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Seduced by the ease of credit
Dear Dollar Diva,
I have three credit cards in just my name, and they're maxed out
at $15,000. I just lost my job and don't know how I'm going to pay
them. I'm not late on any of the payments, but it would take at
least two years to get them paid off, and that's if we really struggled.
I'm through with credit, and want to file for bankruptcy just to
get rid of this debt, but am afraid they will come after my husband.
My husband and I own a home with a lot of equity. I would appreciate
any advice you can give me.
Since you are able to pay those debts off, that's
what the Diva advises you to do. If paying them off in two years
is too hard, pay them off in three. Bankruptcy is a last resort
that should only be considered after you've made every attempt to
pay your bills and consulted with a counselor from a nonprofit consumer credit counseling service.
Personal bankruptcy is the safety net that catches
you when all other efforts fail. There are two types:
Chapter 7
This is the liquidation chapter and you file for this
protection when there is no way you will ever be able to pay off
your unsecured debts: credit cards, medical bills, personal loans.
The court lets you keep homesteaded property, most retirement plans
and certain other personal items. This is called exempt property,
and each state's exemptions are a little different.
Whatever is left over is called non-exempt property,
and will be sold. The proceeds will be used to pay creditors in
accordance with state law. When the proceedings are over, any debts
that haven't been paid are discharged, or forgiven, and except for
the black mark on your credit report, you start fresh.
| A bankruptcy stays on your credit report
for 10 years. |
There are some unsecured debts that are never -- or
hardly ever -- dischargeable, including overdue child support and
alimony payments, student loans, taxes and debts from criminal behavior.
If these are your debts, Chapter 7 probably isn't going to help
you.
Chapter 13
This is the reorganization chapter. You generally
file for protection under Chapter 13 when you have fallen hopelessly
behind in paying your secured debt, such as your mortgage and car
payments. Some of your debts will be reduced, and past due amounts
will be reorganized so they can be paid over a three- to five-year
period. The court will not let you do this unless you have enough
income to make payments on the reorganized debt and at the same
time keep current on your regular monthly bills.
If you do not live in a community property state and
one spouse files bankruptcy, the other spouse will not be responsible
if he did not authorize the purchases that led to the debt.
-- Posted: Feb. 28, 2000
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DOROTHY ROSEN has a master's degree in finance, with a specialization in accounting,
from the Kellogg Graduate School at Northwestern University in Evanston,
Ill. Rosen has more than 15 years of experience in the financial arena, serving
in Illinois and Florida as a certified public accountant, financial consultant,
expert witness and educator. She is owner of Dorothy Rosen, CPA, a public
accounting firm that serves individuals and small businesses.
