Should I officially go broke?

December 5, 2008 10:23 AM

Question about going broke. I have been out of work a total of five months this year, having gotten laid off twice. Currently, I am not working and am on unemployment. After paying all my bills I have 65 dollars a week for food, etc... in NYC. I have 17 weeks of benefits left.

If I do not get a job in these 17 weeks remaining, I will have to default on all of my debt. If I don't find a job, should I declare bankruptcy? The details: I owe about 9000 in credit card debt, and about 3000 dollars in medical and other unsecured debt. I have a 401k with not very much money in it, maybe 3000 dollars. I have no home, no savings otherwise, no assets, and no job. I currently collect 340 dollars a week unemployment benefits.

posted by anonymous to Work & Money (24 answers total)

Okay. I was in a similar boat in 2001 -- the only work I could get was part-time work for a year. I covered the shortfall by taking out cash advances on my credit card. I know it sounds ridiculous to try to pile more credit card debt on now, and it DOES SUCK ROYALLY that I have that much debt now (I'm STILL paying that off 7 years later), but -- it's better than bankruptcy, when it comes to your credit score. True, if I'd declared bankruptcy 7 years ago I wouldn't have had to pay nearly $10,000 towards the credit monsters over the past 7 years. But -- I also wouldn't have had a massively good credit score. As it is, my credit is spotless and if I ever were to try to get a loan I'll have people competing to give me a good rate.

So. That was all a very long-winded way of saying "avoid bankruptcy at all costs."

So what do you do.

1. Continue looking for work - have you signed up with a temp agency? Even two weeks of work at a time here and there is better than nothing. Or Starbucks. Or...you get the idea. In fact, if you haven't signed up with any temp agencies, then you're nuts. Do so now. If you've only signed with one, add two more.

2. Pay at the very LEAST the minimum payments on your credit cards. I know that everyone says to pay more than the minimum, but if you can't right now, you can't -- this is a temporary measure, and you will of course be going back to paying more when circumstances permit.

3. Contact your other creditors -- the medical bills and the other unsecured debt you mention - and talk about your situation with them. They want to get paid, at the end of the day, and if you can negotiate some kind of arrangement, that will work out for both of you (I was able to work out deal once when I had an unusually high gas bill, whereby I'd split the cost of the bill into thirds, pay one third off one month, add the second third to the following month's bill, and the third-third a month after that.) They may not be ENTIRELY happy-puppy-dog with you about it, but they do want their money, and they would rather work something out than have you go into bankruptcy and put them through a world of legal hassle, so they're usually willing to do SOMETHING, anyway.

4. The 401K should be a last resort when it comes to money -- you will be taxed out the hoo-ha for that next year if you withdraw from it, but it is a last step you should consider only when every other option has exhausted itself.

5. Only after you have done all of the above -- maybe consider a cash advance on your credit card to make up the shortfall. but only after all of THIS has been done already.

Good luck. This is a tough financial situation -- boy, don't I know it -- but it is surivable without declaring bankruptcy.
posted by EmpressCallipygos at 10:40 AM on December 5, 2008 [1 favorite]

Even if paying the minimum on your cards is impossible, pay something. A little good faith can go a long way in credit negotiations.
posted by crickets at 10:49 AM on December 5, 2008

You will get a job.

I don't know that you should declare bankruptcy, as I don't know that it'll help; I don't know that it will wipe out any of the debt you mentioned (maybe the medical debt), and you'll still end up without money for rent, bills or internet access.

But, like I said, you will get a job. If you need to, find one job, two jobs, three jobs to make your $340+/week. Swallow that pride. I would personally admire a person more if she took jobs at McDonald's, Dunkin Donuts or a telemarketing firm, than a person that declared bankruptcy, especially in the current economic crisis.

Good luck and godspeed.
posted by jabberjaw at 10:53 AM on December 5, 2008 [1 favorite]

IANY-TaxExpert, but if you have very little income in a tax year I don't think the 401k withdrawal it going to get a tax penalty (the bank may withhold 25% but you can claim it back if income is low enough. I would use that $3000 first as working cash to give yourself more time.

Pay minimums on ccards.
Make sure no one creditor gets so big that they think it will be worth it to file a lien/seizure/bankrupt you.
And the 'best practice advice' seems to be work at paying off the smallest ones first (although that contradicts previous sentence).
Write/call medical creditors and ask for a settlement amount - offer 50% of the debt. They'll agree sometimes.
Sell possessions.
Get a job (!)

PS: 17 weeks is plenty of time. DON'T PANIC. Don't give up.

Good luck.
posted by Xhris at 10:54 AM on December 5, 2008

A lot can happen in 17 weeks. And you can live on 65 dollars food/week indefinitely. So whatever you do, don't panic yet. As the Empress said, avoid bankrupcy if you can: it's not going to help you if you don't have a job/income, and if you fix the job/income problem, bankrupcy won't be necessary anyway.
posted by rokusan at 10:54 AM on December 5, 2008

IANY-TaxExpert, but if you have very little income in a tax year I don't think the 401k withdrawal it going to get a tax penalty (the bank may withhold 25% but you can claim it back if income is low enough. I would use that $3000 first as working cash to give yourself more time.

Oh, it's true that the 401K withdrawl won't get taxed this year. But next year may be a different kettle of fish.

Then again, I'm basing this on my experience with an IRA early withdrawl I had to make -- it was only $600, and I paid a lot for that on the following year's tax return. IRAs and 401Ks may indeed be different.
posted by EmpressCallipygos at 10:58 AM on December 5, 2008

Oh, I also noticed the 17 weeks of benefits -- that's 4 months. That's a lot of time.

And, those 17 weeks aren't necessarily calenadar weeks, either. What I mean is -- say you collect unemployment for the next 2 weeks. That'd give you 15 weeks left. Then say you get a temp job for the 3 weeks after that, and then when it ends, you'd have to collect again. The unemployment grant will have stopped the clock at 15 weeks, if memory serves, so it's not like "oh, well, you worked for 3 weeks, so that three weeks' worth of money is gone and now you have only 12 weeks left, so sorry." You'd be back at 15 weeks again.

There IS a time limit at which your unemployment claim will expire, but it doesn't have to be 17 weeks from today. This does differ state to state, but I believe that's the case here in New York (at least, that's the way it was in 2001).
posted by EmpressCallipygos at 11:04 AM on December 5, 2008 [2 favorites]

Only mentioning this in case you or anyone else reading this isn't aware: unemployment benefits have been extended twice this year, at the federal level.
posted by gnomeloaf at 11:17 AM on December 5, 2008

Things are bad but it's important to remember that they'll get better.

If you're a computer professional of some sort email me (address in profile) and I might have something for you.
posted by bshort at 11:35 AM on December 5, 2008

I'm in the same boat. I've been unemployed since the end of July. Fortunately for me, unemployment insurance payments do just barely cover the rent and (frugally cut back) living expenses. I am just grateful that the unemployment has been extended, and trying not to panic.

But my point is: try like hell not to default on your credit card debt. I had to do that the last time I was in this situation back in 2001. The debt went into collections. I finally scraped together enough to pay it off, and the damn "collection agency" lied to me and did not report the payment to the credit reporting agencies as they had promised. I had to move out of my apartment, and in the process lost the paperwork they had sent me, so I was (and still am) totally screwed.

Good luck to both of us!
posted by trip and a half at 11:37 AM on December 5, 2008

340 = 40 hours a week at 8.50... now that of course is AFTER taxes, so you are looking at 10-11 an hour. I believe you can find that level of income in NY. Do EVERYTHING to avoid bankruptcy.
posted by crewshell at 11:37 AM on December 5, 2008

You'll get a job.

Second, I recommend The Hillybilly Housewife's Emergency Menu. She feeds a family of FOUR on $45. Even if you adapt it to yourself, you will still save boatloads.

I don't think you'll have to declare bankruptcy. You need to call everyone and talk to them. Negotiate the payments down as low as you can. State over and over again that your intention is to make good on your debts but you currently have this much cash and there is nothing else to be had.

Be calm and straightforward. don't let anyone talk to you badly or treat you badly. hang up if that happens and call again. you'll get someone else who will either listen or connect you to someone who can listen and make a decision for you.

but it is better to make the calls now than wait until you are in panic mode.

there's a lot of casual labor to be had right now. people are hiring temp for christmas. the question though is making sure that you have enough time to still network and job hunt and send out resumes. I could make an entire 8 hour day of that activity. you should set in your mind what your limit is, how long you'll dedicate yourself to full-time job hunting, before you trim it back to part-time job hunting/part time temp work. for me it was a month (and last time i got a job in 3 weeks).

there is more hiring going on now than anyone would seem to expect... but there is.
posted by micawber at 11:43 AM on December 5, 2008 [1 favorite]

At that level of debt, bankruptcy simply isn't worth it. It only begins to balance out somewhere in the $80-100,000 level.
posted by jkaczor at 12:28 PM on December 5, 2008

You have to balance bankruptcy for 12K in debt against the effect on your credit. If you take money from your 401K, you may have to pay a penalty. It's worth waiting to see if the penalty will be suspended due to the economy. Call the credit card companies, and ask for a lower rate; I did that, for significant savings.
posted by theora55 at 1:07 PM on December 5, 2008

Do you have anything you can sell on ebay? Your Tv? Your books? Your CD? Clothes you don't wear? Scour your apartment for stuff to sell. I've gotten through some tough times by selling stuff. Another option (if you're healthy) is to volunteer to be a normal volunteer in a medical study. Yes, some of them are really scary experiments, but others are completely non-invasive. For example, I once got $80 for a morning where they hooked me up to an EKG and took an ultrasound of my arm. After that I got calls for cognitive experiments where they wanted me to take a test on a computer. You might google and see if you can find any studies looking for normal volunteers. If you can make it from NYC down to DC, the NIH has plenty of ongoing studies that pay.
posted by bananafish at 1:20 PM on December 5, 2008

When you say you have seventeen weeks left, is that on your original claim, or have you started using the extension?

Nthing the advice above. Do everything you can to avoid declaring bankruptcy. That stays on your record for a decade.

Now, for day-to-day life, cut all your expenses to the bone. Don't spend money on entertainment. Get DVDs and books from the library. Don't take the subway unless you have to. Eat all your meals at home.

Shop aggressively. I don't know exactly where you live but I'm willing to bet that you can find a cheaper place to get your food. Any grocery that caters to working-class immigrants will have better prices. Me, I rely on my local Chinese grocery for my protein. $2.19 a pound for pork loin and $4.50 a pound for salmon -- these kinds of deals keep me in good health.

I know of two local chains that offer great variety at reasonable prices --

Western Beef

Trade Fair

Good luck.
posted by jason's_planet at 1:29 PM on December 5, 2008

OP here. I decided being anon about this probably doesn't make too much sense. Anyway, to answer the questions and to clarify:

I've used 16 weeks of unemployment so far this year. So, I'm into the extension.

I live in Clinton Hill Brooklyn. I should start going to cheaper places than the Met. That is true. Thanks Jason's Planet for the recommendations.

I'm using greenpath for debt consolidation and currently have no credit cards.

I've signed up with many different temp agencies but none have had any work for me. But I keep trying.

The only possessions I have that are worth anything are my graphic novels and I should sell those. I'd been rebelling against that idea but I think I will have to bite the bullet.

And medical studies? Looking into it right now.
posted by josher71 at 1:39 PM on December 5, 2008

You're welcome.

I've used 16 weeks of unemployment so far this year. So, I'm into the extension.

Are you sure of that ? My understanding of the unemployment benefit is that it initially provides 26 weeks -- or approximately six months -- of weekly benefits, to be used over the course of a benefit year. Did you use ten weeks the previous year or has your benefit year expired?

You go into the extension if you've used up all twenty-six weeks' worth OR if your benefit year has ended. And the current extension should last for twenty weeks -- or roughly five months.

Why don't you call one of the toll free numbers (1-888-209-8124 or 1-877-358-5306 ) and ask one of the counselors what your status is? If you call later in the week, like Thursday or Friday, and are willing to be on hold for a half-hour or forty-five minutes, you talk to a live person. I think your situation might be better than you think it is.
posted by jason's_planet at 2:10 PM on December 5, 2008

I've signed up with many different temp agencies but none have had any work for me. But I keep trying.

The temping job market sucks right now. But it will improve over the next few months. Layoffs are panic-driven. Employers always wind up cutting more staff than they should. When business picks up, they're understaffed and, too nervous to take on new full-timers, they turn to the temp agencies.

Chin up. Things will get better.
posted by jason's_planet at 2:18 PM on December 5, 2008

At a certain point, any money you make from work will be deducted from your unemployment check. While working is good, you want to add to your $340 a week, not work like a dog at some scutwork job just to see your unemployment go down by the same amount. If you collect partial unemployment for a week, does that kill off one of your weeks the same as if you collected the full $340? You need to find out.
posted by Joleta at 3:00 PM on December 5, 2008

Have you tried applying at other types of jobs? Holidays mean retail places need extra staff, and restaurants are trying to cover their staff's vacations. UPS and Fed Ex also usually hire extra people, and there are more events (they pay you like $100/day per day to set up tables or something, though I don't know how the NYC market is for those, though.)

I make $300/week at a second job working 20 hours per week as a host/busser (and I'm sure you could work more than that), plus they feed me. This is nowhere special (well, I like it, but it's not fancy or exclusive). So, I'd start by making two versions of your resume, one suitable for food service (restaurants and coffee shops) and one suitable for retail, and then basically go door to door in commercial areas. I don't know about NYC, but in San Francisco, I got three call-backs from maybe eight or ten restaurant resumes dropped, so places are hiring.
posted by salvia at 4:28 PM on December 5, 2008 [1 favorite]

Donate (I mean, sell) bodily fluids.
But not organs.
posted by Xhris at 6:33 PM on December 5, 2008

If you haven't yet missed payments on your debt, declare bankruptcy before you do. It's much easier to recover, both score-wise, and underwriter wise if you don't have a bunch of lates on your report, and only have the BK.

Bankruptcy is not nearly the big deal that people commonly think it is. Look at people's results on CreditBoards for living proof.
posted by wierdo at 8:17 PM on December 5, 2008

I'm going through a bankruptcy crisis in my family right now, and I can definitely tell you it's going to be painful. But I think it's preferable to drawing out your 401(k). Even that $3000 is protected during bankruptcy by law. Yes, you'll take a hit to your credit, but you're facing that almost no matter what you do now. This is the time to shed that debt and move forward without depending on credit. Now that I've seen what debt can do to a family with a stable job and rental property I don't want to touch it again for the rest of my life.

You're probably not going to be buying a home in the next two years, and by then your credit score usually recovers from a Chapter 7. You'll never have a better point to do it. Your income is low the last six months that you will almost certainly be below your state's median income and thus you will pass the means test for bankruptcy. There's a filing fee, and you really need a lawyer post-2005 "reform", but you will be able to get rid of that $12000 ball and chain forever.

Once you get an income again, get a secured card and pay it off monthly. Don't go back to your old ways, but this will help you rebuild your score for a future auto or home loan.

I dunno how to pay for the lawyer, but check with a legal aid group or look for a guy who'll do it pro bono.
posted by dhartung at 12:47 AM on December 6, 2008