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Ask Jean: On the Verge of Bankruptcy

iStock_000008575134XSmallHi Jean! My sister has found herself close to chapter 13 bankruptcy. Her attorney advised that she stop paying on her credit cards, which has now increased her total debt considerably. She is still making her mortgage payments on time. She and her spouse make too much money to file chapter 7, which she is fine with because she would rather pay off her debts. Her attorney said her monthly payments would total $3000 to do so – she knows she can’t afford that. Now the attorney is asking for another $1500 to continue to represent her. She doesn’t have that, so she can no longer use their service and she doesn’t know where to turn next. Do you have any suggestions? I advised that she contact her creditors herself to see what she could work out. Is it unwise to let one creditor know that you are working with other creditors as well? I have referred her to your website and your new books to see about finding some answers. She already has some of your books. Please help if you can. Thank you!
— Charger

At this point, your sister wants to look into credit counseling – and in fact, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 requires that she – and all consumers – do so before filing bankruptcy. A good credit counselor will look at her entire financial picture – including that mortgage, her credit cards, any other debt and her assets – and decide if she’s a candidate for their services. If she is, they’ll work with her credit card companies to lower her interest rates and put her on a repayment plan, called a Debt Management Plan. If she’s just spinning her wheels, and the counselor thinks that bankruptcy is the only way out, they’ll tell her that as well and direct her to some resources.

So tell your sister to visit the National Foundation for Credit Counseling, where she can search for a counselor in her area. Then, a few other notes: She should go ahead an pull her credit report now, so she knows exactly where she stands and what kind of damage has been done (she can obtain a free copy of her credit report from each of the three major credit bureaus once a year from annualcreditreport.com). And, she should steer clear of that attorney, because it sounds like he’s done more harm than good.

Finally, there’s no concern about letting her creditors know that she’s also working with several others, says Gail Cunningham, vice president of public relations for the NFCC. “Trust me, the creditors know more about us than we do, so it’ll be no secret to them that she’s in financial trouble.”

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