When bankruptcy makes sense

Small salary, ill spouse, big credit card debt leave few other choices

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 have credit card debt about of about $20,000. I tried to settle it using a debt management company, but Citibank would not work with us. Now that I think about it, I probably could not have made the payments ($410 a month). I have a very small salary and my husband is ill, not working. I just cannot pay this bill. What can I do? -- Ruby

Answer for the CreditCards.com expert

Dear Ruby,
It's hard to see where you're going to get the money to pay them in the near future. Two people living on one small salary, sickness and a crushing debt load in proportion to your income all add up to a very desperate financial situation.

You say that Citi would not "work with" you. I'm hearing that phrase used often when people mean that they want creditors to reduce the amount owed. Even in hard times such as yours, we might as well call negotiating a credit balance what it is -- asking the bank to give us money by forgiving debt. Citi, on the other hand, is obligated to work in its own self-interest and try to recoup as much as it can of the money spent paying vendors on your behalf.

Unfortunately, the bank is probably not going to collect on this debt. I'm going to recommend something that I reserve for only very rare cases where there doesn't appear to be any other way out. You may need to consider filing for bankruptcy. Unless you have resources you're not telling me about, such as a motorcycle or second car you could sell, you are broke. If your husband's illness is short term, perhaps you could hang on until he gets well and then with two incomes, you could dig your way out of debt. If that's the case, the bank may give you a temporary reprieve due to his illness.

Otherwise, you need to talk to a counselor, show her all your bills, expenses and how much you make, and decide if bankruptcy can help take away some financial burden for you. As a rule of thumb, if your debts other than mortgage and car loans are more than you make in one year, Chapter 7 bankruptcy may be the best option.

Bankruptcy is not cheap, nor is it a cure-all. You'll have paperwork to fill out, meetings to attend and probably $2,000 to $3,000 in bankruptcy costs. Try searching in your area for legal help for low-income filers to keep the costs down, but stay away from nonattorneys -- especially shady looking ads that advertise very low rates and easy, spectacular results. Getting the right help can make all the difference as you go through this process.

If you file for bankruptcy and have your debts cleared, your financial troubles won't be over. You still need to find a way to increase your earning power. Perhaps you qualify for a training program to help you qualify for a better job. You may even need to work another part-time job. As difficult as that would be, it might be worth it to earn a few extra dollars while you are the sole support of your family.

If your husband's illness is long term, ask his doctor if he may qualify for disability payments. Social Security disability payments, for example, are not easy to qualify for. But if he does qualify, the benefits could make a big difference for you.

I recommend finding a nonprofit agency affiliated with the National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies to help make sure you know all your options and make the best choices.

As long as we have health, we can overcome almost any financial problem. I hope your husband gets better soon, and that you and your family soon find yourselves in better times.

See related: You're eligible for Chaper 7 bankruptcy, but should you file?, Is bankruptcy right for you? Our 7-point checklist will tell you

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Updated: 12-09-2018