I Have Been Very Confused About What to Do About My Financial Situation. – Kitty

“Dear Steve,

I am turning 30 this month, and want a brighter financial future!

I was married for 8 years, and was just recently divorced. We owned a home, which my ex-husband has full ownership of now. Many of our home improvements and expenses were put on a credit card in my name, was the thought that the two of use would work together to pay this off. In addition, I was a small business owner while we were married, and carried the debt of the business on another credit card. The small business is a sole proprietorship and financially is completely my responsibility. Finally, I was laid off for 6 months and was forced to add to the total debt during this time. I am now employed but took a large salary cut. I am babysitting and doing other odd jobs to try and make up the difference, but it is really difficult. I am also looking for a new job, with a pay increase – as I do have a Masters degree, and am a very capable person – but the job market is SO competitive right now. I know that I have to make more money to pay off the debt, but that i s not a “solution” for me right now because I have no control over how quickly I can make this happen.

All said and done, the amount of debt is $45k.

I have been very confused on what to do about my financial situation. I have not missed a payment, my credit score is around 680, and I can make the minimums (BUT save NOTHING). I met with MMI/CCCS to review my situation, and could start a DMP with them any time that I choose to – at a higher rate then what I am currently paying my minimums at, but would be debt-free in 50 months. At first I was very eager to start this plan and say GOODBYE to my debt, but then started to have second thoughts about the toll that signing with them could actually take on my credit and my future.

I have also thought about bankruptcy, but again am very unclear – other than hearing people state that it is on my credit score for 10 years and I will not be able to get a credit card, car or house within this time period. As I mentioned, I am 30 years old and a previous homeowner. I want nothing more then to pay off this debt, and to start saving for a new home. I fear that bankruptcy will make a larger negative impact on this goal than MMI, but that is why I am contacting you. Also, how can I find an attorney who has had great success with cases like mine?

Of course, the last option is to try and manage and pay this off on my own. I guess this is a decent options, especially if I were able to gain better employment, BUT it would most likely take me 10 years to do so. 10 years is a long time of not saving up an emergency fund, or doing anything “fun.”

I really want to get started on making positive changes for my future. My birthday is at the end of the month, and I promised myself that I would have closure on this issue by that time. Any advice and feedback that you have is GREATLY appreciated.

Thank you!

Kitty”

Dear Kitty,

Thanks for submitting the question.

Based simply on the fact that the economy is still a bit uncertain, you are earning a reduced wage and you have no resources to fall back on I think the logical answer is probably bankruptcy.

Let’s put the credit score issue aside for the moment and focus on what I think is more important. If you went the CCCS route then you would be essentially in the same position you are now. While your credit might not take such a big initial hit, there is a great expense in other ways to that approach. That route would leave you still without a financial safety net for the next 50 months unless your income went up. And you’d be betting that in those 50 months that you would not have a financial emergency and need extra cash. But listen, you and I both know life doesn’t work like that. The odds are far greater you will have a financial emergency. Hey, tires blow, cars need work, illness happens.

If you decide to go bankrupt now you can close the door on the old debt, it will free up cash each month, you can start saving to build an emergency fund and it is actually stupidly easy to rebuild your credit after bankruptcy. I even wrote a guide how to do that, here.

Those rumors you hear about your credit being trashed for ten years are not true if you follow my credit rebuilding guide and your opportunity to buy a home is more dependent on the size of your down-payment but if you don’t go bankrupt how would you ever save that?

Sure, bankruptcy is not a rave nor as fun as free concert tickets but that doesn’t make it wrong. Look at it this way, if your shoulder is dislocated it hurts really bad to get it back in place. That doesn’t make it the wrong thing to do, it’s just a pain bridge you have to cross. Same with bankruptcy.

If you are mentally prepared that bankruptcy is the logical approach, you’ve weighed your options, and you come to the conclusion that the short-term pain of bankruptcy makes sense for you then it can be a very healing and cathartic process. Think of the lessons you’ve already learned about what not to financially do again. No sense wasting a perfectly good mistake, I always say.

My guess is it sounds like you’d probably qualify for a Chapter 7 bankruptcy and if you do, then rather than 50 months to get out of debt it will take three.

At the very least, talk to a bankruptcy attorney first and then report back how you are feeling in the comments. Let me know what you are thinking then.

You can click here to find a local bankruptcy attorney and if you’d like a second opinion about your situation or a personal consultation by another debt coach, please feel free to contact Damon Day.

And if you take action now, by your birthday your solution will be in the works and you’ll be resting a lot easier. Happy early birthday.

Please update me on your progress by

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