Ask Stacy: When Should You File Bankruptcy?

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Jane is selling her belongings at yard sales to pay her creditors. Stop and read this, Jane.

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.

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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