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Should I file bankruptcy for $12K debt?

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Dear Debt Adviser,
I have about $12,000 in credit card debt. I am about to lose my job, and I have no idea how I will continue to pay my creditors. Meanwhile, my husband has a large amount of debt in his own name. How do I get out of this jam? Should I file for bankruptcy? I have no other answer for my bills coming in, and I am extremely worried.
— Maggie

Dear Maggie,
You are certainly between a rock and a hard place. I congratulate you on at least not trying to blame anyone else for your dilemma. By the way, the real problem is not that you are going to lose your job or that you have thousands of dollars in debts, but that you have no savings to tide you over. Six months to a year in savings would allow you to continue to make payments while you looked for a new job.

Bankruptcy is a really bad move for you. Generally speaking, you should consider bankruptcy as a last resort, since it’ll weigh on your credit for years and make it harder to find a job. Many employers check credit reports as part of the hiring process, and a recent bankruptcy can make you seem out of control and less attractive.

Your debt is just not large enough to justify the damage. If you need more convincing, consider that there is a waiting period before you can file bankruptcy a 2nd time (should you need it), and not having bankruptcy as an alternative will make you even more vulnerable to financial disaster until you get re-employed and begin to save some cash.

Here are some steps that will hopefully relieve some of your stress:

  • Determine what your reduced income will be, provided you are able to collect unemployment insurance.
  • Make decisions on what bills you can pay with your reduced income.
  • If you don’t have enough money to make the minimum payments on your credit card accounts, contact your card issuers. Let them know you have lost your job and will be unable to make minimum payments until you find employment again. Ask about hardship programs that may lower your payment temporarily.
  • Keep records of the date and time of your calls and to whom you speak.

Another option is your husband could possibly pitch in to help you meet your minimum payments while you are looking for another job. Or, since your husband has a sizable amount of debt and his employment is fairly secure, it might be better for him to seek a bankruptcy for his debt and then help you pay off your debts.

One thing to consider is whether or not you live in a community property state. If you do, that will make filing bankruptcy, which is already a lousy idea in your case, even less helpful because your spouse will still be on the hook for your debts as long as they were incurred after your marriage. Finally, I suggest that you seek professional help from a nonprofit credit-counseling agency and a bankruptcy attorney to help you find the right solution.

Finally, you may want to find out the real cost of your debt with one of Bankrate’s calculators.

Rebuilding your credit can be a difficult process when going in blind. See your credit report and credit score for free at myBankrate.

Good luck!

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Written by
Steve Bucci
Credit and Debt Expert Contributor
Steve Bucci has been helping people decode and master personal finance issues for more than 20 years. He is the author of “Credit Management Kit For Dummies,” “Credit Repair Kit For Dummies,” “Barnes and Noble Debt Management,” co-author of “Managing Your Money All-In-One For Dummies” and “Debt Repair Kit For Dummies” (Australia). Steve is an experienced expert witness in identity theft, credit scoring, and debt-related cases. He has been a presenter at the FICO InterACT Global Conference, the Federal Reserve and the International Credit Symposium at Cambridge University in the UK.