Do I Need to Declare Bankruptcy?

By Charlotte Cowles

The Cut’s financial advice columnist Charlotte Cowles answers readers’ personal questions about personal finance. Email your money conundrums to mytwocents@nymag.com

Three years ago, I had a good job and a credit score of 750. Then I had to stop working for almost two years because of a death in my family. During that time, I put a lot of expenses on my credit cards, and I got so far behind on bills that my credit score has fallen to 450. I am now employed again (I hold a leadership position in education administration), although I’m making less than at my last job, about $85,000. I’ve also resumed saving, investing, and paying my bills on time. The problem is, I still owe about $17,000 spread across four credit cards.

Should I try and pay them off, or file for bankruptcy and try to settle? Or is it better to just pay the monthly minimums until I get my credit score up? My current household expenses are about $4,000 a month, including $2,350 on a mortgage, so I don’t have a lot of extra money. I also have student loans, which are currently in deferment.

I’m working toward getting my real-estate license so that I can have multiple streams of income, and I want to avoid bankruptcy if I can. I also want to improve my credit score as quickly as possible. What should I do?

I hope you don’t have to file for bankruptcy, but I’m glad you’re open to it. Obviously, it’s not a thrilling prospect, but just because it’s a last resort doesn’t mean you should wait until the last minute to explore it. To me, it’s similar to divorce: The longer you put it off, the more collateral damage there is. And it’s also a chance to walk away from an unfixable problem and start fresh.

That said, you may very well be able to get rid of your debt on your own. Plenty of people manage to pay off credit-card debt far worse than yours, although it’s never easy, especially once interest rates pile up. Alternatively, you sound like a great candidate for a debt-relief plan, where you sidestep bankruptcy by working with a credit counselor to iron out a special payment schedule with your creditors.

But it all depends on how far behind you are on these bills already — in financial parlance, how delinquent this debt has become. If your creditors have already sued you to collect payment, then you need to speak to a lawyer. More on that in a minute.

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