I got the following question through the GetOutOfDebt.org site and the reader asked the following question.
I asked my friend, Gerri Detweiler, to also answer this question so you could get two independent points of view. You can learn more about Gerri and contact her by visiting her blog.
“Hi, Steve – Due to the structure of my divorce settlement, I walked away w/ all of the marriage debt ($20K). Lucky me! I currently have a good job that has allowed me to whittle away at that debt, but now I’m faced w/ an unexpected problem: a family emergency requires me to leave the country at the end of June 2009 to tend to that business, and it could take anywhere from 6 months to a couple of years to resolve.
I’ve been looking for jobs overseas, but due to the exchange rate, none of them pay enough to cover basic living expenses plus the minimum due on the card (approx $300/mo). I *might* be able to make a payment of $100 per month, but that would be the maximum, and I tapped all of my savings during my divorce process. I’ve worked really hard to keep my good credit rating and want to be able to keep it. At the very least, when I return (whenever that will be), I will need good credit to rent an apartment.
Should I talk to my credit card company about lowering my payment, and if they’re willing to do that, will it be reflected negatively in my credit rating? Or should I just file for bankruptcy?”
I recommend you consider all your options with an open mind, and decide what makes sense for you financially in the long run. I would recommend you talk with a credit counseling agency that has been approved by the US Trustees office to offer pre-bankruptcy credit counseling. My educated guess is that there won’t be enough relief there for you to pay back your debts under a DMP, but it’s worth a try.
I also recommend you talk with a bankruptcy attorney to find out whether you can file, and if so, whether you can discharge most or all of your debt. It is important that you do that right away, before you leave the country. You need to understand the laws of the state where you currently live. It may be that, because you have had a good job, you cannot file yet. But only an attorney can give you those specifics.
I understand that you’ve worked hard for your credit rating, and even thinking about filing for bankruptcy feels like a failure. But it also sounds like your a hard worker, and you are doing the best you can under difficult circumstances. Give yourself credit for that.
I also want you to consider the cost of keeping your good credit. Even if you were able to drop your payments to just $100 a month, you’d likely end up returning to the US with an even larger amount of debt, and you would be returning to an uncertain job market. It may not be possible for you to dig out from under without some relief.
I think the situation is what it is. There is no benefit in paying the possible $100 a month in hopes that will retard anything or make the situation better. Unless you can make at least the agreed upon payment your smaller payment will dump you in the same collection hopper.
In addition, by your own admission, it is very uncertain that you will be able to earn sufficient income abroad, and in fact you might not even be able to work abroad without a work permit in that country.
I think the most logical path here is to strongly consider bankruptcy. Bankruptcy will allow you to close the door on these debts you clearly can’t pay because you’ve been called out of the country. It will be an easier process for you to file before you leave the country but you can file bankruptcy in the U.S. from abroad within 180 days of you leaving. It’s just more cumbersome and potentially more expensive that way.
I agree with Gerri, you need to go and meet with a local bankruptcy attorney now.
When you come back to the U.S. you will be able to rent but based on your credit it might require a larger deposit or require you to rent from a private landlord. But consider this, unless you go bankrupt, and if you are unable to work while abroad, how would you even be able to save for a deposit for any apartment, with good or bad credit?