Dear Debt Adviser,
I have been putting off filing bankruptcy, and am concerned about how my financial problems might affect my husband. I am current on some, but not all, of my credit cards. Should I even try paying off the smaller accounts? Those are the ones that are current. I can't do anything about the larger ones. I am more than six months behind on the bigger accounts and most of them have already gone to collection. All of the credit cards are in my name only. However, I'm worried that they could take my husband's assets and maybe our home because of my debt.
You are in a classic dilemma. Emotions like guilt, fear and shame are all influencing your decision-making. Let me help you cut through the emotions and take a hard look at the facts.
First, you need to make a decision immediately regarding how you are going to handle this debt. Do it before the collectors sue you. A court may grant the collector a judgment for the amount that you owe. With a judgment in hand, the collector can petition the court for a garnishment order on your wages, a bank account levy or a property lien. This is when your debt could begin to negatively affect your husband.
For the most part, your husband's assets should be safe from collection activity on your credit card accounts -- with three caveats. First, if you have a joint bank account with your husband, the bank would honor a court-ordered levy and empty the account up to the amount needed to satisfy the debt. It doesn't matter whose income has been deposited into the account.
Second, if your home is owned jointly, a court-ordered lien for the amount you owe could be placed on your property.
Finally, how your husband will be affected may depend on whether you live in a community property state. Community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. In some cases, community property laws apply in Alaska. Puerto Rico is a community property jurisdiction as well. If you live in a community property state and the credit card debt was accumulated after your marriage, you are both equally liable, regardless of who did the spending.
I want you to realistically assess if you can pay back what you owe under any terms. You say you can pay the small ones but not the biggies. That may just be an expensive feel-good exercise. The big ones will still come after you unless you can get repayment terms that fit your budget. The only way to know this is to contact them. Explain your situation, tell them what you can afford and see what they offer.
Armed with the repayment facts, you'll know if you can afford to make the necessary payments. But before you decide about bankruptcy, make a budget that excludes the debt payments. In other words, if your credit card payments vanish, can you still make ends meet? I have known people who got rid of their debts in a bankruptcy but still couldn't live on what they earned.
Should you decide to file, contact an attorney who specializes in bankruptcies, and find out if you qualify for a Chapter 7 (liquidation of debt) bankruptcy or a Chapter 13 (debt restructuring). If your income isn't above the median for your state, you may be able to get rid of your debts in a Chapter 7.
If your income is too high, you may need to commit to a five-year Chapter 13 debt repayment plan, which would be administered by the court. Chapter 13 is no fun and I'd try most any other option instead. Alternatives may include debt settlement -- negotiated only through your attorney -- where you settle for less than is owed, or a debt management plan administered by a nonprofit credit counseling agency.
One last fact: Once you have filed for bankruptcy, it is years before you can seek that protection again. The time horizon depends on the type of bankruptcy you file. So if new financial problems arise, you may not be able to refile to get out of them.
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