Too Much Debt

November 23rd, 2009, by

Q: We have 15 to 25-year-old credit card debt now totaling $135,000. We are approaching retirement with five marriages between us (we have been married 20 years), but see no hope of eliminating this debt. We have closed all but one of 10 cards because we chose to opt-out rather than accept higher rates. Is bankruptcy our only choice, as we can no longer survive without the cards? Debt resolution does not seem to be a workable choice. What should we do?

New York

A: The first thing you need to do is close the remaining 10 cards or, at the very least, cut them to shreds.

And I believe you have it wrong. If you opt out of accepting higher rates on the cards after the expiration passes, you cannot use the cards, or you will have to pay the higher rate. Therefore, your reason for keeping the cards is wrong.

It’s also wrong because with $135,000 in credit card debt, you should be as far away from a credit card as a polar bear is from South America.

You cannot handle credit. You need to stop charging anything and everything. Having more than a few cards for most people is too much; but even after closing some cards, you still have 10! That’s outrageous.

And now you want my permission for you to file for bankruptcy and walk away from your obligations.

Well, you aren’t going to get it. Bankruptcy is not your only choice. Being responsible should be your first choice.

I know this may sound harsh, but you and your spouse need a HUGE wakeup call. You have been living beyond your means for years, and now you want another quick fix–bankruptcy. Have you even really tried debt resolution? Have you tried negotiating with your credit card lenders for a payment plan? Or have you just let the debt sit there, to just grow?

As for bankruptcy, if you do file, you may be forced to file under Chapter 13, which allows you to repay all or part of your debts over a three-to-five-year period.

Even if you wanted to file under Chapter 7, which would allow you to wipe out that $135,000 in credit card debt, you may be forced into a Chapter 13 because of new bankruptcy rules.

If you have income above the median income for a household of your size, in your state, you are no longer allowed to use Chapter 7 bankruptcy. You have to file under Chapter 13 and pay your creditors back. Further, all individuals now have to get credit counseling before they can file for bankruptcy protection. And you have to get counseling on budgeting and debt management before your debts can be wiped out.

In your case, this is a good thing. Clearly, you need help. Go to the National Foundation for Credit Counseling’s Web site and search for a credit counseling agency near you. You need to be sure the agency is approved to do bankruptcy counseling. You can also go to United States Trustee Program’s Web site and click on “Credit Counseling and Debtor Education.”

Even if you are allowed to file under a Chapter 7, please get some counseling on budgeting. If you wipe out that huge debt, and you haven’t learned to change your spending habits, you will be right back in financial trouble. I’ve seen this many, many times. Someone files for bankruptcy, only to amass a lot of debt just a few years later.

One more thing, with this much debt, you may have to put off retiring anytime soon. You don’t mention anything about saving or investing. And, I’m guessing, with this much consumer debt, you haven’t been doing either. So how will you be able to afford to retire at 55, or even 65?

I will say this. At least you are ready to make a move to address this problem. Just be sure it’s not a move that will not take you back where you’ve been.

(Photo by Photos8.com)

Last modified: April 27, 2011 at 3:26 pm