Sally Herigstad is a certified public accountant and the author of "Help! I Can't Pay My Bills: Surviving a Financial Crisis" (St. Martin's Press, 2006).
Dear To Her Credit,
I owe too much money on my credit cards and I don't
see how I can ever pay it back. If I file for bankruptcy, will my credit be
ruined forever? Would this mean I could never get credit cards again? What
about car loans or other credit?
-- Shannon
Dear Shannon,
Being deep in debt can be so discouraging! You don't say how
you got into debt or why you think you can never pay it off. What you may not
know is how many people are in a situation like yours. Whether because of
unemployment, medical problems, or just a slow slide into debt, a lot of people
are so far in debt that they can't see how they'll ever get out.
It's seldom as hopeless as it seems, however. I know people
who have been deep in debt -- probably in worse shape than you are in -- who
have worked their way out of it.
Take Tamara, for example. Tamara made a good income and
lived in a nice house. Her husband had an apparently successful business, but
they kept their finances completely separate. She didn't know what he really
made, and neither of them were really keeping track of what they spent. When
the cash balance got low, they refinanced their house and kept spending.
Eventually, it caught up with them. Her husband admitted that he hadn't been
making a profit, and Tamara was devastated to find out how far in debt they
were. They considered filing for bankruptcy, selling their house, or both.
Fortunately, when Tamara and her husband realized how
serious the situation was, they faced it head on. They cut back drastically on
expenses, and they both worked long hours to make progress on their debts.
Tamara often worked a double shift. They paid off every debt except their
mortgage. They still have their house, and they are rightfully proud of having
gotten out of debt by sheer hard work.
On the other side, most people who file for bankruptcy eventually
regret it. It's demoralizing. For one thing, bankruptcy is a public proceeding.
I've been to bankruptcy court with someone, and you don't want to have to go
there! It's a gloomy place. Lots of people are standing around, not talking
much. Some of them are your creditors or their representatives (who have been
notified of your court date.) Others are just people waiting their own turn.
You can't tell which is which. It's no party.
Filing for bankruptcy is not the "easy way out"
for several reasons:
You have
to file lots of paperwork, which won't be easy if you've let things slide.
You
lose control over who gets paid first or at all. Innocent people get hurt
by bankruptcies. If you owe money to individuals, for example, you can't
make sure they get paid.
Bankruptcy
is expensive. You'll pay plenty for legal help and court fees. (That fee
you see advertised? It's just the beginning!) That's money you could have
applied to your debts.
And
yes, filing for bankruptcy is devastating to your credit score and your
ability to get credit. The bankruptcy won't stay on your credit report
forever, but it will be there for 10 years. That's a long time to know
that every potential creditor, landlord, and maybe even employer can see
it. You should be able to get credit, but at too high a cost.
Bankruptcy
almost never solves the underlying problem. Too many people file for
bankruptcy, and then in a few years are right back where they started.
Unless you are completely unable to work for some reason, I
recommend that you stop even thinking of bankruptcy as a way out and instead
find a way to pay off your debts. Bankruptcy is almost never the answer.
Finding out where you stand and making a new plan is. Get financial counseling
if you need it. You can take control of your money -- and your life.
Sally Herigstad writes about women and credit every week for CreditCards.com. Herigstad is a writer and finance consultant for MSN Money, a personal finance software product. She is also a member of the Washington Society of Certified Public Accountants and the American Institute of Certified Public Accountants. Her Web site is http://helpicantpaymybills.net. Sally Herigstad lives in Kent, Wash., with her husband Gary. They have two grown children, Valia and Grant.
To Her Credit answers a question about a debt or credit issue from a CreditCards.com reader each week.
Send your question to Sally.
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