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What to do when bankruptcy won’t work

Jan 31, 2011 | | Comments Comments Off

Dear Liz: I am 70 and still working hard to retire attorney fees from my divorce while paying my daughter’s college tuition. I met with a bankruptcy attorney and got not-very-encouraging news. The attorney told me it would cost $2,000 to file for bankruptcy and there was no guarantee that my $36,000 in credit card debt would be retired. Instead, I might have to repay the debt over two to five years. He left me with the impression that there would be no debt relief, just a delay with a set repayment schedule. I have made no decision about how I will proceed, but the credit card payments are killing me. Can you advise?

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Answer: Not everyone can qualify for a Chapter 7 liquidation bankruptcy, which typically erases credit card debt. If your income is above the median for your area, or you’re trying to protect assets that would be taken in a Chapter 7 case, you could wind up in Chapter 13 bankruptcy, which requires a repayment plan.

The best way out of your situation may be to buckle down and pay off the debt as quickly as you can, even if it means your daughter’s taking a sabbatical from school for a while. You also could sell or cash in some non-retirement assets, if you have them, to pay off your debt.

If you really can’t afford these bills, you could contact a legitimate credit counselor such as one affiliated with the National Foundation for Credit Counseling at http://www.nfcc.org to see if you could swing a debt management plan that would allow you to pay off these bills at a lower interest rate.

If that won’t work, another option is to try to negotiate a settlement with your creditors. Settlements trash your credit scores, and your creditors could sue you if you stop paying your bills, so this solution isn’t for the faint of heart. You may want to return to that attorney and ask for guidance before you take such a drastic step.

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