How should I resolve my debt?

June 19, 2012 4:56 PM

Debt Management Plan or Bankruptcy? or Option C? YANAL and YANML [IL filter]

TLDR at bottom.

I apologize if this is rambly, too much info, not enough info, unclear, etc. I've been feeling very emotionally unsteady in the last few days, since I began receiving letters in the mail from local law firms offering their services to me, as I am being sued for an outstanding, charged-off credit card in the amount of about 1200 dollars. I have not yet been served. The case is in the system with a case number - I checked; a "contract complaint" was filed against me by a local law firm about 10 days ago. I live in Cook County, IL.

The debt is mine; I became behind on the payments and ceased paying about a year ago during a period of unemployment, then under-employment. It is also not my sole account in collection - I also have a student loan, medical debt, and a couple of other credit cards (all unsecured debt). The stress from all this have been overwhelming. I have no assets, no family or friends from whom to borrow money, lost most of the paperwork dealing with the various debts during a move, but do have a deep sense of shame about my financial health.

I had an unemployed/under-employed period where I was also taking care of other people financially, but am in a stable job now with no dependents. However, my household expenses exceed my take-home pay; even by cutting out the luxuries like cable tv, I do not make enough money to pay off all these debts quickly enough.

I haven't been just sitting around ignoring the letters and calls; I have been able to settle a few of these other debts, and am making payments on others. A few (including this one) I have not even been able to make payment arrangements - they want the full amount, single lump sum payment, which I just can't afford. So, now what?

I know that I will need a lawyer to help me deal with the lawsuit, but I'm curious about the other debts. A previous consultation with an attorney yielded the advice to not file for bankruptcy since my total debt that could potentially be wiped out is less than 10K - he felt it was not worth the long-term impact, but that advice is sounding a bit hollow now. I've just begun counseling with a non-profit agency through the National Foundation for Credit Counseling (NCFF), who may recommended a Debt Management Plan and I am curious as to whether or why this is a better idea than bankruptcy. I'm getting conflicting advice off the internet as to which option I should go with, or if I should reach out again to my (non-lawsuit) collectors and try to reason with them. I've gone on some of the credit building forums as well as Nolo and it's giving me a headache. I've read past AskMes which helped but was hoping for a few more specific answers, if available.

You may not be a lawyer, and you certainly aren't my lawyer, and you aren't giving me legal advice; I just want an opinion or two. Please?

TLDR: Is a debt management plan a good idea when one is less than 10K in debt? What other options are available to me, and how should I go about them?

Throwaway email: [e-mail]

Thank you.

posted by anonymous to Work & Money (6 answers total)

National Foundation for Credit Counseling (NCFF), who may recommended a Debt Management Plan...YES. If you can get free assistance in finding a reputable program for consolidation do it.

If you can get this set up before you are served you will probably avoid having your wages garnished.
posted by snsranch at 5:27 PM on June 19, 2012

For less than $10k in debt, with a stable job, I would would at least attempt a debt management plan, as long as you can get all of your debtors on board, you have enough money to take home so that you aren't borrowing more money to live, and so that you have a reasonable pay off date (say, 5 years). It's a lot of money, but it's really, really not an insurmountable amount.

Keep in mind, the national foundation for credit counseling doesn't work for you, though, they work for the credit card companies, and their goal is to get as much money out of you as they can. I tried to work with them, and they presented me with a payment plan that was laughable, and I ended up going through bankruptcy.

So it's worth taking the time to meet with them, but you don't need to take their offer.
posted by empath at 5:32 PM on June 19, 2012

By the way, the statute of limitations for credit card debt in IL is 5 years (probably, talk to a lawyer). It's a proactive defense, so you have to go to court to present it if you're served.
posted by empath at 5:36 PM on June 19, 2012

Yea, this is actually smaller than a typical car loan and you're probably looking at $250 (jeez, actually less) a month. Make sure you shop around though, and I would seek out the help of non profit orgs that offer debt counseling.
posted by snsranch at 5:53 PM on June 19, 2012

i would talk to an attorney who specializes in debt to handle this. the first consultation would be free of charge and s/he can advise you of your best course. i did this. he got my debts substantially reduced, even with his fees. find someone good tho. mine was a bulldog when it came to dealing with the debt collectors. also, having him advocate for me and take care of everything really reduced the stress i'd been under because of the collections.
posted by violetk at 6:25 PM on June 19, 2012

I agree with at least talking to an attorney - it may cost you a little bit, but the attorney might be able to save you quite a bit. And not having to do it and deal with it yourself? That's probably mentally worth having the attorney. If nothing else, go for a consultation - just talking to an objective observer can help.

If your household expenses exceed your current take home pay (it sounds like that's the case?), are you adding to the debt every month?

Hang in there. This sucks and it's stressful, but you will get through it.
posted by mrs. taters at 2:07 PM on June 20, 2012