Time to consult an attorney

Question: Is now a good time to file for bankruptcy?

My situation: I've been out of work for 2.5 years and have survived on savings, a cashed-out IRA, money from friends, and occasional freelance jobs. My monthly "income" is one-sixth what I used to earn and I have progressively fallen behind on my credit cards and one big loan.

The loan is six months past due ($48,000) and will be charged off to collections if at least one month's payment is not made. Two of my credit cards are three and two months past due ($8000). I have two more credit cards ($9000) that remain in good standing, but not for much longer. My credit score as taken a beating. I have enough money to pay my coming rent, but probably not enough to pay all my utilities and services, and probably not the following month's rent of nothing better happens.

I've been in touch with my creditors and we talked about all the options: settlement, credit counseling, hardship support, etc. But the rock (or hard place) is that I have no cash to make anything happen. I considered taking multiple low-paying jobs, but with me being in my mid-40s, I doubt I can keep up physically. I also doubt that even multiple jobs can keep up with a debt that I've built from being a well-paid professional.

Is now a good time to file for bankruptcy? Is having a such a dark mark on my credit report for a decade any worse than being chased by collection agencies for tens of thousands of dollars? Or is there an alternative I haven't considered that can help immediately or mitigate what will probably happen by next week? Daniel, Los Angeles, CA

Answer: Sometimes, there is so much debt relative to income that bankruptcy is the only way out. It's a drastic step, a last resort, but it's also a way to get a fresh start, a second chance. My advice is to talk to a bankruptcy attorney to explore your options and to ensure that filing for financial relief with the courts will improve your situation. It's time to consult with an attorney.

Your credit score has already taken a hit.

A good place for becoming comfortable with the bankruptcy option and learning some questions to ask an attorney is Nolo.com. The self-help legal organization has plain-English discussions of big legal questions, like bankruptcy. For instance, it doesn't appear that it affects your situation, but some debts can't be discharged in bankruptcy, such as student loans.

Nolo also has information about repairing your credit and finances after bankruptcy. Sad to say, some types of loans will be immediately available to you after bankruptcy, such as high interest rate auto loans. You'll want to steer clear of predatory loans and lenders. The bankruptcy will affect your credit score for 10 years, but the impact will diminish long before that if you demonstrate a history of responsible credit behavior.

There are different ways to find an attorney, and I think recommendations from someone you know and trust--a colleague, a friend, a mentor--is usually best. The National Association of Consumer Bankruptcy Attorneys and the American Bankruptcy Institute are two other places to start looking for a bankruptcy lawyer, too.

About the author

Chris Farrell is the economics editor of Marketplace Money.

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