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Dude, I Am Totally Freaking Out Over My Debt! – Margaret


“Dear Steve,

Help! We need serious advice! My husband and I have combined CC debt of almost $50,000. We have never been late on payments, but that is all about to change because we are about to hit rock bottom.

In a year we have both watched our credit card scores fall from 748 and 720 each by almost 100 points. Our creditors most recently have raised our interest rates from the 6.49-7.99% range to 15.99-18.00% range because of the high balances that we are carrying and small monthly payments being made on each account.

We have been paying only the minimums for the past year while living pay check to paycheck paying all of our expenses with our combined income and a $15,000 overdraft line of credit on our checking account that is about to run out (this line of credit is included in the $50,000).

We went to CCCS, they told us the numbers don’t add up for us to qualify for their program and that we may want to negotiate with our creditors or consider bankruptcy! The thought of it scares us to death! After much investigating, we have decided against using a debt settlement company…this sounds far worse than bankruptcy. We are unsure of what move to make next, options we are considering:

1. Contacting our creditors and asking to be enrolled in a hardship program (what would this entail?)

2. Cashing out our 401K & 403B to try and negotiate settlement with our creditors on our own with a lump sum payment (we have no savings…big surprise!)

3. Bankruptcy?!

We have 2 mortgages on our home and refinancing is not and option. I know that cashing out our retirement plans (or part of them) may not be a good idea, but I am vested in an excellent pension plan and we are only 36 and 38 years old.

This debt is causing us huge amounts of daily stress. We have years to work on our retirement savings, right? If we do cash out our retirement, how long will it take to get the funds? If our creditors agree to settlement, how do we even get started? What are the tax penalties on settling a portion of our balances? How will it impact our credit? Do we have to fall behind before they’ll even discuss settlement with us? Is telling them about CCCS and that we are leaning towards bankruptcy enough to let them know we are candidates for settlement? Our two biggest concerns with bankruptcy are that my husband’s work is not secure and if we do file, it may affect his future job prospects, being that credit checks are a common practice now in securing employment. Also, god forbid, I fear that if my husband dies or vice versa (or we ever divorce, not likely, but just in case) each of us will be screwed if we have a bankruptcy. How would our son survive with one bankrupt parent?

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I am pretty sure I have exhausted the amount of questions allow, but in case you can’t tell…I AM FREAKING OUT! I will check back for your response daily. Please give us some sound advice! Thanks for listening.


Dear Margaret,

Yes, I can see you are freaking out. I don’t know if you can see it or not but I’m waving my magic chillax wand at you right now. The situation sucks, it is stressful but don’t let it make you act impulsively and embark on a course of action that will make matters much worse.

Please forgive me for being blunt but honest. Cashing our your creditor protected retirement funds is a stupid thing to do. Here’s why. If you cash them out you are robbing yourself of income you will need when you can’t work anymore. You will pay a huge penalty for cashing them out and even if you do settle it will be a negative mark on your credit report and you will potentially have to pay huge income taxes on the forgiven debt.

So what about a hardship program or debt management plan. Even if you were to enter one now with your creditors, there is no expectation that you would be able to make the payments to get out of debt, especially if the creditor decides to terminate the program or raise your payments in six months. A hardship program is an option, not a solution in your case. Besides, CCCS already told you to take a hike, that should be pretty damn good evidence that a payment plan or hardship program is doomed to fail.

Bankruptcy on the other hand provides you with legal protection without any tax liability. Besides, the success rate of bankruptcy versus debt settlement is very different. Please read The Truth About The Failure Rates and Completion Rates of Credit Counseling, Debt Settlement, and Bankruptcy.

The statement you made about not being able to get a job following bankruptcy is pretty much a myth. I rarely have run into people that did not get a job because they went bankrupt. And if they do it is generally a very specialized financial field. Hell, you can even get a security clearance with bankruptcy.

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Let’s say your husband does apply for a future job and he is asked about the bankruptcy. What’s the reality? “During the worst financial times in a number of decades we found ourselves in such a financial state that we simply could not make ends meet. I wish we had not been in that position but like so many other people we wound up unexpectedly in trouble.” The bankruptcy may be discovered on a pre-employment credit report but it can easily be explained.

If you want to do the responsible thing for your son you will NOT sacrifice your protected retirement funds and you will go bankrupt immediately. Only by eliminating your debt can you start building an emergency fund again to protect your son in cash of unexpected financial problems. You don’t have an emergency fund now. That’s not responsible.

You will not be screwed if you go bankrupt and then begin to rebuild your life. Read I Am Bankrupt What Do I Do Now? – Mary.

You will be screwed if you keep flailing about without implementing a solution that has the most statistical likelihood of resolving your situation.

I’ve been there. it sucks. It is stressful. It makes us operate in illogical ways and lead a panicked life. But if you take a deep breath, look at the situation from an outside point of view and please, go talk to a local bankruptcy attorney you will find the path that will resolve this.

Don’t believe me? Do this, call a bunch of local bankruptcy attorney office. Find one you like, make a free appointment for a bankruptcy consultation, and go talk to them. Get the honest facts about what bankruptcy will mean for you instead of the assumptions and fears you are operating with now.

Once you do that I want you to come back to this question and give me an update in the comments section of this question. I want to hear what you have to say and if you don’t think bankruptcy is right for you, then I’ll help with with some Plan B.


You are not alone. I'm here to help. There is no need to suffer in silence. We can get through this. Tomorrow can be better than today. Don't give up.

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.


  • Hi Steve!
    I wanted to give you an update on my situation. Friday I had my meeting of creditors, the trustee is going to file our petition for a Chapter 7 Bankruptcy. I am worried that things have almost been too easy up till now. What’s next? What should my husband and I do to move forward and begin rebuilding our credit? Any tips that you can give us would be greatly appreciated. Thanks for all of your help up till now.

  • Hi Steve,
    First, I wanted to thank you for your honest advice. I love getting your e-mail updates and seeing that there are many people just like me struggling with debt everyday.

    It’s been awhile since I posted. I have continued to struggle to make my monthly CC payments. My husband lost his job. We finally met with the most fantastic bankruptcy attorney (after a super dud) and for the first time in a long time I am feeling like I am going to be able to get out from under this crushing debt, it really is going to be okay. I do not have a lot of details yet, but it looks as if we are going to qualify for a chapter 7 bankruptcy. We are going to keep our house and car and best of all receive some education about money management. I am scared to death of what’s ahead for us but I know at 37 years old there is a lot of living left to do and I am finally understanding that bankruptcy is not going to ruin my life. I will be back to let you know how things work out for us. Keep sending those big hugs, I am going to need them! 🙂


    • Margaret,

      I’ve got a lot of advice on the site about how to rebuild your credit after bankruptcy. It’s actually quite easy. No worries.

      It’s take quite a lot to get to this point but you should be proud of facing the situation with a legal solution that will resolve the problem and let you move on.

      Looking back on the path we kind of went through all the stages, denial, bargaining, and then finally acceptance. Funny how it usually works out like that.

      So now that you are a pro at making it this far, what advice do you have for others that are now where you once were?

      You deserve a really big hug.


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