A reader at How to settle your debts on your own asks if she should file bankruptcy or try and settle her debts on her own.  She doesn’t have enough money to make minimum monthly payments and the collection calls have began.  They make too much to file Chapter 7 bankruptcy but not enough for a monthly payment plan.  They have $50,000 in unsecured debt.

I got behind on all my bills and took on a second job, then realized that even with the second job I couldn’t pay all the bills. I tried Credit Counseling and was told I don’t make enough money for a pay off plan. I was told I have to file bankruptcy. I make too much money (on paper) to qualify for a Chapter 7. Is there any thing I can do on my own?

A bankruptcy lawyer said I would have to do a Chapter 13 but to me that just seems like a payment plan with worse credit. I dont want a trustee looking over my shoulder for 3-5 yrs and taking tax refunds and christmas bonus. My husband and I owe $50,000 in loans and credit cards. All unsecured. We have a house and truck payment. Our house isn’t worth anymore than we paid for it and we pay $362/month in PMI. So theres no equity to tap. Our credit is in the 500’s since we’ve been behind on everything and the collection calls started this month. They’re non stop. We have no savings but a few hundred after mortgage, food etc, per month its just not enough to go around.

We owe 21 creditors not including truck payment, mortgage and regular bills like phone insurance etc. Please can you give me any advice? I have two children who keep asking why I won’t answer the phone. I understand I made this mess and must own up to it which I will – I’m just not sure how to and still live a semi-normal life.

TM

Hey TM,

You’re either need to make more money and get caught up… or make less and file chapter 7. Otherwise this sounds like you’re going to be stuck in the middle. You’ve probably already asked yourself this but…

Can you sell anything to generate cash?
Can you move in with a relative who charges no rent and then rent out your current house for income?
Can you sell the truck and drive a junker for two years?

You’ve either got to drastically lower your bills or generate more cash.

Your in the same position I was in… but your debt is higher. Another option is to not pay and try and settle with them later on. But you’ll need some cash available to settle with the original creditor or collection agency. I would also recommend changing your phone number and dealing with these collectors via mail. Many people stop paying, meanwhile they save up money (outside a bank of course), in hopes of settling the debt later on when the collectors are ready to accept 50% or less on the debt. Granted it’s very aggravating negotiating with these folks on the phone but the other option for them is to try and get a judgment against you to repay the debt. Even then there’s no guarantees that they can get the money out of you.

So if you can’t see anyway to generate more cash I would save money like crazy and try and settle the debts later on. To me, this seems a more intelligent choice since the bankruptcy police isn’t standing over your shoulder and your credit is ruined anyway. Meanwhile I would find a way to reduce my bills and bring in as much money to save as possible. These creditors aren’t going away and you (and your husband) need to decide on a plan and make it work. I hope this helps.

Best regards,

Barry

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