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I’ve Made an Appointment With a Credit Counselor But What Should I Do? – Mary

“Dear Steve,

I’ve been married for 4 years to my husband. We have a home, car, and one credit card in both of our names. We also have credit cards in just my name.

Our credit card debt has gotten out of control; to the tune of $93 thousand dollars. $75 thousand is in my name only.

I’m a stay at home Mom to a 22 mo old, and my husband works full time, bringing home $3000/mo after taxes. I know we have lived beyond our means, and am trying to start a budget, and not use the cards. We aren’t behind on payments yet, but are getting close to not making all of the credit card payments. I have made an appt. with a credit counselor to discuss a debt repayment plan, but wonder if bankruptcy is our only option, and if I should just do it in my name since I have no income and the debt is mostly in my name?

Should I file for bankruptcy or try debt repayment plan, and should I do it with my spouse or in my name only?

Mary”

Dear Mary,

When you go to see the credit counselor they will probably try to sell you into a debt management plan by telling you how scary and bad bankruptcy is. Don’t fall for the sales pitch, and that’s what it is. I don’t care if it says non-profit next to their name, in the credit counseling world that does not mean they have your best interest at heart.

I suspect that you’ve been using cards to either pay for routine expenses or taking cash advances to stay current on your other cards. With your level of income I really can’t see any realistic way for you to reasonably afford a repayment plan through a debt management program for the next five or six years.

If we take your debt out of the equation then you are left with $18,000 of debt in your husband’s name and that would be about $360 a month on minimum payments.

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It seems more logical for you to fall on the sword and file bankruptcy yourself with the debt in your name only. Don’t enroll your husband in an credit counseling debt management program. Make at least the minimum payments on his debts and let his credit shine.

If you feel great regret over not repaying your creditors, just becuase you go bankrupt doesn’t mean that you can’t repay them latter, when you can, on your terms.

Call a local bankruptcy attorney or two, find one that you like and go into to see them before you say yes to anything with the credit counselor.

Let me know what you decide to do.

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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.

7 Comments

  • While bankruptcy is a federal law, it is largely state law that determines what property the debtor can keep in bankruptcy. There may literally be 50 different answers to the question of whether or not the the debtors could keep these two vehicles.

    If you were in California, you probably could not fully protect the vehicles. In a Chapter 7 case, the debtors might have to pay the Chapter 7 trustee an amount equal to the non-exempt equity in order to keep the vehicles.

    The debtors might also consider filing for a Chapter 13 repayment plan to pay off some of their debts over a 3-5 period. A common reason to file Chapter 13 is to allow debtors to pay a portion of their future income in order to keep property that might be liquidated in a Chapter 7 proceeding.

    Exemption planning is a common task for a bankruptcy attorney, so the debtors should seek more specific advice from a local bankruptcy attorney.

  • To Mr. Carl H. Starrett II – I am a mortgage loan officer. I have a past client that has asked me a BK question. Of course, I told him to check with a BK attorney. They are considering BK in the near future. They have 2 vehicles valued at around $25,000 (total) that are paid off. They don’t know the exact amount of the possible BK but their estimate is around $50,000. They should be able to keep and make their mortgage payments on their home but may need to discharge all other debt, mostly credit card debt. The question: Will the court make them sell the vehicles? Thanks so much.

    Bill Beaverss last blog post..Laughing at Debt

  • I’m a bankruptcy attorney in Southern California. From the facts that I’ve read so far, Mary sounds like a good candidate for Chapter 7. The problem that some debtors encounter is that bankruptcy mills that are paralegal-driven with little attention given to the client’s emotional needs.

    I belong to the National Association of Consumer Bankruptcy Attorneys (www.nacba.org) and NACBA has an excellent search feature to let you find a member in your area. In the end, Mr. Rhode’s advice is correct: go with your gut and comfort level.

    The bankruptcy will be on your credit report for 10 years. There are very weak protections in the Bankruptcy Code that prohibit employment discrimination “solely” related to bankruptcy. If you are applying for a job where they might run a background check, honesty is the best policy and let them know before the potential employer discovers it. I’ve always told me clients this and have never heard of any employment problems due to a bankruptcy.

    I’ve filed numerous bankrupt cases for people in the military and other people who had a security clearance. My wife also used to have a security clearance level of Secret. For the most part, bankruptcy is actually helpful for anybody with a clearance level of Secret or below. Excessive debt is considered a security risk that could make you vulnerable to a bribe. Bankruptcy is not ideal for a security clearance, but I believe bankruptcy is better than having too much debt.

    If you file for bankruptcy, I recommend that you do not bank with Wells Fargo, Union Bank or any institution that you owe money to. Move your accounts before you file.

    As for the furniture, it depends on whether the furniture store has a valid security interest. The security interest might survive the bankruptcy and the lender could enforce the lien by repossessing the furniture. The validity of the lien is a matter of state law. As a practical matter, I doubt they would want the furniture back but you never know what a particular creditor might do.

    Finally, I see no reason why this should not be a joint filing. Even if your husband’s debt is much less than yours, I think you’ll be better emotionally and financially in the long run if you just wipe the slate clean.

    Carl H. Starrett IIs last blog post..Struggling With The Decision to Call a Bankruptcy Attorney

  • Thanks for your advice Steve. I went to see a bankruptcy attorney. Didn’t like him, but got some information. He was a fast talker, and just told me to file under my name, stop using the credit cards, stop PAYING the credit cards, and we can “just wipe this out.” Sounded a little too simple, and I found him to be very abrupt and not very informative about how this will impact me and my future.

    I have cancelled my appt with the Credit Counselor and have made an appt with a different bankruptcy attorney. I have stopped using and paying on the cards, but it looks like I have to do that for three monthes before filing?? I have a few questions though.

    How will filing bankruptcy impact my background checks once I go back to work when my daughter is school age in 3 years?

    Also, I have multiple credit cards thru Bank of America, and my checking/savings accounts are with them too. If I stop paying on my credit cards can they dip into my regular accounts for payment?

    And finally, I have one credit card with 0% interest for the next year thru a furniture store~ If I stop paying on that card can they come take my furniture if I’m filing bankruptcy? I have about $900 left to pay on it.

    Any other advice or answers you can give would be greatly appreciated!

    • Mary,

      You bring up an excellent point about how you felt with your bankruptcy attorney. The best way to pick a bankruptcy attorney is by your gut reaction and comfort level. For most bankruptcy cases it isn’t complex and almost any skilled bankruptcy attorney can complete the paperwork for you.

      In general, it is a rather simple and straightforward process.

      I rarely run into people that have been denied employment based on a bankruptcy. The exception would be some people in a financial fiduciary capacity or some security clearance positions. But the security thing is not a hard and fast rule. I have had clients in the past that had security clearances already and were going bankrupt. I urged them to go talk over their situation with the security officer before they went bankrupt to make sure it would not jepordize their clearance. Being overextended and maxed on out credit is potentially a bigger security risk since you may be easier to bribe or payoff.

      Let’s say the issue comes up in some future interview, just explain what happened. You got a good explanation.

      Generally the credit unions are the ones to reach into your bank account to take cash out when you have both a checking account and credit card with them. I can’t remember a Bank of America story about that happening.

      Explain the furniture situation to the bankruptcy attorney. What will probably happen is that you will keep the furniture and just promise to make the rest of the payments after your bankruptcy.

      Steve

  • First of all I totally agree with your advice. Further, I suspect that once she sees a bankruptcy attorney or two she may not even keep her appointment at the Credit Counselors. It is a bad situation, one I am not unfamiliar with from my past. All things are temporary and if you can make it past your own ego you can take steps to make progress and to make your financial life better.

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