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Dorothy Rosen -- The Dollar Diva Ask the Dollar Diva

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:

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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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