Marketplace has a new podcast for kids, "Million Bazillion!" EPISODE OUT NOW

When is it time for bankruptcy?

Tess Vigeland Jun 13, 2008
U.S. Bankruptcy Court Mario Tama/Getty Images

When is it time for bankruptcy?

Tess Vigeland Jun 13, 2008
U.S. Bankruptcy Court Mario Tama/Getty Images


Tess Vigeland: In the first three months of this year, bankruptcies spiked by 27 percent over the same period last year and it was a 110 percent increase over 2006.

We’re seeing those numbers come to life in our inbox here at Marketplace Money. Lots of questions about what to do when you’ve run out of options and are facing the absolute worst possible financial situation.

Dave wrote to us from Columbia, Maryland, and we decided to get him on the phone to talk about his own personal credit crunch.

Welcome to the show.

Dave: Thank you.

Tess: Tell us a little bit about your situation.

Dave: Well, I had taken a position that required me to relocate. Between the time that we relocated and the house was on the market, though, the subprime mortgage issue came to light and the market started to collapse, as everybody knows, and it basically affected the price of my house. So while I did not have a funky subprime mortgage, my home a lost significant amount of value when I came to sell it.

Tess: How much?

Dave: We lost about $100,000 on the house. We had to get a private loan for that, so we’re currently paying our current mortgage and basically a payment which is a little bit more than a mortgage for a house we no longer own.

Tess: So what has that done to your finances?

Dave: Well, on top of that, my wife was back in school. We’d actually sort of run up some debt because she wasn’t working thinking that when we sold the house we were going to have some extra money because the market was so great and we were going to be able to pay all that debt down when she got back into the job market.

Tess: Is that credit card debt?

Dave: That was credit card debt. So that became an issue as well. We now had higher credit card debt and we had essentially two mortgages.

Tess: So what have you done since this happened?

Dave: One of the first things I did was contact a consumer credit counseling agency to try and work out some sort of arrangement. While I was able to get some reduced interest rates and that did help somewhat, I’m making the same payments that I was before.

Tess: How are you literally able to do that given that your income, I assume, has not changed radically?

Dave: My income has not changed radically, my wife has gone back to work and that basically keeps us from drowning, but just barely. So this past winter, you know, heating bill: $400, $500, $600 some months. We were literally sinking then.

Tess: So what’s the situation right now?

Dave: Right now, I’m trying to determine if I can make it through the summer. My big concern is next fall and next winter, again with heating bills. If the cost of living is going to increase, it’s just going to make it that much harder for us to stay afloat.

Tess: What are the options that you’re considering?

Dave: Bankruptcy’s one. A part-time job is another. I have very deliberately avoided investigating bankruptcy just because I feel like somebody’s going to say to me it’s my only option.

Tess: And what would that mean to you?

Dave: Well, it’s completely demoralizing. I mean, you have a successful career, you’ve spent your entire career trying to build up equity into things and to give yourself some sort of financial stability. I kind of feel a lot of this was out of my control. The credit card debt certainly was under my control, but I took a risk there. I took a risk that the market wasn’t going to change anytime soon.

Tess: When you think about the future, obviously bankruptcy is something that stays with you for a very long time, so it’s a very serious step.

Dave: Absolutely, and that’s why I have not contacted an attorney for advice because I feel like they’ll convince me that it’s the right thing to do.

Tess: Alright, well, we’ll try to get some answers for you.

Dave: Thank you very much. I appreciate it.

We’re here to help you navigate this changed world and economy.

Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.

In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.

Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.