I Went Bankrupt in 2005, I am a Disabled Vet, and My Student Loans are Coming Due. – Ben


“Dear Steve,

I am about to turn 30 years old and my financial picture is basically in the dumps. I have a B.S. in accounting and for the moment a good job that pays me less than 95% of the rest of the world makes (less than $30k/yr and not a single benefit). I am a disabled Vet and get approximately $450/month from the VA. Since getting out of the military (due to a pretty bad eye condition) my work history is spotty. I recently learned (through the help of a family member who is a nurse) that I have an extreme case of ADHD. That, coupled with bad eyes, makes it nearly impossible for me to work on a cpu for any length of time.

I’m also having to take off work to drive 90 miles each way to the eye doctor, at least once a month, many times several times a month. I think these 2 things have made holding a job very difficult as no one wants to hire someone who has the issues I have (had several potential employers tell me they don’t like my eye issue, so no job).

Because of my work history, I had to declare Ch. 7 back in 2005. Since then, I started rebuilding my credit and was doing pretty well. I had a decent job, 3 credit cards with decent balances and all were being paid on time every month. Then the economy tanked and I lost my job. I ended up being unemployed for almost 6 months. 2 of the 3 credit cards are now with collection agencies, along with some other bills for a total of approx. $8000. I also lost my car that I had owned for about 6 months. They have yet to auction it off, but I’m guessing that I will owe approx. $20,000 once the final figures arrive.

Oh, I do have about $30,000 in student loans that I have to start paying back in June.

My question is this……….where do I start? Some have said to save $500 first and then pay off the accounts, smallest balance to highest balance. Some have said to save a little bit, but put the majority of extra money towards paying things off. Some have even said to save up 3 months of expenses and then start paying things off…….which to be honest would probably take me at least a year to save up that much.

I hope to have a change in living expenses during the summer, but at the moment I want to get whatever done that is possible. I’m looking at maybe getting married soon and its not fair for me to bring this baggage into the marriage if at all possible. I just don’t know where to start this endeavor of getting debt free.

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Dear Ben,

First off let me tell you how much I appreciate your effort to serve in the military. It can truly be a sacrifice.

I think what we need to look at here is what reality is for you and then where do we go from there.

The undisputed facts are that you:

  • have an ongoing ophthalmic condition which impacts your eyesight in some way. You also may have some sort of adult attention deficit disorder which makes it hard to concentrate.
  • are gainfully employed and as long as you are not living in a major metropolitan area you might be able to get by on what you are earning. Plus you get a monthly VA benefit that supplements your income.
  • previously had a chapter 7 bankruptcy in 2005.
  • have student loans are going to begin soon.
  • are going to be getting married in the near future.

The question about how to best pay off debt is really based upon your personality. For you, when you do start to repay these past debts I would suggest that you pay off the smallest balance debts first. Here’s why.

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You’ve given me every reason to believe, with your history, that you will do best with frequent positive reinforcement to begin your debt journey. The best way to get that is to actually eliminate debts that you owe. The joy of having one less creditor to pay next month is a great feeling to have. With the encouragement of knocking off the smallest creditors first, and then only leaving you with one or two long term creditors to pay off, you can then focus on those. This is the debt snowball method of reducing your debt.

Your repayment dollars available is going to be determined by how much is leftover after making your new student loan payment. The student loan payment is going to be a top priority for you. After that I would make at least the minimum payments due on your other debts and then save the rest of your cash in a boring old savings account.

You will need to have cash on hand in case you were to lose your job or for some other unexpected expense. And you statement that it would take a year to save three months of expenses just tells me that you don’t have much cash on hand right now. The more you can save, the better you will be able to face any unexpected expense in the near future. I’d suggest that you at least cram several thousand dollars away first as a start.

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Regarding the marriage situation. I think that if you have an open and honest discussion with your girlfriend about where you stand and what life would look like when you combine your income and expenses, that it will help. You also need to have an idea of what, if any, debt she is bringing to the marriage. Better to be open and honest now than surprised and upset latter.

Debt is not a good reason to avoid love and happiness. Hell, it’s like saying she would not want to marry you because you have an eye condition. It just is what it is. It’s a thing, or another condition.

My biggest concern is the bill you are going to get from the car repossession and auction. It is going to be a doozy and if the payment demands become too much for you to cope with, between that and your other debt, there is always a chapter 13 bankruptcy to force a payment plan you can afford. That payment plan would be at 0% interest and would be determined after reviewing your income and expenses, rather than what the creditors might demand from you. By the way, student loans can’t be included in bankruptcy.

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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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