Should I file for Chapter 7 on a $11,000 credit card debt and I'm without a job?

Asked over 2 years ago - Snellville, GA

I have been unemployed for over a year now, and I have been maintaining my credit cards with the unemployment money that I was receiving. The credit cards have high interest rates and are not budging to work with me to lower the APR to pay off the credit cards faster. I've already settled one credit card. I feel like I am throwing my money away for the high APR's. Should I just file for Chapter 7 or is $11,000 not worth it? Or should I just try to settle all of my credit cards? How will each reflect on my credit history? I don't own a home in my name nor anything or value over $4000. Please advise on my best options.

Additional information

The reason for consideration of Chapter 7 is due to the fact that I am an expecting mother, and I don't want to bring myself to a point where I will have to collect pennies to provide for my child once its born. I want to start saving money now so that I can provide for my child without any government assistance and every penny counts. I am not sure how much longer the unemployment benefits will continue to be provided to me, so I do have to think wisely. As much as this unemployment experience has been extremely humbling, I have to rearrange the priorities of my finances. Making $1200 monthly payments to credit cards and their balances not going down is just a tad too much right now. If there are any other options for me please provide me with information.

Attorney answers (6)

  1. Glen Edward Ashman

    Pro

    Contributor Level 20

    1

    Lawyer agrees

    Answered . Settling credit cards can be a costly mistake, spending money that you really can't afford and then getting hit by the IRS on top of it. You will get a form 1099 for any forgiven amounts and usually have to report that as income and pay taxes on it.

    Settled debt also is usually reported negatively on credit reports.

    While $11,000 in debt isn't huge, at 25% interest that can double in several years.

    I'd want to see all of your financial details to fully advise you, but a chapter 7 certainly could be a possibility. There are obvious pros and cons that I can better evaluate with more background. Feel free to call me at 404-768-3509 if you'd like to set a consultation.

    If you find this answer helpful, please mark it here on AVVO as helpful. In answering you, I am attempting to... more
  2. Susanne Ruiz Rodriguez

    Contributor Level 13
    Best Answer
    chosen by asker

    Answered . I'm not a fan of encouraging people to file bankruptcy unless they are having trouble making payments, have a judgment, etc. That said, it all depends on how much of a squeeze making those payments is putting on you. For example, are you foregoing things like car repair, or medical/dental care to make the payments? If so, then you might consider filing at some point. When you settle a debt, it normally shows up on your credit reports as "settled for less than debt owed". That's a ding, but not as much of one as a charge off or a bankruptcy. What I normally see after a chapter 7 is scores back up around the 700s about 2 years post bankruptcy if you have managed post-bankruptcy credit wisely. Hope that helps.

    The answers to these questions may be different depending on your individual circumstance and should not be... more
  3. Robert M. Gardner Jr.

    Contributor Level 18

    Answered . Filing a chapter 7 is going to cost you anywhere from $1,000 to $2,000. You have to ask yourself if it is worth paying that to get rid of $11,000 and having the effect on your credit that a bankruptcy filing will. It is relative to your personal situation and peace of mind. Given your circumstances, you may be able to work something out with each creditor and pay off the debt within a year or so, or it may take you 10 or more years paying minimum payments. Filing is a choice you have to make on your own as to whether or not it is worth it to you. Don't let anyone who does not know your financial position to tell you that you have to have a certain amount of debt to file.

    The above information is general in nature. In order to obtain more specific and legal advice upon which to base... more
  4. Lesley Annis

    Contributor Level 2

    Answered . First, congratulations on your new addition! It sounds like this might be the right time for you to think about just wiping the slate clean of all the old debt that is out there and giving yourself a fresh start! A chapter 7 bankruptcy will help you do just that.

    And yes, filing for chapter 7 on $11,000 is worth it because think about how long it will take you to repay (with interest) and then think about if you put the same amount aside each month for your new baby!

    The other attorneys have mentioned the downsides of settling on credit card debt (mainly, the additional taxes). And I agree, I don't think settling is a good option. I think you have two: 1) you can file now, wipe the slate clean and focus on your new family member! (downside is do you have the money to do that?) or 2) you can put off filing until you are re-employed (especially if you have your unemployment checks mailed to you directly) - if your creditors obtain a judgment, they can collect on it by garnishing wages or bank accounts (among other things). So if your unemployment is mailed or if you close the account, you may be able to avoid filing until you go back to work. In any event, call me - 404-447-3138. My name is Lesley. Let's talk about what is best for you!

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  5. S. Carlton Rouse

    Contributor Level 10

    Answered . Deciding whether or not to file bankruptcy is a significant decision, i.e. one that you should make after a consultation with a trusted attorney. Although it is helpful to receive advice from online forums, you should have a consultation with a lawyer to properly review your financial situation. There is no financial/debt watermark to indicate when you should or should not file a bankruptcy. It will depend upon your circumstances.

    Although most lawyers charge around $1,100-$2,000.00 for a Chapter 7, many are willing to work with clients on the fee required you just have to call around to get quotes. For more information, visit us online at: www.rousecolaw.com

    Best of luck,

    Comments provided by S.Carlton Rouse are not intended to create an attorney/client relationship. In addition, the... more
  6. Dorothy G Bunce

    Pro

    Contributor Level 20

    Answered . I don't recommend bankruptcy for anyone with less than $25K in debts absent exceptional circumstances, such as a wage garnishment, attachment or foreclosure

    Sometimes it takes time to settle debts and timing can be everything. Unemployment cannot be garnished by normal creditors, although it can be taken by the IRS.

    Hope this perspective helps!

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