Take control of debt, avoid bankruptcy

To Her Credit columnist Sally Herigstad
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). She writes "To Her Credit," a weekly reader Q&A column about issues involving women, credit and debt, for CreditCards.com, and also wrote for MSN Money, Interest.com and Bankrate.com, and has guested on Martha Stewart Radio and other programs.

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Question for the CreditCards.com expert

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

Answer for the CreditCards.com expert

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.

See related: 5 tips for those considering bankruptcy, Bankruptcy does offer a fresh start, at a high cost, Bankruptcy filings state by state, 2005-2008, Starting over after bankruptcy 

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Updated: 11-23-2017