Dear Rick:
After being married for over 15 years, a few years ago I got divorced. The divorce was bitter and costly and left me in debt. Over the last few years I have struggled with my finances and have watched the balance of charge cards grow and grow. I’ve reached the point where I just can’t keep going on this way and I need help. I heard an ad on the radio about settling your debts with the charge card companies and I sat down with one of these debt settlement companies. They explained how they work and they were very confident that I would be able to settle my debt at a fraction of the cost. When I mentioned bankruptcy to them they immediately told me that I was not a candidate for bankruptcy and that bankruptcy could not help me. A friend of mine told me that I should just stop making my charge card payments because he said the charge card companies wouldn’t come after me. My question to you is what would you do in my situation?
W.C.

Dear W.C.:
The first thing I recommend is to not to listen to your friend. Charge card companies do go after debtors all the time. I always prefer to be proactive as opposed to reactive. If you stop making your payments there is a very good chance the charge card company will come after you and as a result, they could get a court order garnishing your wages which could cause issues at your job. In addition, let’s not forget the emotional cost to you as you will be constantly worrying what the charge card company might do. Therefore, I would automatically dismiss this alternative.

Debt settlement companies can settle debt for less than the total outstanding debt. However, the process is not short and it can be very expensive. Typically, these debt settlement companies charge upwards of 20 percent of your original debt. In addition, with the debt settlement companies, you are still going to owe a significant portion of your debt. The commercials that you hear where some of these companies claim that your debt can be settled for pennies on the dollar are rare. In many situations you could still be left with at least 50 percent of your debt. That doesn’t mean that using a debt settlement company is not an option; I also believe that you owe it to yourself to discuss your situation with a bankruptcy attorney.

I recognize that the debt settlement company said you were not a candidate for bankruptcy; however, I would not take their word for it. They certainly are not bankruptcy experts and, in fact, my experience has been that most debt settlement companies hate bankruptcy. Therefore, I’m not sure they gave you an impartial opinion.

Bankruptcy may be a very viable option for you. One of the benefits of bankruptcy is that unlike a debt settlement company, where you are still left owing a portion of your debt, in a bankruptcy it is possible that your debt would be totally extinguished. Furthermore, where debt settlements take years to resolve, bankruptcy can be much shorter. Therefore, depending upon your situation, it is possible that in bankruptcy your debts will be totally written off without you having to make any payments. Bankruptcy is meant to give an individual a fresh start and that may be the best option for you.

My advice is to sit down with a bankruptcy attorney to discuss your individual situation. Only after discussing your situation with the attorney will you have all the information necessary to make the right decision for you.

Many people believe that bankruptcy is always the last option and that you should only pursue it if nothing else works. I don’t necessarily believe that. Bankruptcy is meant to give someone a fresh start and individuals should use the law to their benefit. Corporations, such as General Motors, used the bankruptcy laws to their advantage and so should you and I. Of course I am not saying that every time you run into financial difficulty you should pursue bankruptcy. However, what I’m saying is that when you’re in severe financial difficulty, bankruptcy is a viable option and you owe it to yourself to sit down with an expert to understand your rights.

Good luck!

If you would like Rick to respond to your questions, please email Rick at rick@bloomassetmanagement.com.