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Should My Son Consider Credit Counseling or Bankruptcy? – Carla

Written by Steve Rhode


Dear Steve,

My son and his wife are struggling with credit card and other unsecured debt. They are still able to pay all the bills each month, but are only paying minimum payments. They have about $20,000 in debt. My son had already filed bankruptcy once, back in 2002, I believe. He was not married at that time. They are at the point of considering working with a credit counseling agency, with the idea of reducing the debt in order to pay it off sooner.

Would a debt reduction plan hurt their credit as much as filing bankruptcy would?



Dear Carla,

Thank you for reaching out to me for advice.

There are several common ways of dealing with unaffordable unsecured consumer debt. These may include bankruptcy, consumer credit counseling, or debt settlement. Each solution has a time and place.

My concern is less over the path to accomplish the goal than losing time in recovering from the difficult finances.

When digging yourself out of debt you can’t forget the future is coming. The ability to get back as quickly as possible to participating in retirement savings programs and/or building that emergency savings account is critical.

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If more people understood they might be throwing away a million dollars in retirement dollars but making the wrong choice, they would make a different choice.

You can use this online calculator to see what a program that requires payments over time will cost in lost retirement savings.

The mistake would be to discount any solution, including bankruptcy, based on feelings or emotions. Let the math guide your thinking and decisions. When you look at the situation logically based on the current situation, future losses, and the ability to build an emergency fund quickly, then bankruptcy can be the right choice.

You should ask your son and his wife to read So You Are Going to File Bankruptcy. That’s Great News. Congratulations.

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I often see people who previously filed bankruptcy discount it as something they should not do again because of guilt or feelings of pain. That would be the wrong reason to set yourself up for financial failure in the future.

I remain unconvinced that filing bankruptcy, recovering quickly, and rebuilding credit has more of a long-term negative impact on credit. Read Life After Bankruptcy: How to Quickly Have Great Credit and Dumb Mistakes to Avoid and Those That File Bankruptcy Do Better Than Those That Don’t. The reality is it is stupid easy to rebuild better credit and be more qualified through bankruptcy than spending years digging out and losing out.

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About the author

Steve Rhode

Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.


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