Q&A: When to file bankruptcy

Dear Liz: I’m a 33-year-old mother who lost my full-time job during the recession in 2009. I may have my “stuff” together again, but am considering filing bankruptcy. Each month I’m spending almost half (yes half!) of my income on debt payments to credit cards, loans and medical bills. Each month after all my bills are paid and groceries are bought, I have zero dollars left over to save. Even after losing my job, I made sure to always make those payments, so my credit is decent. Last I checked my credit score was hovering right around 700. I really have no reason to have good credit at this time, as I don’t have any need for a large purchase. Should I file or pay back my debts? Is filing for bankruptcy a good idea if it allows me to build a savings account and start putting money back into a 401(k)?

Answer: A bankruptcy filing would devastate your credit scores, and that may create more problems than you think. Credit information is used by insurers to determine premiums, by landlords to evaluate applicants and by wireless carriers and utilities to set deposit requirements.

At the same time, it makes little sense to continue to struggle against a mound of debt if you’re not making a dent in the pile. If it would take you five years or more to repay what you owe, you should at least consider filing for bankruptcy. Why five years? Because that’s how long you’d be required to make payments under a Chapter 13 repayment plan.

Most people, however, qualify for Chapter 7 liquidation bankruptcy, which is typically preferable since it’s faster (three to four months, versus five years) and erases credit card and medical bills. An experienced bankruptcy attorney can advise you and help you understand the ramifications of filing.

If lower interest rates might help you pay off your debt within five years, you also should consider an appointment with a credit counselor associated with the National Foundation for Credit Counseling (www.nfcc.org). These nonprofits can set you up with debt management plans that may offer lower rates on your credit card debt.

Most people feel an obligation to pay what they owe, but that often leads to fruitless struggles against impossible debts. Bankruptcy laws allow individuals a fresh start so that they can take care of themselves and their families. Among your many financial obligations is the one to support yourself in retirement, and every year you delay saving will make it that much harder to accumulate a reasonable nest egg.


  1. If you are contemplating doing anything then the first thing is check the statue of limitations on coming after you for any debt not paid
    Send a letter to any and all doctors/hospitals telling them that you no longer have the funds to pay and you will never have the funds and they need to look at a way to decrease or write the debt off.
    Some will negotiate for far less and most have a charity of some sort that will pay it off. If they will not then just quit paying
    Now try the same thing with credit cards and other debt
    If they will not lower the payment or take a smaller amount then do the same thing stop paying
    You will get a lot of threats and letters do not respond as the statue of limitations start over
    If you in fact do get sued and taken to court then run down and hire a bankruptcy attorney to represent you
    If you quit Paying or file bankruptcy your credit is shot
    Just not paying could save you a lot of money in the long run as a bankruptcy may just spread out he payments and yet you will pay as much or more as if you had never filed
    I learned the hard way. I paid an attorney 1000.00 to find out that I could do bankruptcy that would cost another 2000.00 and my monthly payment would be 50.00 a month higher than what I was paying if not filing.
    I then find out that I could just quit paying and then file if and when we were actually sued
    If you get any sort of an agreement on a lesser amount make sure they give you what is called without recourse which means you pay then =m and yet the difference is not counted as income and your sent a 1099.