What can I do if bankruptcy is not an option?

If you’re overwhelmed by credit card debt and you can’t file for bankruptcy, a credit counselor can help you develop an alternative plan


Bankruptcy may not be an option for you if can’t afford legal fees, or you’ve recently had a bankruptcy discharged. Another way to tackle your credit card debt is to seek the help of a credit counselor who may be able to offer a solution such as a debt management plan.

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Dear Keeping Score,

I had three credit cards before I was incarcerated in 2016 until 2019. Now I have a collection agency suing me on my Discover card, I am also without a job, but I’m looking desperately for a job. The other two have just sent letters to pay.

I tried to file for bankruptcy but the lawyer said that I didn’t qualify. Also I have a $900 electric bill that was created for almost six months after my incarceration. Also have a $1,600 court cost. Please give me your advice what is my best option. Thank you. – Linda

Dear Linda,

I am sorry to hear about your troubles. But I’m pleased to see that you are committed to turning your situation around. I believe what your lawyer may have meant when he said you don’t qualify for bankruptcy was that with no income to attach, collectors won’t be able to get blood from a stone. Or it could be that without income you couldn’t afford to pay the legal fees for the filing.

Another possible reason is you may have a bankruptcy in your past. Without knowing all of the particulars, it’s hard for me to know everything your lawyer knows about your situation. I do, however, know the basic requirements for filing bankruptcy.

Check out all the answers from our credit card experts.

Ask Steve a question.

How often can you file for bankruptcy?

In addition to meeting the qualifications, the other factor that comes into play is whether there is a previous bankruptcy filing. If there is, there are timing restrictions on when you can refile that run from two to eight years depending on which of the two bankruptcy chapters you filed under.

In a nutshell, there is a Chapter 7 bankruptcy filing that eliminates most debts and a Chapter 13 bankruptcy filing that repays only part of your debts based on your best ability over a period of time. The waiting period between bankruptcy discharges is eight years between two Chapter 7s; two years between two Chapter 13s; six years between a Chapter 13 and a Chapter 7; and four years between a Chapter 7 and a Chapter 13.

If it turns out that you have not ever filed for bankruptcy, you might want to revisit the option with your lawyer.

See related: Best credit cards after bankruptcy

How bankruptcy could affect your job search

Now let’s look at whether filing for bankruptcy is in your best interest. In your case, I believe that getting a job is most important. So, the question becomes what course of action will help or hurt your job search. Chances are that a prospective employer will pull a credit report as part of the employment process.

If you decide not to file, you will need to be prepared to offer an explanation as to why you are delinquent in paying what you owe and what you are going to do about it. This will help establish you as a quality person with the character to live up to your obligations. These are things an employer values.

I suggest you explain early on in the employment process, before you are asked, for the simple reason that once the credit report is pulled, the employer may just move on to the next applicant without asking what happened.

If you find that you are eligible to file after all and decide to move forward with bankruptcy, you still need to have a good story to tell about relentless collectors who wouldn’t wait until you had a job and wanting to get this matter behind you so you could concentrate on your job without distractions. This may show you are serious about being a good and productive employee.

Contact a nonprofit credit counselor

To help you decide on your options, I suggest you contact a nonprofit consumer credit counseling agency. For one thing, calling one of the good guys (as I call them, because they are) is not going to cost you anything. All initial calls are free and you may be surprised what you can get for free.

The best credit counselors will really listen to you. Then they will work with you to find a solution. If for some reason they cannot, they will tell you that as well and point you to some other resources that may be able to help.

At the very least, you will come out of a counseling session with a better handle on your situation because you will be presented with all of your options, including bankruptcy. Credit counseling is a bankruptcy requirement anyway, so you will have gotten that part out of the way.

See related: Debt impact on mental health: How to rebuild your finances

When to consider a debt management plan

One of the tools used by credit counselors in dealing with credit card debt is a debt management plan (DMP). This type of plan is not free, but the fees are affordable. A DMP is a systematic program, acceptable to most creditors, of repaying 100% of your debt at reduced interest rates, generally in five years or less.

Any open lines of credit are usually closed once they are being repaid under a DMP, and that will negatively impact your credit score. However, given that one card is already in collection and the other two seem close behind, chances are the damage to your credit score has already been done.

When it comes to potential employers, taking advantage of credit counseling may work in your favor because it sends a powerful signal that you are serious about working on your debt issues and finding a solution.

I recommend contacting the National Foundation for Credit Counseling. All of their counselors undergo hours of training and certification in order to find solutions to all kinds of debt issues for all kinds of consumers. Most offer services over the phone or internet, but I’m old-fashioned enough to value meeting with a counselor face to face if that is an option.

See related: Can a credit card issuer garnish your Social Security benefits?

Focus on paying down debt, not improving your credit score

You don’t say how much credit card debt you have, only that you have three cards that are all seeking payment. One debt collector is in the process of suing you and the others are sending demand letters. Add to that the $2,500 in utility and court costs and it is not much of a stretch to say you are in a tight spot, especially since you are currently unemployed.

Your anxiety level must be very high given all the things you have to overcome to rebuild your life. But one thing I suggest you not even think about is your credit score. It is bad and will get worse before it gets better, but it is only a distraction at this point. There isn’t much you can do about it until you have a job and address your debts, one way or the other.

Once all that is in place and working well, you can begin the process of improving your credit score. But not now!

Your situation may seem unique to you, but it really is not. And there are likely solutions to help you navigate through this season of your life. Once you have done that, you can concentrate on building a credit report and a score you can be proud of and that will work for you instead of against you as you move into your future.

Remember to keep track of your score!

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