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I’ve Been Told I Don’t Have Enough Debt for Bankruptcy.

“Dear Steve,

I owe less than 10K in credit card, medical, and private educational loan debt. I just found out that I am being sued for one of these cards, but I have not yet been served. I was once told by a lawyer that bankruptcy would be a bad idea for someone who owes as little (comparatively) as myself, but now that I am about to be sued I’m not so sure.

I was un/under-employed for a while (which is how I got behind on my payments) but am now gainfully employed. However, even without luxuries my monthly income is less than my monthly expenses, even before making payments. I have been able to settle some of my debts or to make monthly payments, but I have a few outstanding ones with whom I have not been able to negotiate.

I am trying to avoid going to court at all but would have no problem making payments of around 200 dollars a month. I reached out to a consumer credit counselor and they gave me a Debt Management Plan which did not include all of my outstanding debts (which I provided to them) but did include a credit card I have which is in good standing (which they pulled from my credit report).

Because I work long hours and have no privacy at work, I am communicating with them primarily via email but am having a hard time getting answers. I have not accepted the plan/signed any paperwork, so I feel comfortable continuing to seek alternate advise but my fear of being served at work has me antsy and unable to really focus on anything, including managing this debt. I have been trying to get a lawyer but once they hear that I am wary of bankruptcy and would need to make monthly payments for representation, they stop returning my calls.

– would bankruptcy be a good option, since it would stop the lawsuit and since I cannot afford to settle all of my debts on my current income? as I understand it, having a judgement against me would be about as bad as a bankruptcy anyway, and I truly cannot afford the lump sum this creditor is asking for.

– would a debt managment program be a better option, even though it would not stop legal action (I assume) and I cannot seem to get the current company I am working with to recognise all of my debt?

– should I attempt to settle with the company suing me (immediately) as well as those that have yet to pursue legal action (in the meantime), instead of waiting to enroll in a DMP?

– is there anything I am not considering?”

It’s the age old problem of how much debt is appropriate for bankruptcy. Some feel there is a numerical value but the reality is it’s not the number which is important, it’s the protection bankruptcy gives you that is key.

In a bankruptcy approach you sound as if you’d qualify for a chapter 7 bankruptcy. Your debt would be discharged in a couple of months, except for your student loan debt. You didn’t give me a breakdown of the individual debts in the $10,000 so i have no way of knowing how much student loan debt you have.

I’d also like to know the balance of the debt you think you will be sued for and what type of creditor is it?

The reality is there is a range of possible solutions but more information is needed to point you in a more definitive direction.

Is there any chance of increasing income at all or raising some money by selling so stuff?

Please post your responses and follow-up messages to me on this in the comments section below.


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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.


  • Hi Kris, 

    I just read this or I would have posted sooner. In respect to your overall situation, I need a little more information from you. What is your total debt overall? The $6,500 just covers what you haven’t been able to address yet, correct?  Also, what state do you live in and how long has it been since you made any payments on the debts that haven’t been addressed yet? Also, I’m a little confused. You mentioned that you’re in a negative cash flow situation. Yet, you can afford to pay $200 a month on the account that is pursuing you. How are you able to do that? And, is it sustainable?  

    For your immediate situation consider the following…

    Sit down for a moment and itemize your monthly expenses. Then identify and add up the total amount you pay to places like credit card companies, collection agencies, and finance companies (auto too). What does that total to? Is it enough to settle the $1,200 lawsuit? You’ll probably need anywhere from $600 – $960 to settle it.

    If it is, then I would call these entities and ask about a deferment. If you haven’t been late or deferred a payment in the last 12 months, they may let you do so. A deferment is where they let you skip a payment without any consequence. You will just resume your normal payments the following month.

    When you’re calling the collection agencies to defer they may be a bit difficult. A way to combat that and hopefully gain their cooperation, is to be forthcoming about your lawsuit. Offer to email them a copy of it, so you can substantiate it, if needed. If the individual you end up communicating with isn’t cooperating, ask for their manager. Your angle is to be logical and explain that if you can’t find a way to settle the lawsuit that you’ll be forced to file for bankruptcy protection. Explain that you do not want to do this, and that is why you’re calling. Make sure that they understand that deferring your expenses is your only way to generate funds to resolve the lawsuit.  

    You mentioned that you’re also paying term settlements. Be very careful about deferring these. You may have the option to do so, but please make sure that you get a new settlement letter that outlines your adjusted settlement terms prior to your due date of your current arrangement.

    Anyway, this may be your solution for the lawsuit. Please reply back and let’s see if we can solve your over all problem.

  • I love how the “credit counselor” ignores the problem and puts together a proposal for only a few debts that are current or close to it. Instead of saying our program is really not an appropriate solution to your overall problem, perhaps you should consider a possible settlement or a bankruptcy first.

    Stop wasting time with emails back and forth to them. That isn’t an option that makes sense based on what you have described, and shame on them for trying to sign you up.

    Its like going to the Dr. with a potentially fatal neck wound and a sprained ankle and the DR.  gives you a bag of ice and a compression wrap for the ankle and wishes you luck as he sends you to the front desk to pay his bill. 

  • Hi Steve,
    I have one private student loan in collections, for $3500. The bulk of the debt is credit cards – one of which, totaling about $1200, is the one where legal action has been taken against me by a law firm. I also have one medical debt, about $350. I do have other debts, not including in the “less than 10K’ figure, but they are already in the process of being resolved via either settlement or payment plan.  The ones that are left are the ones where the creditor and then the collection agency and I could not come to agreeable terms. So I have debt floating around – some being paid off,  some not, and I really cannot handle both.

    I’ve tried selling things but have had little luck – I have no valuable assets like vehicles or expensive electronics, and live in a large city where things I would sell in similar condition are being given away. I have been able to slightly increase my monthly income via a casual job but it’s not consistent.

    I think (or assume) the reason that I was told not to file for bankruptcy is that it seems like I should be able to make monthly payments on my debt. But the problem is that I can’t seem to get monthly payments, just lump sums. I don’t know whether my situation is dire enough to for bankruptcy but I do feel stonewalled.

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