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,
As of today, my husband and I have only one income. I've
been laid off. We live in California and do not own any real estate, but we
have close to $60,000 in debts. Most of it is my student loans and credit card
debt. We're also behind on our income taxes, which we filed jointly. If I file for bankruptcy, do you think it will destroy my husband's
credit? -- Caitlin
Dear Caitlin,
Whoa -- slow down
there! You got laid off today, and you're thinking about
filing for bankruptcy? Let's not get
into too big a hurry.
Losing a job is traumatic. It's amazing how much of our
lives are wrapped up in our job --
status, evidence of achievement, money, purpose, perhaps even our closest
circle of friends. All that feels lost when you carry a box and a couple of
potted plants down the elevator for the last time. Give yourself time to
recover before you make any drastic decisions.
I don't think you'll find filing for bankruptcy over $60,000
in debt is a good idea when you take everything into consideration. There are
times when bankruptcy is the only solution -- for instance, when someone has a
huge, one-time debt from medical expenses or a failed business. However, with
two people in their earning years, you can and should pay your creditors.
Bankruptcy is expensive, time consuming and can be emotionally devastating.
Further, it won't get rid of student loans or most back taxes. By lowering your
credit score, bankruptcy might even it harder for you to get a job.
As far as your husband's credit goes, you filing for
bankruptcy does not directly affect him. However, if both of you are on the
credit card accounts and only one of you files for bankruptcy, the banks will
turn around and collect from him. You'll be right back where you started! Even
if he's not on the card, they can try to collect from him in a [%Link?type=glossary&id=340&text="community
property"%] state such as California, or they can argue he benefited from the use
of the accounts.
Instead of thinking about bankruptcy, take these steps to
get back on track:
Cut yourself some slack for a day or so. Some
people go for a good run when something traumatic happens. (I'm not one of
those.) Others talk to friends, dawdle on Facebook or make chocolate chip
cookies. (I'm more one of those.)
Check your state unemployment office to find out
how much your unemployment benefits will be.
Find out where you stand. Make a list of all
your debts, including interest rates and minimum payments. Make a baseline budget using your current income and your family's monthly no-frills expenses.
Start looking for ways to make income. The
people who bounce back quickly from losing a job get back into the marketplace
immediately. Create a knockout resume, with help if you need it. Network by phone and online using
LinkedIn and Facebook. Make sure everyone knows you are looking for
work. Check online job sites every day. Or consider starting your own business.
You can even sell things, such as a motorcycle or some collectibles, to help you keep
up with bills while you look for work.
Look for places to cut expenses. I prefer big savings, such as finding a better deal on insurance or canceling unused memberships. Some
gyms, for example, will let you cancel or suspend your membership when you are
unemployed. Recheck that baseline budget and see how close you are to balancing
it now.
See if you qualify for hardship programs on your
debts. Banks, and even the IRS, often suspend or reduce payments when debtors are
unemployed. In the case of credit card debt, some issuers are willing to delay repayment via credit card forbearance programs.
Even in a down economy, people find jobs, start businesses
and even prosper. In fact, many people find losing a job is a step to finding a
job or career they like better! Let's hope that is the case for you. Good luck!
Sally Herigstad answers questions about credit every week for CreditCards.com. Herigstad is a certified public accountant, author and speaker. She also writes regularly for MSN Money, Interest.com, Bankrate.com and RedPlum.com, and has been a guest on Martha Stewart radio and other programs. You can read more about personal finance and download free budgeting worksheets at her website: www.sallyherigstad.com
To Her Credit answers a question about a debt or credit issue from a CreditCards.com reader each week.
Send your question to Sally.
Published: July 9, 2010
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