Sometimes bankruptcy is the ONLY way out

Dear Credit Guy,I have been out of work for more than one year. My unemployment has expired, and I have been living with friends. I have lost my home, my car and have sold most of my personal items just to eat. My creditors have all sent my accounts to collection experts. I have tried to explain I don't have a job, but it doesn't matter much. They are constantly calling and writing letters asking me to agree to lesser amounts, or take me to court. I can't even pay $10 a month. I am just trying to eat! But, looking to the future, if I am lucky enough to get a job, how do I get out from under this mess? My credit report is a complete mess! I can't even file bankruptcy because the lawyers want money upfront. How in the world do I repair my credit in less than 10 years? None of the creditors will talk or try to work anything else out. They say pay or we go to collections! -- Henry

Dear Henry,I am glad to hear that, in the midst of your very unfortunate financial crisis, you are looking to the future. That is my recommendation as well. Crawl before you can walk, and walk before you can run. Your efforts and energies should be focused on finding employment. Your creditors can call, write or send up smoke signals all they want, but without income, you have no means to pay them. In fact, if I were you, I'd be more concerned at this point about keeping my friends happy than pleasing the creditors!

You may already be looking for seasonal work, but if you aren't, I'd focus your efforts on finding any type of part-time or holiday employment to bring in some income. With that money, I'd pay your friends something for letting you live with them and save the rest to file for bankruptcy. I suggest you check out the Bankruptcy Pro Bono Resource Locator to see if you can find free help. The bankruptcy laws are in place for a reason: to help people with major financial issues get a fresh start. Even with the limited information you have provided in your letter, I'd say you more than qualify for bankruptcy protection. With limited income from your seasonal job, you should have no problems qualifying for a Chapter 7 bankruptcy where most of your debts should be eliminated, as opposed to a Chapter 13 where you would be required repay your creditors.

While you are looking for something to bring in some income, I'd politely tell any creditors who call that you are still unemployed, looking for work and without any income. Let them know that you would appreciate them giving you a month before checking back in with you. If they call before the month is up, remind them that you requested they give you time to find a job. Then tell them they are welcome to call back when the month is up for an update.

Should you receive a summons to appear in court or to respond to a court document, by all means, attend court or respond in writing to let the court know your circumstances. The good news is that if you can get together the money quickly to file for bankruptcy, the collection attempts will cease.  

Worrying about improving your credit is somewhat premature at this point. My advice is to concentrate on securing employment that is meaningful and pays at least mostly what your skill set is worth and the credit issues will get resolved with time. Overcoming a bankruptcy and the credit woes that usually precede it take awhile. But if you are giving yourself a 10-year window, you will be surprised at how much everything, including your credit, will improve in that time. Once you are back on your feet financially, you can begin to add positive information to your credit report. Within two or three years, your credit will improve a great deal. It may not seem like it now, but there is a light at the end of the tunnel.

Take care of your credit!

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