Should I Do an Informal Bankruptcy? – Melissa

“Dear Steve,

I owe 40k in credit card debt. I am a freelance contractor and after five years of working solidly, the work came sparingly this last year. I haven’t been able to pay on the debt since September, the interest rates are now 30% because I’ve defaulted and my husband, who is working and has tens of thousands of dollars in the bank will not help me with this in the meantime.

He’s also suggesting that I do an informal bankruptcy. I’m not sold on this idea, but I can’t imagine paying 30% interest on 40k for who knows how many years, and I don’t know if formal bankruptcy would really alleviate the situation without tarnishing my small business name (which is really just me as a contractor). I really don’t know what to do.

Should I file a formal bankruptcy? do an informal bankruptcy where I just pretend I don’t have creditors calling me? or try to pay it back for the next ten years?


Dear Melissa,

I have no clue what an informal bankruptcy is. Bankruptcy is a legal process that involves the courts. There is no ‘kinda’ bankruptcy.

As long as the credit cards are in your name alone and you don’t own any joint assets with your husband, you should be able to go bankrupt yourself.

I can’t see why your personal bankruptcy would drag down your company name at all. You will just be yet another stick figure, in a sea of stick figures, that will go bankrupt this year.

The only exception to this would be if you have a specific experience with a major customer of yours asking you if you or your company has ever been bankrupt.

If your consulting business is setup as an LLP or corporation than it is a separate legal entity and would not have to be involved in your personal bankruptcy.

The best advice is that rather than guess about all of this, schedule a free bankruptcy consultation with a local bankruptcy attorney and get the facts.

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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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