After bankruptcy and depression, reach for financial help

Question for the expert

Dear Credit Wise,
Five years ago I filed a Chapter 7 bankruptcy. I was doing good with my credit, then my daughter lost her job and I have to pay her car note and student loan. Then my son needs my help paying his car note. I had a son recently passed away and, to help with my depression, I shopped. I don't make enough to pay all my bills. I am always robbing Peter to pay Paul. No bills are behind.

Am I eligible for a Chapter 13 bankruptcy now? I do not know what to do -- file a Chapter 13 or have a debt settlement lower my payments and interest rate. Help!!! -- Shirley

Answer for the expert

Dear Shirley,
I am so sorry you are in such a precarious situation. Unfortunately, the "robbing Peter to pay Paul" scenario plays out in many American households. That can work out for awhile, but eventually something has to change. It seems you are at that point.

First let's address your shopping habit. Depression is a horrible disease that can manifest itself in many ways.  You are a little ahead of the curve by admitting that your depression is what caused you to shop. Recognizing the problem is the first step and I hope you have put that behind you since you are now reaching out for help.

I also understand your desire to help your kids out, but you are really not in a position to pay anyone's bills but your own.  Still, having a car repossessed will not really help anyone here, which is probably why you have been helping with their car notes. As for your daughter's student loans, she needs to reach out to someone for help. If she is unemployed, she may be able to get forbearance on the loan for now.  One good resource for student loan help is the website The counselors are knowledgeable about the solutions out there and are available to speak with your daughter at her convenience.

Your options for addressing your debt are to continue to pay the debt on your own, bankruptcy, settlement, or credit counseling. I think you have already decided you can't keep on going as you have been doing. You will need to speak with an attorney to determine your eligibility now to file a Chapter 13. Since you have already gone through a Chapter 7 bankruptcy you know how that affects your credit. Debt settlements are also not great for your credit score. Only you can decide how important that will be to you now.

Another option for you might be credit counseling, which you did not mention.  Legitimate, nonprofit credit counseling agencies offer debt management programs that can sometimes assist people in your situation. These programs will work with your creditors to come up with a plan to pay off your debt in five years or less. Interest rates and payments may be reduced on a program, but your accounts will be closed. This, too, will affect your credit by reducing your available credit in the credit scoring model. However, if you are at or close to your credit limits anyway, the effect will not be that significant.  

A good agency will go over your budget with you and help you find places to reduce spending. If a program will not work for you, they will tell you that and help you find another solution, probably from one of those I mentioned. You can find an agency through either the Financial Counseling Association of America or the National Foundation for Credit Counseling.

See related: Your roadmap through Chapter 7 and 13 bankruptcy, Debt settlement versus credit counseling: similar aims, different means

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Updated: 11-18-2018