A reader wants to know if he should do debt settlements or file bankruptcy.
Dear Leon,Should I do debt settlements or file bankruptcy? I might even be able to borrow enough money from family to pay most of what I owe. I owe $40,000 in credit card debts, and I barely manage to pay the minimum due each month. But it’s killing me. I make $42,000 per year. I have no valuable assets. I am planning to get married soon. I don’t want my fiance to get burned if I bring my debt burden into the marriage. My parents have offered to give me enough money to pay off half my debts. My fiancee’s parents have offered to loan me enough money to pay off the other half. They feel it is wrong to file bankruptcy. Please tell me what to do.Sincerely,Josh
Dear Josh,For the sake of this discussion, I am going to assume that you are eligible to file Chapter 7 bankruptcy should you should decide to do so. (To be more certain of what your options really are, you should get advice right away, in person, from a lawyer who specializes in bankruptcy law.) Let’s analyze your alternatives:
Debt settlement: I see no chance of debt settlements unless you allow your accounts to go delinquent for about 3 to 6 months. The banks are not going to cut you a deal if the accounts are kept current.
But going delinquent will destroy your credit for years to come. Also, the amount owed will jump up due to late fees, default interest rates, and perhaps other fees the banks will impose. And, you will be out the money it takes to pay any settlements, (usually around 50% of the balance owed at the time of settlement.)
Your debt settlements will not affect your fiancee directly, but your bad credit may be a hindrance on plans that you and your fiancee have for the future. In sum, I do not like this alternative for a person in your situation.
Paying off the debt with gift money and borrowed money: Nothing has changed in the 500 years since William Shakespeare said, “Neither a lender nor a borrower be.” If your future in-laws loan half of what you need, you will be thrust into a debtor creditor relationship with them before you even say, “I do,” to their daughter.
You will also spend years beholden to your own parents for bailing you out. Owing your in laws just half of what you presently owe on credit cards will be only half the struggle you presently have. But, it will still be a struggle. Won’t it be fun asking “Dad” to pass the gravy next Thanksgiving when you still haven’t paid him back?
Bankruptcy option: It’s commendable to pay debts with your own money. It’s quite something else to pay it with other peoples money. If you had enough of your own hard earned money to pay off your own debts, I would encourage you to do so.
No offense meant, but I don’t give anyone a passing grade in my Sunday school morality class if they pay debts using other people’s money.
Bankruptcy is the option I would suggest if you were my own future son in law. I say that because you will not be solving your own problem under any other set of circumstances. All you would do under the other alternatives is shift your problems onto the shoulders of other people who are not responsible for your problem. I do not see that as an adult solution.
Additionally, if you take their money it is only for your own benefit. It will not directly benefit your fiancee.
After marriage, the families could have used that money to help you and your wife buy your first home, pay for grad school, or perhaps help you in other ways that will directly benefit the two of you. Don’t worry about the banks getting paid. Their greed for profits helped make this mess worse by loaning you more money than you were able to repay.
Bankruptcy is a way out, but not necessarily an easy way out. If you go this route, you will have to work hard to rebuild. You may also have feelings of shame or embarrassment. But nobody is perfect. You’ll get over it.
Now then, please pass the gravy before my potatoes get cold. And remember this, “A happy wife is a happy life.”
If you were given the choice, would you do debt settlements or file bankruptcy?
It’s a tough choice. There is no absolute answer that is right for everyone.
One more thing. Here is what the Federal government says about going to debt settlement companies:
Warning: Dealing with debt settlement companies can be risky. Some debt settlement companies promise more than they can deliver. Some of your creditors may also refuse to work with the debt settlement company you choose. In many cases, the debt settlement company will be unable to settle all of your debts.
