Pay off credit card debt or declare bankruptcy?

Credit card cash advances need to be repaid, says The Credit Guy

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The Credit Guy, Todd Ossenfort, is a credit expert and answers readers' questions about credit, counseling and debt issues.

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Question for the expert

Dear Credit Guy, 
In 2006, I invested and lost $13,000 in an Internet scam. To get the money I got cash advances from credit cards. Now I'm stuck living with my in-laws and am tired of living here. I couldn't afford the interest rate so they put all of my debt in their names. My question is if I get the debt put back in my name and quit paying it, will I have bad credit for the rest of my life? Or what will happen if I file bankruptcy?
-- Scammed

Question for the expert

Dear Scammed,
Luckily, we all have the opportunity to learn from our mistakes and move on, away from your in-laws, smarter and more prepared for the next time. In fact, bankruptcy is an option in this country for that very reason. Unfortunately, it is not as easy to qualify for a clean slate bankruptcy (Chapter 7, where most of your debts are completely forgiven) as it once was since the bankruptcy law changed. On the fortunate side, you will not have bad credit for life, no matter what. Bankruptcies stay on your credit report for 10 years, but most negative items are removed after seven.

Transferring the debt back into your name and not paying is a bad idea. I know you want out from under the debt, if for no other reason than it reminds you of your bad investment. However, you did take out the cash and you do owe the creditor.

My recommendation is to leave things as they are and pay off the balances as quickly as possible. Since you are experiencing some difficulties living with your in-laws, why not get a second job. It will accomplish two things: You'll be out of the house more often and it will give you additional income to pay the debt off faster.

If you do decide to put the balances back into your name and stop paying, your creditors will eventually -- usually 180 days after your first missed payment -- charge off the balances as bad debt. Your balances will then likely be sold to collectors who will attempt to collect the debt. This is the beginning of a bad thing.

Because you owe a significant amount of money, the collector(s) likely will take the case to court if they are unsuccessful in collecting the debt. The court could award the collector a judgment, which can be used to garnish wages and place liens on property, depending on the laws in your state.

Your in-laws may not be perfect, but I'd be willing to bet they are better than dealing with collectors.

Filing bankruptcy is an option that you could pursue, but I'd encourage you to visit with a reputable credit counseling agency before you seek the help of a bankruptcy attorney. You will have to attend a credit counseling briefing as a requirement to file for bankruptcy, so go ahead and make an appointment and see what your options are. A certified counselor will review your financial situation and offer a number of solutions that will work for you.

Take care of your credit!

Todd Ossenfort is the chief operating officer for Pioneer Credit Counseling in Rapid City, S.D. Pioneer Credit Counseling has been a member of the Association of Independent Consumer Credit Counseling Agencies since 1997.

The Credit Guy answers a question about a debt or credit issue from a reader each week.
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Updated: 11-20-2017