesn’t describe your situation.
Get the monthly that has L.A. talking. Subscribe to Los Angeles Times Magazine at a special introductory rate.
You still can contact a creditor counselor via the National Foundation for Credit Counseling at http://www.nfcc.org, but you also should contact an experienced bankruptcy attorney (you can get referrals from the National Assn. of Consumer Bankruptcy Attorneys at http://www.nacba.org). You may not want to file, but you may not have much choice, particularly if you want the collection calls to stop.
What’s especially sad is that you apparently drained your retirement to pay your bills. Your retirement money would have been protected from creditors, but you essentially threw good money after bad. Retirement money should be left alone for retirement, so you can support yourself in your old age. Anyone who’s considering draining a retirement account or home equity to pay credit card debt or medical bills should first consult a bankruptcy attorney to understand the ramifications of this often-foolish act.