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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.”

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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.

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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

You are not alone. I'm here to help. There is no need to suffer in silence. We can get through this. Tomorrow can be better than today. Don't give up.

Do you have a question you'd like to ask me for free? Go ahead and click here.
Damon Day - Pro Debt Coach

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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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22 thoughts on “I Have Been Very Confused About What to Do About My Financial Situation. – Kitty”

  1. I can’t think where you would list a bankruptcy on a tax return. Since the debt is forgiven but not taxable it is not a tax event. But if you have specific questions about it, check with a tax preparer.

    It’s now time to read this article and begin your next step once the discharge arrives.

    Sorry for missing your comment before.

    Steve

    Reply
  2. Hi Steve,
    So I am almost done with the process – well not really done (that will take years), but there are only a few more weeks until I am discharged. I had a few questions for you regarding the upcoming months, specifically in regards to filing taxes. Do I have to disclose the bankruptcy on my tax filing?
    Thank you!
    k

    Reply
  3. Hi Steve,
    I just wanted to check in with you. Had my second meeting with the attorney yesterday, and things are moving forward really nicely. I was able to find representation that is a good fit for me, and in 3 months or so it will all be over. Of course, I am now working on a game plan to get my financial future out of ruins. I know that you have some great resources on your site, but would you mind sending along the top 3 things you suggest I do in order to get my credit back in good standing, and the ability to get a car loan and mortgage in the next few years…

    Thank you!
    K

    Reply
  4. Hi Steve,
    I just wanted to check in with you. Had my second meeting with the attorney yesterday, and things are moving forward really nicely. I was able to find representation that is a good fit for me, and in 3 months or so it will all be over. Of course, I am now working on a game plan to get my financial future out of ruins. I know that you have some great resources on your site, but would you mind sending along the top 3 things you suggest I do in order to get my credit back in good standing, and the ability to get a car loan and mortgage in the next few years…

    Thank you!
    K

    Reply
  5. Kitty,

    I do have tips on what to look for in a bankruptcy attorney. You can find those here.

    It would only appear if a future employer pulled a credit report as part of a background check but on one hand, so what. Your level of indebtedness already is apparent on your credit report and your credit score indicates something is already going on.

    It would be better to not pay the bill before you meet with the bankruptcy attorney and come up with your game plan.

    Please stay in touch and keep me posted.

    Big hug.

    Steve

    Reply
  6. Your feedback, and honest opinion is a huge help. I would like to meet with a bankruptcy attorney this week. Do you have any suggestions on how to find one with a good reputation, and who has experience with cases just like mine?

    I understand that the bankruptcy will be reported on a credit report, but does it appear on a background check?

    Final question (I hope), I have not used my credit card for over 6 months, but now have a bill that came up that I have to pay and do not want to spend the cash towards it (especially if I need this money for the attorney, or (fingers-crossed!) a car issues, etc.). If I use this card to pay the bill, and then file for bankruptcy, can the creditors contact the place where I paid the bill and expose to them the bankruptcy?

    Thank you Steve,
    K

    Reply
  7. It could show up on your credit report if a future employer actually used a credit report to screen you and even cared about it. It’s funny, people are so worried about that but bankruptcy isn’t even a limitation for getting a top secret security clearance.

    If you want to go for the loan route then that’s your choice. But you need to ask yourself if this is a problem you want to carry forward into the future or deal with now and start anew.

    Owing friends or family members is almost never a good idea. No matter how hard you try, once you put money in the mix it does change things.

    It’s possible my point of view is just not a match for where you are in your life. If you disagree with my answer please, I urge you, get a second opinion from Damon Day.

    Reply
  8. Steve,
    Will this be reported on a background check for future employment?

    Would I be better off taking two loans (one from a family member the other as a personal loan), and paying of the debt? This still would put me in a place to repay for the next 7 years, and save little, but not destroy my credit or opportunity to get a car or home if the circumstances should change.
    Thank you,
    K

    Reply
  9. Kitty,

    The stigma issue is interesting. I totally get it but the only people casting a shadow of stigma on you, is you. Creditors actually want you to clear out this problem and you’ll start getting some credit offers after your bankruptcy is discharged.

    Answers to your questions:

    1. Is it necessary to tell my employer about the bankruptcy?
    No.

    2. How much does bankruptcy cost?
    It’s somewhat regional but a Chapter 7 should be around $1,500.

    3. If I were to get a bonus from work after the bankruptcy, do I have to turn this over to the court?
    Depending on when you got it and what chapter of bankruptcy you filed you might have to turn it over but that’s a discussion to have with your bankruptcy attorney.

    4. How long will it take for me to be able to apply for a mortgage – assuming that I had the down payment available?
    Two to three years.

    5. Will I be able to get a car?
    If you follow my guide to improve your credit after bankruptcy and you’ve got some money to put down you should be able to get a new car financed within 12-18 months.

    6. How will this effect my ability to maintain a cell phone? Car insurance?
    No issue on the cell phone as long as you are not including a cell phone bill in the bankruptcy. If your car insurance company uses credit scores as a basis of rates then your rate might go up some.

    7. Is it possible to keep this private – obviously not to those looking at my credit report – but in general?
    It is a matter of public record but people would have to know where to search. You can’t find it using Google or something like that.

    Reply
  10. Thank you Steve. The whole thing is so overwhelming, especially coming out of such a draining emotional time – divorce. Part of me fears that I am not prepared for the “stigma” that going bankrupt could have on me, but the other part agrees with you in that this could be an extremely cathartic process. Saying goodbye to my past and moving on to a much better future.

    A few follow-up questions:

    1. Is it necessary to tell my employer about the bankruptcy?
    2. How much does bankruptcy cost?
    3. If I were to get a bonus from work after the bankruptcy, do I have to turn this over to the court?
    4. How long will it take for me to be able to apply for a mortgage – assuming that I had the down payment available?
    5. Will I be able to get a car?
    6. How will this effect my ability to maintain a cell phone? Car insurance?
    7. Is it possible to keep this private – obviously not to those looking at my credit report – but in general?

    Thank you so much again Steve. I appreciate your time, and advice more than you know.

    Reply
  11. Thank you Steve. The whole thing is so overwhelming, especially coming out of such a draining emotional time – divorce. Part of me fears that I am not prepared for the “stigma” that going bankrupt could have on me, but the other part agrees with you in that this could be an extremely cathartic process. Saying goodbye to my past and moving on to a much better future.

    A few follow-up questions:

    1. Is it necessary to tell my employer about the bankruptcy?
    2. How much does bankruptcy cost?
    3. If I were to get a bonus from work after the bankruptcy, do I have to turn this over to the court?
    4. How long will it take for me to be able to apply for a mortgage – assuming that I had the down payment available?
    5. Will I be able to get a car?
    6. How will this effect my ability to maintain a cell phone? Car insurance?
    7. Is it possible to keep this private – obviously not to those looking at my credit report – but in general?

    Thank you so much again Steve. I appreciate your time, and advice more than you know.

    Reply
    • Kitty,

      The stigma issue is interesting. I totally get it but the only people casting a shadow of stigma on you, is you. Creditors actually want you to clear out this problem and you’ll start getting some credit offers after your bankruptcy is discharged.

      Answers to your questions:

      1. Is it necessary to tell my employer about the bankruptcy?
      No.

      2. How much does bankruptcy cost?
      It’s somewhat regional but a Chapter 7 should be around $1,500.

      3. If I were to get a bonus from work after the bankruptcy, do I have to turn this over to the court?
      Depending on when you got it and what chapter of bankruptcy you filed you might have to turn it over but that’s a discussion to have with your bankruptcy attorney.

      4. How long will it take for me to be able to apply for a mortgage – assuming that I had the down payment available?
      Two to three years.

      5. Will I be able to get a car?
      If you follow my guide to improve your credit after bankruptcy and you’ve got some money to put down you should be able to get a new car financed within 12-18 months.

      6. How will this effect my ability to maintain a cell phone? Car insurance?
      No issue on the cell phone as long as you are not including a cell phone bill in the bankruptcy. If your car insurance company uses credit scores as a basis of rates then your rate might go up some.

      7. Is it possible to keep this private – obviously not to those looking at my credit report – but in general?
      It is a matter of public record but people would have to know where to search. You can’t find it using Google or something like that.

      Reply
      • Steve,
        Will this be reported on a background check for future employment?

        Would I be better off taking two loans (one from a family member the other as a personal loan), and paying of the debt? This still would put me in a place to repay for the next 7 years, and save little, but not destroy my credit or opportunity to get a car or home if the circumstances should change.
        Thank you,
        K

        Reply
        • It could show up on your credit report if a future employer actually used a credit report to screen you and even cared about it. It’s funny, people are so worried about that but bankruptcy isn’t even a limitation for getting a top secret security clearance.

          If you want to go for the loan route then that’s your choice. But you need to ask yourself if this is a problem you want to carry forward into the future or deal with now and start anew.

          Owing friends or family members is almost never a good idea. No matter how hard you try, once you put money in the mix it does change things.

          It’s possible my point of view is just not a match for where you are in your life. If you disagree with my answer please, I urge you, get a second opinion from Damon Day.

          Reply
          • Your feedback, and honest opinion is a huge help. I would like to meet with a bankruptcy attorney this week. Do you have any suggestions on how to find one with a good reputation, and who has experience with cases just like mine?

            I understand that the bankruptcy will be reported on a credit report, but does it appear on a background check?

            Final question (I hope), I have not used my credit card for over 6 months, but now have a bill that came up that I have to pay and do not want to spend the cash towards it (especially if I need this money for the attorney, or (fingers-crossed!) a car issues, etc.). If I use this card to pay the bill, and then file for bankruptcy, can the creditors contact the place where I paid the bill and expose to them the bankruptcy?

            Thank you Steve,
            K

          • Kitty,

            I do have tips on what to look for in a bankruptcy attorney. You can find those here.

            It would only appear if a future employer pulled a credit report as part of a background check but on one hand, so what. Your level of indebtedness already is apparent on your credit report and your credit score indicates something is already going on.

            It would be better to not pay the bill before you meet with the bankruptcy attorney and come up with your game plan.

            Please stay in touch and keep me posted.

            Big hug.

            Steve

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