Debating the Issue: Bankruptcy

I have been tossing around the idea of filing for bankruptcy again. There’s a variety of reasons why I feel I should. There are equally as many reasons why I feel I should not.

I posed this question to three gentlemen whose blogs I read on a regular basis. They are my very own panel of “experts.” Each comes from a different background and with different life experiences so I wanted to see what they thought.

I gave them the run down of my life and told them to have at it. Here is what they had to say.

First up is J$ from Budgets Are Sexy. I have left him stumped. I think part of it is because J doesn’t come from a background of a great deal of debt, just someone who wanted to change his life, improve his networth and live a better life. But here is what he had to say:

I’m at a loss here. The only thing i can think is to somehow find a way to REALLY hustle and get *any* extra forms of revenue that you can possibly imagine — part-time gigs, online stuff? Whatever you can get your hands on. without income you’re not going to be able to pay off or save anything.

He makes a great point and I think the underlying opinion is there. J does not suggest bankruptcy, he suggests making more money. This is something that has always been the goal but for the past year I have roadblocked myself. I have not hustled! I was lazy! And I regret this now!

Here’s what Brad from Enemy of Debt had to say (it’s long but good!):

I’ll, get right to the point though by saying you shouldn’t file bankruptcy. While I agree that the situation you find yourself in is tough, you are far from bankrupt. With your current predicament, it may take you a little longer than you want to get out of debt, or even start paying on it at all, but you can do it.

Judging by your comment (DP Here: In my message to the guys I did say this to them and it is how I feel!) — “I REALLY want to pay off my debts because I SHOULD. I owe the money, I charged the credit cards up. I did this!” — you should do what YOU feel is right. It sounds like you know what that is and I agree with you.

Let me add that I almost filed bankruptcy myself. I had an appointment scheduled and everything. Then I talked to a smart man and someone I admire deeply — my wife’s father. (this was before her and I were even dating.) His thoughts were the same as yours — “You ran it up Brad, you should pay it back.”

At the time I really didn’t like that, mainly because of what it meant for me and what it would take to turn that bus around, but I knew he was right.

With ALL OF THAT said, I do believe there are situations, rare ones, when someone has no viable options. I do not believe your situation is that situation. I will add this too. YOU CAN DO THIS YOURSELF, without paying for someone to help you do it. You really can, and my suggestion is that you should at least give yourself a chance to.

Okay so now you know how I feel about bankruptcy, specifically related to your situation, now let me tell you how I would handle it myself.

A Game Plan Based on What I Would Do – I’m only saying this because I don’t know if you are still using credit, but any and all borrowing must cease completely.

Put yourself on a budget immediately, regardless of how silly it might sound because of how little you have to budget. DO IT ANYWAY!

You said you haven’t paid on your debts in months and it doesn’t seem reasonable to expect you to start paying on them now, especially since you are basically living on, and providing for your family with just child support.

First things first, I would make sure the money you do have is covering the “four walls”. (Food, Shelter/Utilities, Clothing, & BASIC Transportation) I’m assuming that your mom is not charging you anything at the moment, since it’s utterly impossible to live off of $450 a month, so that is obviously a big help for you right now. Give your mom the most gigantic hug ever and tell her how much you appreciate her.

Secondly, I would start applying for TWO jobs to work at in Columbus right now, and get there as soon as you can make it possible. I can tell you from experience that 5 months is a very short period of time to get your act together. It is definitely possible but getting a job, an apartment, paying all of the start up deposits from your move-in, saving money and turning your situation around is going to take work — lots of it. I’m sure you know you have to be SUPER serious and determined to pull it off. (Off the record — I’ve been there, and am still dealing with the effects and could share my story with you if you want to hear it.)

I would also talk to your ex to see how much he is willing to support all of the work you will have to do. It will be in both of your best interests, but more importantly the kids best interest, if he does. For instance you could find a job working opposite schedules as him so that when he is off, he has the children instead of a babysitter, and when you are off — you do. That will help both of you especially since you have decided to share custody.

The rest of my plan would completely depend on how everything above played out. The important thing that you need to realize is that you can’t wait for change you have to make this happen. It’s going to be hard, and your are going to feel overwhelmed and may even feel like giving up — BUT DON’T. I would be MORE than happy to talk to you anytime you want to help you make it through this — email, phone, whatever.

Okay so at this point, theoretically, you have moved to Columbus, found an apartment, found work, and have a hopefully positive foot forward with your ex-husband. Your situation is tough because your first problem is not financial. Your first problem is an income problem. Now comes the financial part of the plan.

At this point I would still not have started paying on my delinquent debt. I would, however, send them ALL letters explaining your situation, your desire to pay back what you owe, and that you will send stay in touch with them as soon as things change. (I could help you with this if you want) Express to them that when it does change, and you are able to, you will immediately use what is called the pro-rata method.

Before you reach that point though you will need to have saved $1,000 as quick as you can — again, only after you have worked out everything else above NOT related to your financial situation.

READ: The Total Money Makeover by Dave Ramsey (this will not only get you motivated, but it will also help you work out this plan.)

This is VERY, VERY IMPORTANT! DO NOT pay on ANY debt until you have secured a baby emergency fund. Emergencies will arise when you start paying of your debt and you want to make sure you do not have to borrow any money when they do.

You did it! You have $1,000 saved up for EMERGENCIES!

At this point you are ready to start using the pro-rata method to start paying your creditors a minimum amount determined by your pro-rata plan which is based on your “disposable income”.

Now you’re ready to amp it up by using the debt snowball method to knock out one debt at a time — with as much intensity as you can muster!

Okay so I have written well more than a couple of paragraphs, it’s more like a LONG blog post, BUT, there is no way in the world I could sum it up in a couple of paragraphs. I hope it is helpful at least.

The big thing for you to realize is that most people find themselves in these kinds of situations because they weren’t prepared for them. I’ve been there and so have MOST people. Remember — America had a negative savings rate up until the economy took a dive into the abyss. Now you know why it is so important to plan and save for the future so the main thing is for you to make a goal to make sure it doesn’t happen again, EVEN IF, you become unemployed in the future. Become recession-proof by planning and saving for your future.

Don’t beat yourself up about what happened, just learn from it and keep it from happening again. You can do it! I believe in you, and I know you can turn this around. And WHEN YOU DO, you’ll be SO GLAD you didn’t file bankruptcy. I know I sure am!

Good luck Jessica! Stay strong and believe in your ability to do this, because YOU CAN!

I had to leave the last two paragraphs in there just because they make me smile.

Brad makes many great points. He taught me something that I did not know. Pro-rata is totally new to me and I intend to read up on it fully.

Brad has left me with much to think about. Up next is Travis from . He also wrote quite a long bit of information which proves to me that this topic can not be taken lightly. I’m going to post his info tomorrow in another post.

After reading this post, what do you think? If you were in my position, would you file bankruptcy? Do you think I should? Is Chapter 7 Bankruptcy the easy way out? Let me know it the comments section.

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Tags: bankruptcy, Debt Reduction, personal finance