 Compelling
reasons to file bankruptcy
|  Dear
Steve,
You seem to take a very hard line
against bankruptcy. Are there ever any circumstances where you think
that bankruptcy may actually be the right option? Is there ever
a situation where you feel like a debt can be forgiven?
We are not irresponsible people. We're young
and have worked hard, but two back-to-back job losses, a hospital
stay and the birth of a baby have put us in a precarious situation.
We'd love to pay off our debts, but we haven't been able to find
a way to do that. As it is, we not only live paycheck to paycheck,
but also run short each month. We have no savings and are starting
to despair of being able to survive. -- Jamie
 Dear
Jamie,
My heart goes out to you both. Many circumstances
exist where bankruptcy makes sense to solve overwhelming financial
problems. America does not have debtors' prisons, and we believe
strongly that people should have the chance for a fresh financial
start. Without it, fewer of us would take the risks necessary to
build new businesses or better our lives.
What you are interpreting as a "hard line against
bankruptcy" is caring enough to want you to make the right
decision for your family. There is a financial and personal price
to pay after filing bankruptcy that might be avoided if all alternatives
to bankruptcy are explored first.
What makes bankruptcy worth the cost in my mind is
if it actually solves more problems that it causes. Here are some
points I would ask you to consider. You are young, with employment
issues. A bankruptcy will be reported on your credit report for
up to 10 years. This may limit future opportunities not just in
terms of borrowing, but also when searching for jobs. Many employers
pull credit histories as part of the employment-screening process.
Ask yourself what effect a bankruptcy notation will have on your
job search.
You have medical bills and a baby. The bankruptcy
will help with the medical bills but not the increased living expense
of a child on your budget. You live paycheck to paycheck. A bankruptcy
will only reduce the monthly payment for debt service, not ongoing
living expenses. Subtract your debt payments from your monthly budget,
and see if you will still be living paycheck to paycheck afterward.
Will the bankruptcy allow you to begin to save some money for the
future?
Remember, the rules change as of Oct. 17, 2005, and
it will be much more difficult to qualify for Chapter 7, which liquidates
many of your debts, but not all. Student loans, taxes and other
debts survive. Chapter 13 may be an alternative depending on your
mix of creditors, credit counseling and a debt management plan.
If you look into credit counseling, look for a nonprofit agency,
accredited by the Council On Accreditation.
Now, let me address your question about debt forgiveness.
Bankruptcy does not "forgive" debts, at least not in the
ordinary meaning of the word, which is "to give up resentment
against or the desire to punish." The creditor will remain
angry at losing money, and you may feel pangs of guilt. Forgiveness
has nothing to do with it. Earlier, I mentioned a personal price
to bankruptcy. Be aware that you may feel a diminished sense of
self-worth for not keeping your promises. If you do, be sure to
talk to your spouse about them and don't let them hurt your marriage.
Finally, once you are sure whether bankruptcy is going
to solve your problems going forward; I strongly suggest that you
put together a spending plan or budget with a savings component
so that you will not have to do this again. I can hear the frustration
and upset in your question. I am much more concerned that you don't
have to feel like this again, than I am about which financial solution
you choose.
Good luck!
The
Debt Adviser, Steve Bucci, is the president of Money Management International
Financial Education Foundation. Visit MMI
for additional debt
advice or click here
to ask a debt question. | 
