Dear Bankruptcy Adviser,
I currently have student loan debt of $100,000-plus and credit card debt of more than $65,000. I work extremely hard, have never made a late payment, and have relatively low interest rates on my credit cards. I can afford the student loan payment on my salary, but not the credit card payments. I am considering filing for Chapter 7. I don't own a house or a car and I have no assets because I can't save anything because of the debt. What should I do?
-- MJ

Dear MJ,
You are in a difficult, but common situation. Many students leave school with both student loan and credit card debt even before landing their first full-time job. Quite often, student loans cover only the essentials -- tuition, books and some living expenses -- leaving credit cards and part-time work to pay for ordinary and necessary living expenses until completing school.

On one hand, I hate bankruptcy. Even though this is how I earn a living, I also understand how difficult life after bankruptcy can be for many people. You may already feel like you failed at something (although I would disagree) and then you might face unreasonable challenges getting a new job because of your negative credit rating. The exalted status given credit reports is because former employers no longer are allowed to give personal references. Credit reports became an important, but completely improper, indication of whether a person is employable.

Do I think this is fair? Absolutely not. But this current environment exists because attorneys sued employers who had given negative references about former employees. While many of those lawsuits had merit, the unintended consequence is that your credit report now holds power over your future.

On the other hand, you are faced with an almost impossible situation. The first thing to do before filing bankruptcy is a self-administered test. The test is simple, but accepting the results emotionally can be very difficult. When prospective clients are hesitant to file bankruptcy, I suggest that they perform this test over the next two or three months. Most prospective clients will call back within a few weeks when bankruptcy appears to be the best alternative.

First, try to cut back on "entertainment" expenses as much as possible. This will free up a little more money during the test period. Second, performing the test depends on the manner in which you are paid. Those paid once a month will find the test a little easier to perform. Those paid biweekly (every other Tuesday, for example) or semimonthly, usually have to pay rent and/or car payments with their first monthly paycheck. The second paycheck typically goes to credit card payments.

Self-test: Try to pay the minimum payment on each credit card either at the beginning or by the middle of each test month.