Is bankruptcy my best option?
July 31, 2016 8:27 AM Subscribe
Due to a workplace accident I returned to college to get some training and skills in a new field. Now I am saddled with what feels like an overwhelming amount of debt, with creditors threatening "court action" against me.
Relatively speaking I am told that I really don't have that much debt – about $5, 000 in credit card debt, between $600-$2000 in bills I haven't paid, $14, 000 in student loans which can't be eliminated through bankruptcy, and that about sums of most of my most serious debt. Earlier I had a vehicle repossessed, but to my knowledge, they auctioned it off and it's no longer my problem.
A consumer proposal, a debt consolidation, and simply making payments back to these creditors are all options I have been told are better than declaring bankruptcy. I have several concerns with these options.
First, I make minimum wage at a call centre, because despite all the frenzy and talk of computer related jobs, a computer science degree is a useless sheet of paper unless you have a minimum of 5 years experience. The 20+ other recent hires at the same call centre with computer science degrees can confirm this. How can I possibly pay on my student loans AND any of my creditors while still having money left over to live? I have spoken to some of these creditors and they are unwilling to accept anything less than THEIR payment options, sometimes more than $500 a month. That's almost, if not more, than a whole two weeks of work for a SINGLE creditor. Tack on my student loan, living expenses, and the other creditors.
Second, if I am already being taken to court by a creditor, isn't anything other than bankruptcy too late?
Bankruptcy, to me, seems like the best option because 1.) my credit is already f**ked so I don't have that to worry about, 2.) all I'll need to pay is my student loan and $150/month to a trustee instead of on my student loan and multiple different creditors, 3.) unless I am mistaken, declaring bankruptcy is the only option I have to prevent being sued in court and having my wages garnished.
Thoughts?
Relatively speaking I am told that I really don't have that much debt – about $5, 000 in credit card debt, between $600-$2000 in bills I haven't paid, $14, 000 in student loans which can't be eliminated through bankruptcy, and that about sums of most of my most serious debt. Earlier I had a vehicle repossessed, but to my knowledge, they auctioned it off and it's no longer my problem.
A consumer proposal, a debt consolidation, and simply making payments back to these creditors are all options I have been told are better than declaring bankruptcy. I have several concerns with these options.
First, I make minimum wage at a call centre, because despite all the frenzy and talk of computer related jobs, a computer science degree is a useless sheet of paper unless you have a minimum of 5 years experience. The 20+ other recent hires at the same call centre with computer science degrees can confirm this. How can I possibly pay on my student loans AND any of my creditors while still having money left over to live? I have spoken to some of these creditors and they are unwilling to accept anything less than THEIR payment options, sometimes more than $500 a month. That's almost, if not more, than a whole two weeks of work for a SINGLE creditor. Tack on my student loan, living expenses, and the other creditors.
Second, if I am already being taken to court by a creditor, isn't anything other than bankruptcy too late?
Bankruptcy, to me, seems like the best option because 1.) my credit is already f**ked so I don't have that to worry about, 2.) all I'll need to pay is my student loan and $150/month to a trustee instead of on my student loan and multiple different creditors, 3.) unless I am mistaken, declaring bankruptcy is the only option I have to prevent being sued in court and having my wages garnished.
Thoughts?
You should talk to a lawyer for a free consult. Bankruptcy costs money, too, so you need to evaluate your options. Also, I'm not sure why you would be making payments to a trustee. That's not how chapter 11 works (although I'm not entirely certain this is a US based question, given your spelling of call centre.)
posted by Happydaz at 8:47 AM on July 31, 2016
posted by Happydaz at 8:47 AM on July 31, 2016
You really need to consult with a bankruptcy attorney. You can almost certainly get a free consultation with one (or more -- never hurts to check out a few options). They'll help you figure out what path is best for you. Because you owe relatively little in dischargeable debt, it may be that they don't recommend bankruptcy, but a good BK attorney can also help with offers in compromise or payment plans. Also, on the off chance your school was a for-profit, talking to a BK attorney who has a student loan specialty is a good idea because it's possible you could get that discharged as well.
Really, talk to an attorney. Find one who will give you a free consultation and go to them with your questions.
posted by katemonster at 8:48 AM on July 31, 2016
Really, talk to an attorney. Find one who will give you a free consultation and go to them with your questions.
posted by katemonster at 8:48 AM on July 31, 2016
Another point in favor of talking to a bankruptcy attorney: a lot of people have moralistic beliefs around filing for bankruptcy and will recommend against it even when it's the best or only option available to a person. I'm not sure bk is right for you -- that's something an attorney who knows all the details would be better qualified to help you decide -- but I am sure you should talk to someone who doesn't object to bk on moral grounds. Don't let anybody guilt you into making one decision or another.
posted by katemonster at 8:54 AM on July 31, 2016 [2 favorites]
posted by katemonster at 8:54 AM on July 31, 2016 [2 favorites]
He tells anyone who will listen that the trick is to pay them a small amount like $10 per month and then never ever worry about the loan ever again. As long as you are paying them something they won't take you to court.
Believe me, this is not true. Although, if it's federal loans, they don't have to sue you--they can administratively garnish your wages and intercept your tax refunds.
Bankruptcy, to me, seems like the best option because 1.) my credit is already f**ked so I don't have that to worry about, 2.) all I'll need to pay is my student loan and $150/month to a trustee instead of on my student loan and multiple different creditors, 3.) unless I am mistaken, declaring bankruptcy is the only option I have to prevent being sued in court and having my wages garnished.
The way you are setting this out worries me. You don't specifically mention talking to a bankruptcy attorney, but you think you have this specific information about payments, etc. which you are unlikely to have even in prediction form without a detailed consultation with an actual attorney. This makes me concerned that you may be speaking to some kind of scammer, of which there are plenty in this space.
The main reason to avoid bankruptcy is to avoid wrecking your credit, and it does sound like you can't make it much worse. But you should only do it if it actually improves your financial situation. If your creditors obtain default judgments against you, then, yes, they can garnish your wages--but there are limits on how much they can garnish (which vary by state). Given your low income, that may be better or worse than what you would pay under a settlement plan in bankruptcy (which is not, I believe, mechanically determined, but individually, so, as I mentioned before, the certain $150/mo. does not seem certain to me). So you need an experienced attorney to run those numbers for you.
Finally, you mention student loans, so I sincerely hope that you are already enrolled in an income-driven repayment plan for your federal loans. If not, enroll immediately. DO NOT PAY ANYONE TO HANDLE THIS FOR YOU (unless your lawyer is willing to do it as part of his services). Scammers are thick on the ground here, as well.
posted by praemunire at 9:08 AM on July 31, 2016 [3 favorites]
Believe me, this is not true. Although, if it's federal loans, they don't have to sue you--they can administratively garnish your wages and intercept your tax refunds.
Bankruptcy, to me, seems like the best option because 1.) my credit is already f**ked so I don't have that to worry about, 2.) all I'll need to pay is my student loan and $150/month to a trustee instead of on my student loan and multiple different creditors, 3.) unless I am mistaken, declaring bankruptcy is the only option I have to prevent being sued in court and having my wages garnished.
The way you are setting this out worries me. You don't specifically mention talking to a bankruptcy attorney, but you think you have this specific information about payments, etc. which you are unlikely to have even in prediction form without a detailed consultation with an actual attorney. This makes me concerned that you may be speaking to some kind of scammer, of which there are plenty in this space.
The main reason to avoid bankruptcy is to avoid wrecking your credit, and it does sound like you can't make it much worse. But you should only do it if it actually improves your financial situation. If your creditors obtain default judgments against you, then, yes, they can garnish your wages--but there are limits on how much they can garnish (which vary by state). Given your low income, that may be better or worse than what you would pay under a settlement plan in bankruptcy (which is not, I believe, mechanically determined, but individually, so, as I mentioned before, the certain $150/mo. does not seem certain to me). So you need an experienced attorney to run those numbers for you.
Finally, you mention student loans, so I sincerely hope that you are already enrolled in an income-driven repayment plan for your federal loans. If not, enroll immediately. DO NOT PAY ANYONE TO HANDLE THIS FOR YOU (unless your lawyer is willing to do it as part of his services). Scammers are thick on the ground here, as well.
posted by praemunire at 9:08 AM on July 31, 2016 [3 favorites]
I was in a similar situation and talked to a lawyer, who was all about a bankruptcy, because that gets him paid. I did it, and I should not have. My debt was similar to yours, and I used the nuclear option when I should have gone another route, though I cannot say what that would have been, exactly. Probably try to get a loan from a family member, if at all possible in my case.
It negatively impacted me in multiple ways, from credit rating disaster to feeling pretty horrible about myself over it. But, if you decide to go that route (cost me about 1k out of pocket IIRC), please don't beat yourself up over it. It doesn't make you a bad, or even particularly careless person. Life happens and it is really easy to find yourself in over your head. And today, after the 7 years went by to clear it, and after really diligently working to improve my credit, I have a score north of 800. So you can recover from a bankruptcy, absolutely. Good luck to you!
posted by thebrokedown at 9:23 AM on July 31, 2016 [2 favorites]
It negatively impacted me in multiple ways, from credit rating disaster to feeling pretty horrible about myself over it. But, if you decide to go that route (cost me about 1k out of pocket IIRC), please don't beat yourself up over it. It doesn't make you a bad, or even particularly careless person. Life happens and it is really easy to find yourself in over your head. And today, after the 7 years went by to clear it, and after really diligently working to improve my credit, I have a score north of 800. So you can recover from a bankruptcy, absolutely. Good luck to you!
posted by thebrokedown at 9:23 AM on July 31, 2016 [2 favorites]
Holy Jesus, people are being very cavalier about the bankruptcy option. You are only looking at the short term implications and basing your reasoning on the notion that things will never get better. But your bankruptcy will have lasting implications that will last much longer than your call center minimum wage gig. A bankruptcy will bar you from certain employment forever. It will bar your from home ownership for 7 - 10 years. It will bar you from many rentals for long past the bankruptcy expiration. It will bar you from credit including an emergency credit card for a long, long time.
Bankruptcy lawyers are in the business -- literally, this is how they make their money -- of taking people thought he bankruptcy process. This does not mean they advice they give you to declare bankruptcy is the best advice for your particular situation.
Your student loans are not going to be discharged. You need to get on Income Based Repayments of PAYE, stat. If your loans are Federal, follow the advice here: "You pay 15% of your discretionary annual income divided into 12 monthly payments. If you have less ~$20k in income, your payments are generally $0/month. Interest still accrues but it is not capitalized."
This will free you up to deal with your creditors, which you can do. $7,000 in consumer debt is not a crazy amount to have to clear. Even a shitty rate 5 year debt consolidation loan would run you about $215 per month, and you can probably do better negotiating on your own, but it's an option. A second job is probably a better option and can get this out the door in 18 months.
Absolutely none of this will make any difference if you don't address whatever lead to this situation in the first place and make your budget match your income.
posted by DarlingBri at 9:51 AM on July 31, 2016 [11 favorites]
Bankruptcy lawyers are in the business -- literally, this is how they make their money -- of taking people thought he bankruptcy process. This does not mean they advice they give you to declare bankruptcy is the best advice for your particular situation.
Your student loans are not going to be discharged. You need to get on Income Based Repayments of PAYE, stat. If your loans are Federal, follow the advice here: "You pay 15% of your discretionary annual income divided into 12 monthly payments. If you have less ~$20k in income, your payments are generally $0/month. Interest still accrues but it is not capitalized."
This will free you up to deal with your creditors, which you can do. $7,000 in consumer debt is not a crazy amount to have to clear. Even a shitty rate 5 year debt consolidation loan would run you about $215 per month, and you can probably do better negotiating on your own, but it's an option. A second job is probably a better option and can get this out the door in 18 months.
Absolutely none of this will make any difference if you don't address whatever lead to this situation in the first place and make your budget match your income.
posted by DarlingBri at 9:51 AM on July 31, 2016 [11 favorites]
OP, could you clarify where you are? A previous question seems to suggest you are in Canada, and if so, U.S.-specific advice will not be applicable to you.
posted by needled at 10:02 AM on July 31, 2016 [2 favorites]
posted by needled at 10:02 AM on July 31, 2016 [2 favorites]
Response by poster: -------------------------UPDATE ---------------
I am not in the U.S., I am in Canada. Furthermore, I HAVE spoken to trustees in bankruptcy, which are regulated by the government here, and they quoted me approximately $150/month for a period of 9-15 months based on my income.
posted by 8LeggedFriend at 10:29 AM on July 31, 2016
I am not in the U.S., I am in Canada. Furthermore, I HAVE spoken to trustees in bankruptcy, which are regulated by the government here, and they quoted me approximately $150/month for a period of 9-15 months based on my income.
posted by 8LeggedFriend at 10:29 AM on July 31, 2016
A bankruptcy will bar you from certain employment forever. It will bar your from home ownership for 7 - 10 years. It will bar you from many rentals for long past the bankruptcy expiration. It will bar you from credit including an emergency credit card for a long, long time.
I feel like I'm stating the obvious when I say that judgments, especially multiple judgments, have much the same effect and stay a matter of public record basically forever. And while I'm sure OP is a great person, OP is clearly not in any danger of having a meaningful chance of joining the Canadian equivalent of the CIA or buying a house in the next seven years.
People get weirdly moral about bankruptcy. I don't understand it. OP's credit cards carried a rate (which they set themselves) that reflected the risk he would default; they've effectively already compensated themselves for their losses. OP's creditors themselves would not hesitate to default on a loan if it benefited them financially. Bankruptcy exists precisely because society recognizes that people get in over their heads, for whatever reason, and no one benefits from them thrashing around an ocean of debt for the rest of their lives.
posted by praemunire at 11:10 AM on July 31, 2016 [5 favorites]
I feel like I'm stating the obvious when I say that judgments, especially multiple judgments, have much the same effect and stay a matter of public record basically forever. And while I'm sure OP is a great person, OP is clearly not in any danger of having a meaningful chance of joining the Canadian equivalent of the CIA or buying a house in the next seven years.
People get weirdly moral about bankruptcy. I don't understand it. OP's credit cards carried a rate (which they set themselves) that reflected the risk he would default; they've effectively already compensated themselves for their losses. OP's creditors themselves would not hesitate to default on a loan if it benefited them financially. Bankruptcy exists precisely because society recognizes that people get in over their heads, for whatever reason, and no one benefits from them thrashing around an ocean of debt for the rest of their lives.
posted by praemunire at 11:10 AM on July 31, 2016 [5 favorites]
People get weirdly moral about bankruptcy.
Yes, some people do. I am not one of them.
posted by DarlingBri at 11:17 AM on July 31, 2016
Yes, some people do. I am not one of them.
posted by DarlingBri at 11:17 AM on July 31, 2016
If you are considering Bankruptcy with its long term financial impact, would you consider the alternative of trying to move to raise your income? A computer science degree is like printing money in some places, where 5 years experience is not at all required. Have you considered moving? Maybe you can get your foot in the door in a new city with a big tech industry say via contract work or QA or even doing call centre work while living in a crappy share-house?
posted by PlannedSpontaneity at 11:55 AM on July 31, 2016
posted by PlannedSpontaneity at 11:55 AM on July 31, 2016
I am in the US, but if there is a non-profit there called specifically "Consumer Credit Counseling Services" I would talk to them. It is free. They can get the interest stopped on most credit cards and work out a payment plan with your lenders - not student loans of course, but the rest of them.
I did this quite a few years ago, paid off the debts, my credit recovered more quickly than it would have through bankruptcy.
Beware though, there are a bunch of "sound-alikes". CCCS is what you want, and they may ask for a donation, but there is no hard cost.
posted by rudd135 at 12:18 PM on July 31, 2016 [3 favorites]
I did this quite a few years ago, paid off the debts, my credit recovered more quickly than it would have through bankruptcy.
Beware though, there are a bunch of "sound-alikes". CCCS is what you want, and they may ask for a donation, but there is no hard cost.
posted by rudd135 at 12:18 PM on July 31, 2016 [3 favorites]
If you have an agreement with a creditor for reduced monthly payments and you pay the amount on time, the creditor will not sue you in court or win a judgement against you. That's not how the system works.
A bankruptcy attorney wants your business and might not tell you how to negotiate effectively with your creditors. Or they might. Depends on the attorney.
If you do research for your jurisdiction, you will find resources that talk about how to effectively re-negotiate reduced monthly payments for school loans and other types of creditors. You should do your own research and try renegotiating your debts before considering bankruptcy.
posted by jbenben at 1:03 PM on July 31, 2016
A bankruptcy attorney wants your business and might not tell you how to negotiate effectively with your creditors. Or they might. Depends on the attorney.
If you do research for your jurisdiction, you will find resources that talk about how to effectively re-negotiate reduced monthly payments for school loans and other types of creditors. You should do your own research and try renegotiating your debts before considering bankruptcy.
posted by jbenben at 1:03 PM on July 31, 2016
Everything fell to shit for me and I had to declare bankruptcy. I know I can't get a mortgage, or a new lease. The job thing is not so cut and dried - bankruptcy is sometimes the most responsible thing to do, and I'll likely not even lose my security clearance from it. And I still have horrid student loan debt to deal with.
The amount of pure relief I feel at being able to make ends meet is worth GOLD, GOLD, GOLD to me.
I think you should have a consult with a reputable attorney - nobody in their right mind is going to encourage you into a bankruptcy you don't need. Their livelihood is word of mouth and Yelp.
posted by The Noble Goofy Elk at 9:01 PM on July 31, 2016
The amount of pure relief I feel at being able to make ends meet is worth GOLD, GOLD, GOLD to me.
I think you should have a consult with a reputable attorney - nobody in their right mind is going to encourage you into a bankruptcy you don't need. Their livelihood is word of mouth and Yelp.
posted by The Noble Goofy Elk at 9:01 PM on July 31, 2016
This thread is closed to new comments.
The rest you can manage similarly. Pay them off. Don't declare bankruptcy over this.
For the school loans, don't sweat them! Like, if they are never paid off but you keep paying them down, legally, you're good. Pay off the credit card debt any way you can. The credit card debt is the problem, luckily, it's a small amount.
Can you make money on the side? Freelance? Babysitting? Etsy? Craigslist? Second job?? DO THIS NOW.
Pay off the credit card debt and just live with the school loan by making small monthly payments, enough to satisfy the legal terms. You're not the first person in this position.it'll be OK. Good luck.
posted by jbenben at 8:45 AM on July 31, 2016 [2 favorites]