Ask Stacy: When Should You File Bankruptcy?

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Here’s a reader question that offers the opportunity to talk about when enough is enough.

Dear Stacy,
I know you deal with a LOT of debt collection questions, but I couldn’t find the answer to mine in a search of your website — maybe I don’t have the right terminology.

Isn’t there any way to get debt collectors, including credit card companies, to pause the debt collection process or the payments for a period of time? I am disabled and awaiting SSDI determination (it may drag on another year) and completely out of money now, living with family just to survive.

Citibank refused to work with me on a payment low enough for me to continue paying them, which would have at least given them assurance that I had not abandoned the debt. I suggested the same $5 a month I pay on a medical debt, as I can usually make a very little each month holding yard sales of my last few possessions. Citi wouldn’t accept anything less than $200+/month. So this account has now gone to a debt collector who has offered to settle for less than the full amount, but it’s still way more than I can currently pay. And in the meantime Citi continues to charge me $35/month in late fees and 29 percent interest rate on the overdue amount.

When I spoke to Chase about my overdue account with them, they transferred me to a debt management company, that also could not help me since debt management plans require INCOME! Given that I can’t afford a lawyer, is there some action that can get these agencies to at least stop charging penalties each month when I’ve already appraised them of my situation?

I have already sold my furniture trying to pay these guys and don’t have the money to pay for the medical treatment I need to stay alive now! The stress of constant calls and letters from collectors is adversely affecting my health. If I drop dead before Social Security Administration admits I’m disabled from illness I can’t pay Citi or Chase at all — they’ll just be beating a dead horse. And I’m not withholding any money from them — you just can’t squeeze water from a stone!

Why aren’t there protections for people who are the worst off of all? I have tried repeatedly to help myself out of this situation, but nothing works. Any suggestions? Or am I just sunk?
– Jane (not her real name)

There is an answer for Jane. Before we get to it, check out a recent TV news story I did about getting help with debts:

Now, on to Jane’s question.

Like many other honest people in her situation, a strong sense of pride combined with a lack of knowledge is keeping Jane from acknowledging the inevitable. As a result, she’s needlessly enduring crippling stress and pouring what money she does have down the drain.

From our Solutions Center: Help with credit card debt

It breaks my heart when I see words like “I have already sold my furniture trying to pay these guys and don’t have the money to pay for the medical treatment I need to stay alive now!”

This is exactly why we have bankruptcy laws. (And why I’m a supporter of guaranteed health care for all Americans, but that’s another story.)

When you should file bankruptcy

You don’t often read articles by personal finance writers suggesting bankruptcy. Instead, we prattle on about building budgets, targeting debts and squeezing additional savings by using coupons and buying generics.

That kind of advice is fine for many people, even most. But it’s useless for people like Jane.

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Comments & discussion

We welcome your opinions, but let’s keep it civil. Like many businesses, we reserve the right to refuse service to anyone. In our case, that means those who communicate by name-calling, racism, using words designed to hurt others or generally acting like an uninformed bully. Also, comments that include links to email addresses or commercial websites typically aren't posted. This isn't a place to advertise your business.

  • http://freshstartsolutions.com.au/ Fresh Start Solutions

    All the
    things you have discussed here are really so important and should be noted.
    People should not pay off debts to friends and family members; they should
    know that this will not keep them out of the bankruptcy process.

  • grandmaguest

    Excellent article Stacy. While I am a staunch advocate for finding a way to avoid bankruptcy at all costs, there comes a time when that is absolutely not possible and this certainly fits the bill.
    I agree with everything you are telling her and my heart goes out to her as well. Tell those sharks to quit calling and at this point just pretty much ignore them and take care of yourself and your health. It certainly doesn’t sound like you are living “high on the hog” by anyones description.

    • http://www.moneytalksnews.com/ Stacy Johnson

      Thanks, Grandma!

  • ken

    #5 is incorrect where you state…”There’s no law requiring you to talk to any creditor or collection
    agency. There is a law, however, that says you can stop their calls
    simply by telling them to quit contacting you.”

    The law you are presumably referring to is the Fair Debt Collection Practices Act (FDCPA). That law applies to actions by debt collectors (someone who regularly collects debts owed to others). It does not apply to the creditor themselves. Thus you can not in fact stop calls by the creditor “simply by telling them to quit contacting you”.

    • http://www.moneytalksnews.com/ Stacy Johnson

      You’re right and I was wrong, Ken. Thanks for pointing that out. I’ve corrected the post.

  • girluvsart

    A friend just called and said she was going to commit suicide if things didn’t improve. I take this seriously and then I opened up your story about this. I called her immediately and told her I’m sending her the story. I feel like God put this in front of me. She’s beside herself and is busy caring for someone but promised she’d stop to read it. Just wanted to tell you thank you for this post. I know it will work!

    • http://www.moneytalksnews.com/ Stacy Johnson

      I’ll be keeping my fingers crossed, girluvsart. Please let me know if it does help. Another idea: have her talk to a credit counselor. You can find one in our Solutions Center.

  • MrKnowitall

    This viewpoint presented from the same man who would tell you that divorce is also okay. Yet, we have been taught by God that man should not separate what God has brought together. Believe what you will, but if you owe money and you don’t sell everything you have to pay your bills you are not going to get any sympathy from me. The fact that banks and bankers make money has absolutely no bearing on whether you should pay your bills . . . if you are looking for excuses not to pay your obligations, I’m sure you will be able to find plenty of them. What is for sure is that if you are a deadbeat or if you declare bankruptcy you are going to pay a heavy price, be sure you know what it is before you go down that road.

    • http://ecofrugality.blogspot.com/ Amy Livingston

      In what sense is Jane a “deadbeat”? She isn’t refusing to work; she is UNABLE to work on account of a disability. She has no income. She has already sold her furniture and is now “holding yard sales of her last few possessions” to keep paying $5 a month on her medical bills. And you declare that she is “not going to get any sympathy from you”?

      Since you talk about what “we have been taught by God,” here’s another lesson from the Bible you might want to consider: Judge not, lest ye be judged.

  • Lorilu

    With no income and no assets, Jane is probably already eligible for Medicaid. She should apply immediately. If she eventually receives SSDI, she will become eligible for Medicare.

  • Suziemac

    As always… Love Your articles STACY :) I recommend them to all in my family. Such excellent advice. I always check with you first! Keep up the excellent work; we need you out here….

    • http://www.moneytalksnews.com/ Stacy Johnson

      We love you too, Suziemac! Thanks for the kind words. Here I sit, working on a Sunday, and you just made it all worthwhile.