I’m Self-Employed, Sinking in Debt, and Considering Bankruptcy, Again. – Aletheia


“Dear Steve,

I’m self-employed and my earnings so far this year are about a third of what they were last year. with some scrambling for new clients, the situation is improving, as far as i can tell. but my debt load is too high. i’ve stopped using credit cards, and i’ve arranged for a personal bank loan to pay off the two credit cards with very high interest rates (in case i want to take that option), i have an appointment with a cccs counselor, and i plan to consult a bankruptcy attorney, before i decide how to proceed. nothing is delinquent yet, but i am very nervous about the uncertainty of my income and want to position myself optimally in case my situation goes furher downhill–because if it does, i’m going to be delinquent pretty fast.

I should also mention that i have around $10,000 in IRS balance on which i am paying a manageable monthly amount that i don’t feel should be reduced.

I should also mention that due to a decade-long chronic illness, i filed for chapter 7 bankruptcy in 1997. it saved my life. i am reluctantly considering filing again–only if it is my best option to survive.

I have three other creditors–one credit card owing $1930, interest rate 11.99, a bank loan owing 3,040, interest rate 13.24, and a revolving credit line from my bank owing 3540, interest rate variable at prime plus 5%, currently at 8.25%.

1. What interest rate would i need on another bank loan to pay off these three that would be a better rate than what i am currently paying on all three? in other words, how low does the rate have to be to represent a reduction in my monthly payment/interest rate for all of these in total? or how do i figure out the answer to this question?

2 I’ve been reading that it’s best to pay yourself first, and pay creditors last–but i’m having difficulty holding back on paying credit card bills, since i want to try and keep a good credit score as long as i can, as well as avoid late fees and rate hikes. how do i know when to give up on that and allow the credit card bills to slide? is it when i simply have no other choice?

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Dear Aletheia,

What I hear when i read your question is a situation and rationalizations why you should not go bankrupt.

For me, I think you already answered the question about what you should do when you told me that your income has gone down and has the potential to go down further. If that happens, both the CCCS debt management strategy and the loan option are guaranteed to fail.

Some will criticize me for my position but I’d rather see you embark on a solution that will provide you with protection moving forward than simply being a knee jerk stopgap reaction to a bad situation.

Of all your debts the IRS has priority and must be paid first no matter what your income situation might become. We need to plan for the worst income scenario and a solution that will provide you with some peace-of-mind knowing that it is under control so you can focus on growing your business rather than fearing an uncertain future.

Answers to your questions:

1) It really depends on what the terms are for any loan you can find. If the interest rate is lower but the length of the loan is shorter then the monthly payment might be higher. Need more information about what loans you might qualify for first.

2) That is a reasonable strategy as long as you are willing to get collection calls all the time, deal with pressure from creditors and don’t care about resolving your situation quickly or having any legal protection from creditors. If you want to try this approach you should get a copy of the book by my friend Jerold Mundis, How to Get Out of Debt, Stay Out of Debt, and Live Prosperously: *(Based on the Proven Principles and Techniques of Debtors Anonymous), to help guide you through those turbulent waters.

So with all those factors considered from a non-judgmental point of view I think the most logical approach is bankruptcy and to not get the loan. You can go bankrupt again. Bankruptcy will clear the looming debt that you have no reasonable expectation to repay. It will allow you to payoff the IRS quickly. It will allow you to start building an emergency fund that you will need to protect you from uncertain economic times. And it will give you some peace of mind to refocus on building your business. It is certainly much easier to make sales and increase your income out of inspiration rather than desperation. And remember this, just because you go bankrupt, that does not mean that you can’t repay your creditors as you can. The main benefit of bankruptcy is the legal protect it gives you.

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Please keep me updated on what you decided to do.


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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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