One of our readers, Alicia, asked:

I have one Credit Card debt with a balance of $15,000 can not pay the Min amount they want like 3,000 they will not work with me to set up a payment plan i tried many times.

I can only send them a certain amount each month and yes it is small $125.00 but they still want there 3,000 each month they keep calling asking for this amount i told them if they will not accept the $125 a month i will have to file Bankruptcy which i do not want to do.

I thought they would rather have some money going to this account as little as it may be at least I’m trying to pay something on this account then to have to file Bankruptcy and they get no money it’s all i can sent (not only Debt i have) should i keep paying $125 or file Bankruptcy and Pay nothing on this account?

Thank you for your question Alicia.

Declaring bankruptcy is a serious issue - I know, I’ve done it. There are a lot of things I wish I had known beforehand, that might have helped me during that time. So, I’ll do the best I can to try and help you figure out your options here.

The general (and it does not fit everyone) - the general rule for bankruptcy is to ask yourself this question: Can I pay down all or most of my debt within the next 5 - 7 years?

There are two reasons for the 5-7 year question. The first is because that is how long a bankruptcy will hurt you on your credit report. Bankruptcy actually stays on your credit report for ten years, but as long as you make your payments on time after the bankruptcy, then 5-7 years is about the amount of time you will have to wait before lenders stop looking at you like you’ve grown two heads when you apply for a loan.

The second reason for the 5-7 year question is because if you can pay down your debt, or make settlements - even if it is over a period of years - it will always look better, and keep your credit score higher than defaulting on all of your accounts and declaring bankruptcy.

See, this was something I didn’t understand when I declared bankruptcy. I was panicked - we owed a lot of money, and I had no idea how I was ever going to pay it back. After declaring bankruptcy I realized that given 5 years to pay my debt back, I probably could have done it, and I would have been better off. That was how my situation went- let’s take a better look at yours.

Since I do not know what your income is, or what your total level of debt is, it’s hard to make a conclusion about whether or not bankruptcy is the right thing for you to do. But I can certainly help you with the one account that is driving you nuts!

You can consider credit counseling:

Since you are wanting to make payments, and you are having trouble getting your credit card company to cooperate, then you may be a good candidate for this.

If you choose to see a credit counselor you will take in all of your bills to them. They will sit down with you and to work out a repayment plan. At that point, the counseling service will call the people you owe and work out payment plan with them. Pretty much all you will have to do from that point is to send your credit counseling agency a check each month, and monitor your credit report to be sure they they are sending your payments in as agreed.

Pro’s of a credit counseling agency:

They will probably help keep you out of bankruptcy because they will take on the tough negotiations with your credit card company, and your other lenders. They should be able to get your interest rates reduced, your late fees removed, and get you set up on a reasonable payment plan. You simple meet with them, hand it all to them, and write your checks. It takes a lot of stress out of a bad situation. In the long run, this can help keep your credit score healthier than if you default and declare bankruptcy.

Con’s of a credit counseling agency:

Unfortunately, not all credit counseling agencies are legitimate. Also, it is standard practice for them to hold your checks for a few months in order to make negotiating with your creditors easier for them. (Its always easier to negotiate with a credit card company when you’ve made no payments for several months.) This will definitely hurt your credit score, though not as much as a bankruptcy will. You can also ask your credit counseling agency to negotiate with your credit card company so that those late payments are removed from your credit report.

It is worth it to say that some of the better credit counseling agencies will not hold your checks and make you late - it just depends on which one you use.

If you use a credit counseling agency, you will need to monitor your credit reports. This is just a safety measure that double checks your counseling agency. You need to know that they are paying on your accounts as they agreed to, and that your credit is not being damaged by they way they make the payments on your behalf. You can usually monitor all three of your credit reports for about $15 a month by using Equifax, Transunion, or Experian’s services.

We have several resource articles on how to choose a credit counseling agency - I’ll link them here for you.

• How to Tell if a Credit Counseling Service is Legit
• Due Diligence When Choosing a Consumer Credit Counselling Service
• Will Credit Counseling Hurt Your Credit Score?

So, that is one option for you. The second option would be for you to continue trying to negotiate with your credit card company yourself. If you choose to do this, keep sending in your $125 a month, whatever you do. This should prevent your debt from being sold to someone else. Here’s a few quick tips for that.

1. Don’t be intimidated - yes, you owe them money. But that does not mean that they are allowed to harass you day and night either. Check out how to stop collection calls for a quick fix to that problem.
2. Don’t be afraid to negotiate with them - If you call them to set up a payment arrangement, and they will not work with you, hang up, and call back. If the next person you reach will not work with you, ask for a manager. Keep asking for a manager until you get one. Repeat to the manager what you told me. “I have $125 to pay you each month. I will obviously send more if I have it, but I am going to guarantee you that if you make a payment arrangement with me I will send in that $125 every single month until the entire debt is paid off.” Keep repeating it if you need to, until they listen.
3. Don’t respond to threats - Collections reps can be evil, there is no doubt about it. I hate that you have to deal with them, but you should never be afraid of them. They are there to get as much money out of you as possible, and they are trained to do that. So, just don’t hang up with them until you have a set payment arrangement and a plan of action.
4. While you are talking to them, do not forget to ask them to remove all of the late and over the limit fees on the account. Talk to manager again if you have to. All collection reps can, and will do this when you call them to make a payment, so if someone is giving your trouble, hang up, and call back until you get human being who really does want to help you.
5. For help on this, check out Credit Card Debt Settlement - How To Do It Yourself.

If you try both of the tactics above, and bankruptcy still seems better for you (as I said, I don’t know your whole situation here) then call for a free consultation with a lawyer. Sit down with them, and let them walk you through the bankruptcy process so that you understand what is involved before you make the leap.

You can also check out my bankruptcy story, that will tell you more about what I had to do to start recovering from my own bankruptcy.

• Repairing Your Credit After Bankruptcy Part 1
• Repairing Your Credit After Bankruptcy Part Two
• Bankruptcy Recovery: Lessons Learned

I hope this helps a little, please feel free to come back and ask a question any time.

Have a question for us? Leave a comment below!

Keep Reading:

• Past Due Payments And Closed Credit Card Accounts
• What To Do When Your Credit Card Company Won’t Cooperate
• A Few Questions About Bankruptcy

One of our readers, Chris, had this question for us:

We are having the house discharged in a bankruptcy. Once the debt of the mortgage is discharged who is responsible for the HOA and COA fees? Is it the bank (Trustee) or us?

Thank you for your time,
Chris

Hey Chris, thanks for your question. Laws vary by state, so this is a question you definitely need to ask your bankruptcy lawyer. However, a general rule of thumb is this:

Any fees you owed prior to the date you filed for bankruptcy will be discharged along with your bankruptcy. Any fees charged to you after the date you filed bankruptcy do not get included in your bankruptcy debt.

Please note that this is the date of filing your bankruptcy, not the date of your discharge. So if the fees were tacked on after you filed for bankruptcy, you do owe them.

Thanks for your question, and best of luck in your proceedings.

We also had another reader, Freddie, who asked this question:

I just got my discharge papers and want to get a car at CARMAX, How long should I wait after bankruptcy to apply for a car loan?

Thanks for your question Freddie. You can apply for a car loan at any time as long as your bankruptcy has been discharged. You do not have to wait if you can find a company willing to work with you.

If you do get financed at CARMAX, will you drop us an email or leave us a comment and tell us about the experience?

Thanks again for your question!

Have a question for us? Leave a comment below!

Keep Reading:

• Buying A Car After Bankruptcy
• Rebuilding Your Credit? Don’t Use First Premier!
• Repairing Your Credit After Bankruptcy Part Two

Bankruptcy is a new chance at life. In many ways it is a complete and total financial death, but it is also the opportunity for financial rebirth! No matter what the circumstances that led to the bankruptcy were, it becomes very, very important to manage things correctly from that point on.

I was one of those people who waited far too long to declare bankruptcy. I struggled with my debt for two years before I even considered that bankruptcy could be the right option for me. Because of that I have nearly two years of late, and non-payment marks on my credit report in addition to my bankruptcy. I allowed my debt to be sold from bank to bank during that time. Each time someone new bought my debt, it created another open account and black mark on my credit report.

Once my bankruptcy was discharged I knew that I wanted to take full advantage of it, and create a truly “fresh start” for myself and my family. Except it wasn’t really a fresh start. I no longer owe the money but my entire history is still there, in black and white on my credit report. And it will be for the next seven years.

Poor me right? Not really. I’m strong enough to deal with it, and fix what I broke. I’m also strong enough to deal with the consequences. If you’re considering bankruptcy as an option, make sure you’re strong enough too. Now matter how desperate the situation is right now, it will be even more desperate if you handle your life the same way after bankruptcy as you did before.

I think that’s what people who haven’t declared bankruptcy don’t understand. Yes, I got away with not paying what I owed several collection agencies at that point in my life. But I sacrificed the next ten years of my life as far as my credit is concerned. I stopped the collection calls, and the sleepless nights, but I bought myself a load stress-of-a-different type.

There is a price to be paid when you declare bankruptcy - it’s both emotional and financial. It is emotional in the sense that I feel guilty - I did something wrong, I didn’t pay my bills. I couldn’t pay my bills because I couldn’t even put food on the table. The fact that bankruptcy was the right option for my family at the time does not make it any less painful to know that it was something I should have been able to avoid.

The financial price of bankruptcy comes with the high interest rates that I will pay (if I can get a loan at all) for the next ten years. The price also comes when legitimate lenders refuse to deal with me because I have a previous bankruptcy - no matter how well I’ve handled my finances and my credit since that time.

Bankruptcy is not a free ride, at least that was not my experience. It was a desperately needed life preserver offered when I was drowning. But it is still going to be a long, long swim back to shore!

I think for most of us (those who have declared bankruptcy) the bankruptcy itself is just the tip of the iceberg. Underneath the waters is a long list of troubles, pain and misery - all of which we caused ourselves. Every bankruptcy has a sob story, a list of hard knocks. But what do we take away from that?

Well, speaking for myself I can tell you without a doubt that I took away quite a few lessons from my own bankruptcy:

• I had to accept that I was the problem - Even though a large amount of my bankruptcy debt was medical, it does not mean that I get to sit back and blame the health care system in this country. I chose to go without insurance. And so I had to understand that there were consequences for that.
• I had to learn to manage my own money - After bankruptcy lenders aren’t exactly falling all over you to offer you credit. So the money that I had was all that I had, and that was such a wonderful lesson for me.
• I had to learn to pay my bills on time - Since I didn’t want another series of charge offs, late payments, and black marks on my credit report, I made paying those new bills a priority. Most people out there already get this concept. I’ll openly admit I was stupid abut my finances! It just wasn’t something I ever thought about. There was no money, so I couldn’t pay the bills. After the bankruptcy, I had to pay the bills - which meant that I had to take on a second job to raise my income.
• I learned that my credit report is a lot like owning a very nice car - I had the equivalent of a brand new BMW and I chose to drive it off a bridge with my bankruptcy. Now, it is up to me to salvage what is left. No one is going to hand me another Beemer, it’s up to me to fix the one I destroyed. It requires making repairs, active maintenance and regular tune-ups. I learned that my credit report isn’t something that Is just “out there”. It’s my report, and I am responsible for what is included there.

So, in a lot of respects, my bankruptcy is the best that ever happened to me financially. Not because I no longer owe all of my medical debt, but because It forced me to put every single area of my financial life in order. I am a better person because of it today. It’s definitely the most major learning experience I’ve ever had.

Have a question for us? Leave a comment below!

Keep Reading:

• Declare Bankruptcy, or Tough It Out?
• Credit After Bankruptcy: A Book Review
• Can Your Creditors Still Sue You After Bankruptcy?

One of our readers, Jill, had this question for us:

Mr. Credit Card,

We have kept up all our payments and haven’t been 30 days late in 5 years. However, we are really struggling.

Our parents are helping us since my husband became Underemployed 18 months ago. It is becoming increasingly difficult to make it each month. We have considered just defaulting, credit counseling and bankruptcy. Which one will look better in 7 years?

How will each affect us immediately? If we default, how long before they will go away? What can they really do to us? Can we even file bankruptcy while we are current?

Is the new bailout likely to help us any? We currently owe 38,000 in unsecured debt, 116,000 on two mortgages on our home which is valued around $120,000 and 30,000 on our two vehicles which are needed to contiue to work. Our income in 2006 was $72,000. In 2008 we expect about$30,000. HELP!!! Any advice is appreciated.

Hi Jill, thanks for your question. You’re definitely in a tough situation, but you do have options.

Let’s talk about what not declaring bankruptcy would mean for you and your husband, and how you might go about taking that path first, then we’ll look at the reverse situation.

Right now, you are $184,000 in debt including your mortgage, car payments and credit cards / loans.

So, my first question to you would be, can you still afford to make your house and car payments plus a minimum payment on each of your credit accounts each month? If you are not making enough money to do that, then it will not take long for you to go past due on something and start the collection cycle. This will most likely lead to bankruptcy no matter what you do.

So, that is your first step. Decide whether or not you can make your minimums. If you can, do not declare bankruptcy. Keep making your minimums until you can raise your income again, and start paying off more than the interest.

Please hear me when I say this is the best thing that you could do for your family. Squeak by until you can run forward by upping your income. If there is a problem with that (and I do not know your situation) then you are going to have to look at your other options.

The general rule of thumb for bankruptcy is that if you can pay off all, or most of your debt in seven years (especially if you can do it on time!) then do not declare bankruptcy. This is not counting your entire mortgage - just your unsecured loans and your car payments. If that is possible, pay the debt instead because you will come out of the experience a lot better off, and you will get to remain credit worthy throughout the journey.

I gave you the seven year figure because that is how long a bankruptcy will affect your credit report, a minimum of seven years. It will show up on your credit report for ten years. Most lenders though, will not care after the seven year mark.

So, now I’m asking you to look seven years into the future. That’s a long time to get things straightened out. I do understand that things are bad right now. Given seven years to fix things, pay down your debt and raise your income, could you do it? If the answer is yes, do not declare bankruptcy. If the answer is no, and you need an immediate solution, then you may want to consider bankruptcy.

My best advice would be this: Do not declare bankruptcy, work second jobs, get as much help as you can, and negotiate with every single lender to lower your interest rates. Use balance transfers, refinance your home and car if you can, do whatever it takes. Bankruptcy will affect you more than you think it will. I completely understand that you are worried, and stressed out, and bankruptcy will take all of those worries away in one quick remedy. It is a quick fix, but with a long, long penalty. That does not mean it isn’t your best option right now though, ok? Let’s take a look at the other half of that scenario.

Well, you asked what happens when you default.

>>If we default, how long before they will go away? What can they really do to us?

Well, if you default on any of your payments, this is the order of operations:

• You start getting collection calls. If you move, or do not answer the phone long enough, the collection company will call your friends, family members, and anyone listed in the phone book with the same last name.
• Your payments will be reported as late, and will begin lowering your credit score.
• Your credit card accounts will be closed.
• Your debt will be charged off and sold to a real collection company, who will do their very best to harass you within an inch of the law. Calling well before and after allowed times, calling at work, and most likely being rude to you if they do manage to speak with you.
• The collection agency will file a lawsuit, and if they are able to notify you, you will have to go to court.
• If they successfully obtain a judgment, (which goes on your credit report as well) then they will garnish your wages until you have repaid the debt.

That’s the “completely hands off, I’m going to pretend that this debt doesn’t exist approach.” That’s what happens where your credit cards are concerned. If it’s your house or your car payment instead, you would be looking at repossession or foreclosure very quickly.Best not to do that because it can actually be more damaging to your credit score than the bankruptcy.

If you have no contact with the collections company, and no way for them to garnish your wages, then the debt does eventually disappear thanks to the statute of limitations. You’ve got to be careful on that one though, because even speaking to a creditor can reset the statute and make you liable all over again.

So, let me just say that you do not have to default on anything, nor go through this long, horrible process to declare bankruptcy. If you know you can’t pay your bills, and there is no way that you can possibly repay at least your credit card debt in seven years, then do not default on anything - go straight to a lawyer while you are current and file bankruptcy. That way the only damaging thing on your credit report is the bankruptcy itself, not tons and tons of late or missing payments and charge offs.

You may have missing or late payments reported on your credit report between the time you file for bankruptcy, and the date your bankruptcy is discharged (90 days). If that is the case, be sure to challenge those items as being included in bankruptcy. Get the late notices removed from your credit report, and make sure the accounts show “included in bankruptcy”.

To sum up, and give you the direct answer to which course looks better -

Paying your bills on time, even if it’s just the minimum will always look better. If you know there is no way that you can handle your current level of debt, and no way to change your circumstances, then the best option is to declare bankruptcy before you go past due with everyone.

Have a question for us? Leave a comment below!

Keep Reading:

• What To Do When Your Credit Card Company Won’t Cooperate
• Credit Card Debt Settlement - How To Do It Yourself
• Past Due Payments And Closed Credit Card Accounts
• How Do You Start A Repayment Plan With a Credit Card Company?
• How to Stop Collection Calls to Your Job Friends and Family

This is a book that I have really been looking forward to reviewing. I am very glad that I finally got the chance.

Just after I declared bankruptcy, I was researching ways to repair my own credit, and I ran across Stephen Snyder’s website. He is the author of this book, “Credit After Bankruptcy” and he has an excellent series of free newsletters that I made good use of when I began my own journey of recovery.

At that time I didn’t consider buying and reading the book that went along with the emails though. So, I was very happy to find it on the list of used books available on Amazon.com. Although the book does contain some of the same information mentioned in his emails, there was quite a bit of entirely new information too. Here are a few of the highlights:

Snyder Begins the book with a laundry list of some historical, and very famous people who have all declared bankruptcy.

• Thomas Jefferson
• Larry King
• Francis Ford Coppola
• Kim Basinger
• Burt Reynolds
• Donald Trump
• Abe Lincoln (Abe Lincoln?? Are you serious?)

Well, I was a bit encouraged by the list…after all it seems past bankruptcies do not always prevent future success..at least, if the names on that list are any indication. I know that I very much want to be successful. I don’t want to live my life they way I did before my bankruptcy. So any bit of knowledge that I can understand, and put into practice, is very valuable to me.

Happily, this book was full of knowledge. Better yet, it was easy to read, and I am betting that it will be easy enough to actually use the information that it gives.

Chapter 1: The story of Stephen and Michele.

Their bankruptcy was caused by living beyond their means. Stephen changed jobs, which reduced their income, but they kept right on living they way that they had always lived. Even though they no longer had the income to support their lifestyle.

They did not file their bankruptcy jointly, as my husband and I did. Instead Stephen’s wife Michele filed first, using a lawyer, and Stephen filed shortly afterwards on his own, with no legal representation. They quickly made, and quickly broke the resolution to never use credit again. They made several other resolutions though, and they did manage to keep those. Some of the foremost resolutions included:

• Radically changing their spending habits and thinking about the proper use of money.
• Save 10% of their income.
• Donate 10% of their income.
• Live within their means.
• Find a home church and attend.

They did make good on their other resolutions, and this book is the story of how they did it. It did turn out to be a good thing for them that they returned to using credit as quickly as possible. The Snyder’s were able to have a much better quality of life faster than if they had returned to cash only. This is 100% because they managed their credit correctly though.

I do not believe that it is advisable for everyone who is fresh out of a bankruptcy to begin using credit immediately. Especially if credit cards are what led you to bankruptcy in the first place. From my own experience, I think that a return to using credit should only happen when you reach the level that Stephen and Michele did - when you understand completely how it works, and how to help yourself (instead of hurt yourself) by using it.

Chapter 4: Why Re-establishing Credit is Important

I skipped chapters two and three here because they dealt with the Snyder’s qualifications to teach about bankruptcy recovery, and a definition of what bankruptcy is. Chapter 4 went into a lot more detail about why you should work hard to raise your credit scores again once your bankruptcy has been discharged. Stephen presents a six step strategy for bankruptcy recovery. These are good sounds steps, and they would probably benefit a lot of people who have not yet declared bankruptcy, or are in dire financial straits.

1. Make Life Changing Decisions about how you handle your money -Decide exactly what your problem with managing money is, work to fix those problems, and then make a new plan of action.
2. Strategically Go Into Debt Using Mainstream Lenders - This is the part I have the most problem with, even though I know it is necessary in order to rebuild my credit. After my bankruptcy, I didn’t want any more debt. Even if it was “helpful debt”. So, while I choose to have and maintain credit accounts, I typically borrow as little as possible, and never more than I can pay back within a month’s time.
3. Commit to Paying Your Bills Early - This does help avoid getting new black marks on your credit report, and it is an essential step towards rebuilding credit. There are months when I may make several payments on my credit cards. I do this partly because I know how important not making late payments is, but also because it ensures that I do not carry a balance on my cards from month to month. After my own BK experience, I figured it was better to be overzealous when making payments, than to not pay enough attention.
4. Become Debt Free - Well bankruptcy pretty much wipes out nearly all debts, so it goes a long way toward making you debt free. Also included in this step is learning to live within your means by actually living on less than you make. That’s pretty much some of the best financial advice ever, and I was glad to see it come up in this book - a book that is completely about using credit again after your bankruptcy!
5. Repair Your Credit - This is the point where you strategically take on new loans, and correct any mistakes on your credit report. Snyder also warns that this step is not free!
6. The sixth step is considered optional, but Snyder advises paying back the debt that you declared bankruptcy with. - I think this would be a very healing thing to do. I hope that some day I can afford to do that.

While these are the basic steps for success (and they are repeated throughout the book) I found a literal ton of examples, and advice that I believe will help me in the future.

Besides bankruptcy recovery tips, Snyder included specific questions to ask your future lenders, the best way to finance a house and a car after bankruptcy, and a specific formula that lenders use when deciding whether or not to give you a loan. All of which was invaluable. But the real surprise, and the thing that I liked most about this book was that there are several large sections on personal development.

I think that when you have a mistake as large and looming as bankruptcy, it’s probably wise to spend some time on personal development. At least, I have found that to be true in my own life. The more I read, and the more I expose myself to the knowledge of those who have walked the same path, the easier it is for me to change my own bad habits.

I do place one caveat on this book: It is the personal story of Stephen and Michele Snyder. To some degree, what worked for them can work for me or you. However, it is just one story. It is not a far-reaching, all-encompassing story, it is their story. So please, take the advice given with that grain of salt. They understand the situation far better than someone who has not been through bankruptcy, but their words are definitely colored by their own experiences.

I would definitely recommend this book to anyone who has declared bankruptcy. If for no other reason than after you read it, you will have a little more hope than you did before. You are not alone. I am out here, recovering, and they Snyders, they have recovered too. It’s never an easy thing, but it can be done. And Stephen has given us a clear road map with markers that show us the fastest, and easiest methods of recovering from a bankruptcy.

If you are going to buy this book, or check it out from the library, I recommend checking it out along with The Complete Guide To Credit Repair.

This is because the Snyders recommend using a company to help clean up your credit report (which is expensive!) and the Complete Guide to Credit Repair shows you how to do it on your own. I think right now you can get them both used, on Amazon for under $10. Or better yet, for free from the library!

Have a question for us? Leave a comment below!

Keep Reading:

• Buying A Car After Bankruptcy
• Being Organized During Bankruptcy Can Save You Thousands of Dollars
• The Complete Guide To Credit Repair

Two weeks ago, our only car broke down. We’ve been a one vehicle family for five years now because it was the cheapest way to go - less maintenance cost, and less insurance expense. We’ve learned to get by. However, we can’t get by without a car completely. That left us with a decision to make.

Should we:

• Repair the car we have?
• Buy a used car?
• Finance a new car?

Our past bankruptcy further complicated things. We have been working to raise our credit scores ever since our bankruptcy was discharged. Given the current state of the economy though, we weren’t sure we could obtain financing on a new car even if we wanted to!

So? How did we handle it?

We made a list of our priorities first. What mattered most to us? Having a new car that we made payments on, but was reliable? Having a used car without a payment and putting money into savings?

In the end, we explored all of our options.

I jumped on Craigslist, and found a list of local used cars in our price range. I also called KIA, and Ford, and spoke to their sales reps. I was honest with them about our current credit scores, our past bankruptcy, and our entire situation ($1,500 down and a trade-in).

The good news is that KIA and Ford both said they could get us financing. That was excellent news! If you’re reading this because you want to finance a car after your bankruptcy, it may pay for you to go to KIA or Ford first, before you investigate the “buy here, pay here” lots. Who you borrow money from does mater to your future lenders, so it looks a lot better to be financed by a major dealership than by “Bob’s Stop and Drop Truck Depot”. Seriously. Besides, the major lots are backed by major banks, and have more ways to work with someone who has credit problems than the small lots do.

You can probably get financed at those small lots, don’t get me wrong. That was our third option - if KIA and Ford didn’t approve us, we were going to accept that we had to have a sub-prime loan from a buy here pay here lot. I am just glad that it didn’t come to that.

In the end, we decided to buy a used car instead.

We found a 1996 Ford Taurus for sale, in the low end of our price range. It has just over 100,000 miles, and no air conditioning. It has been excellently maintained though, and the owner kept a record of the work he had done on the car, and he shared it with us.

Why did we buy a used car instead of financing?

Even though I believe we could have successfully financed a new car, we do not want a high monthly payment. Even though we have worked hard to repair our credit scores, with a bankruptcy on there, it is still going to be a few years before we qualify for a loan at a decent interest rate. Personally I have no desire to pay the bank 20% interest on a car loan - even if they can approve me.

I would rather take they money that I would have used on a car payment, and put it into my own savings account to earn interest. Then, when we need a car again, or this one breaks down, we have the money to have it repaired.

Having the extra money in savings will help us in other ways too. What if my husband or I lose our jobs? Get sick? Anything. Making a regular car payment would have stretched us a little bit. Personally, I’m tired of living “stretched”. Living that way was one factor that caused our bankruptcy, and I don’t ever want that to happen again.

I would also prefer that my money stay with me as long as possible! Instead of letting it fly out the door as soon as I get my hands on it, I can keep putting a little bit extra away. I don’t expect this car to last forever. We are certainly going to have to make repairs to it, and spend money taking care of it. Even knowing that, I felt that the pro’s outweighed the con’s.

Having a new car, with no maintenance issues is a form of security. But having several thousand dollars in the bank, with no particular place to go - that is real security.

Based off of my experience here - if you need a car after bankruptcy, consider your options carefully. If you’re married, sit down with your spouse, and talk honestly about your goals. Decide what is most important to you. Then take a hard look at your financial picture, and see if your money can support your goals comfortably. Then decide if a regular car payment is the best way to use your money.

Will financing a car help you achieve your long term goals? Or will it make those goals more difficult because you are adding on another monthly payment?

Now my husband and I know that we can get financed - that’s a good thing, because it opens up our options. This time around at least, we decided that it would make our family more secure to have a lesser car, and more money that belonged to us in the bank. It also let us keep the car that broke down instead of trading it in. Now that we have something else that runs, we can have a mechanic work on all of the problems our previous car had. Once that car is fixed (and it needs a lot of work) we will have two working cars - that will be new for us!

It is certainly an individual choice, and what’s right for your family will depend on your needs.

Do you have a car story? Did you buy your last car used, or finance it? What was your experience like? I would love to know! You can tell me about your car in the comments section below. Or if you have a question, you can ask me about that too, and I’ll answer it.

Thanks,
Jenna

Keep Reading:

• A Few Questions About Bankruptcy
• Bankruptcy Recovery: Lessons Learned
• Can Your Creditors Still Sue You After Bankruptcy?

Being organized about your finances can literally save you thousands of dollars! It might be a pain to take the time to keep everything filed, dated and put together, but it’s one of the best investments on your time you can find if it gives you opportunities that you would never have had otherwise.

A couple of weeks ago one of our writers, JSteele did an article on how being organized about paying your credit cards can prevent fees and keep your credit score healthy. Today, I wanted to talk about how my choice to be organized played a huge part in my bankruptcy and my recovery.

When my husband and I chose to declare bankruptcy is was because we were facing a wage garnishment that we couldn’t afford to have go through. By the time my husband found out about the garnishment, the company we owed had already contacted his HR department, and they were going to put the first part of the garnishment through with his next paycheck. The total amount of the garnishment was over $1000, and it was to be broken down and taken our of three of his checks.

We knew we were going to declare bankruptcy before we found out about the garnishment. We sat down together, and talked about it, and decided that if over a thousand dollars was going to be taken from us to cover this medical bill (whether or not we could really afford it) that we would rather use that money to take care of all of the back bills we owed instead of just one.

Things had been getting progressively worse that year, and we had very little money to live on, much less pay down the back bills. When we finally decided to go ahead with out bankruptcy, we had only $400 to put down on the $1,100 cost of declaring bankruptcy. We were able to get the $400 by paying our rent late. Robbing Peter to pay Paul, but in our case it worked.

So, now you know the backstory…how did organization play a role? I still believe to this day that the main reason our lawyer accepted our case with so little money down is because we were completely organized. We dressed as nicely as we could when we went for the initial consultation, and we took every single bit of information we needed with us.

We filled a 4 inch black 3-ring binder up with every single bill we had, and all of the information that we thought they might need to work our case. Some of the things we organized and took with us included:

• Payment stubs from our checks - 6 months worth each.
• Bills and contact information for every company that we owed money to. (That we knew of…debt is frequently bought and sold, so we took in the information on the last known owner of our debt.)
• The information on the pending garnishment, which my husband obtained from his HR department.
• The information on a past judgment we had.
• The previous year’s tax returns.
• Copies of our driver’s licenses and our social security information
• Copies of our current credit reports.
• We also took a check book so that we could work out a payment schedule and leave the pre-dated checks with them. (Which they turned out not to accept, but we were prepared to do it).

What was the result of taking all of this stuff in to our first meeting with our lawyer? He took us seriously. He said

“Wow, you sure are organized…I wish everyone would do this.”

Actually it had never occurred to us that everyone wouldn’t do it right off the bat. But, miraculously, our lawyer allowed two poor, and about-to-be-bankrupt people to make payments with him. He took our case, stopped the garnishment, and the rest is history.

I can honestly say that being organized played the biggest role in our recovery from bankruptcy as well. We knew that once our bankruptcy went through we were going to literally have to not mess anything up again.

We went from tossing our bills in a specific drawer to marking them on a calendar as they arrived, or in some cases setting up automated payment plans.

It was being organized about our bills that led us to understand that we didn’t make enough money to really support ourselves. (After all, when everything’s a mess it’s hard to tell that what you make isn’t enough.) We used to live our lives by just jumping over bills like hurdles, at the last possible minute. Usually by not paying something else that was due.

By getting organized about what we owed, and what we could afford to pay, we finally realized that the total of our normal bills in a month, rent, utilities, insurance, etc. exceeded our income. It was no wonder we were living paycheck to paycheck and something was always late.

Now, you are probably thinking “You’d have to be pretty stupid not to know that…no wonder you went bankrupt!“. Well, you’d be right. We may not be the brightest crayons in the box, but by organizing our finances we’re not only getting along as a couple better than before, but we’re well on our way to recovery from our bankruptcy. That is how essential organization is, and that is how deadly avoidance of your bills is!

Based off of our experience, I am betting that some of you out there have your own organization stories. Maybe not with bankruptcy, but I’ll bet that organizing your finances makes your life better too. Can you tell us what your system is? How being organized about your bills helps you each month? We’d love to know!

Keep Reading:

• Will Credit Counseling Hurt Your Credit Score?
• Repairing Your Credit After Bankruptcy Part 1
• Repairing Your Credit After Bankruptcy Part Two

It’s very rare that I would speak out against a company, but I know that some of our readers are actively working to rebuild their credit.

I wanted to take the time to share the experiences that I had with First Premier, and the lessons that I learned from working with them. That way, hopefully, you guys don’t have similar experiences as you work to raise your own credit scores!

I applied for, and was approved for my First Premier Gold card about a year and a half before my bankruptcy. At that time, I was still trying to avoid bankruptcy, paying off everything I could, and trying to rebuild my credit.

When I compared credit cards, I thought that secured cards were a raw deal - you have to have 100% of the money up front to open a secured credit card.

The First Premier card that I had was unsecured, but it came with heavy fees - all of which were conveniently charged to the card when the account was opened.

“Less money up front! That’s a good thing” or so I thought. My First Premier card had a high interest rate, but I didn’t plan to carry a balance, so I thought it would not matter.

Well, long story short, First Premier issued me a card with $250 in fees charged to the card, and a $300 limit. The first month I had the card I paid half of the fees, and the next month paid them off completely.

For a few months, this worked well. I would charge $20-$30 on the card, and pay it off. It was pretty smooth sailing, and I was glad to have the “security” of a credit card again.

After I’d had the card about six months, my husband ended up in the hospital. We used the credit card to pay the emergency room fees, and part of the bill. It didn’t remotely cover the cost of the hospital stay though, and we soon found that we had all sorts of bills rolling in.

At that point, I missed a payment with them, which is what started the whole decent into madness as far as I was concerned.

I called them to work out a payment plan, but they were unwilling to let me pay what I could afford over several months,(which admittedly wasn’t much!) and they closed the account. That would have been ok too, except for what happened next:

After one late payment, First Premier immediately:

• Closed my account
• Raised my interest rate on the remaining balance
• Attached fees that doubled the balance on the card - yeah, you read that right. A $300 balance became a $600 balance overnight.
• Began calling me at work daily despite being told that I was not allowed to have calls there
• Called my house after 9:00 at night, several nights a week

And sadly, that was just the start.

I spoke with them again, several times, trying to get them to remove the fees, and accept a settlement. They were completely unwilling to work with me.

Their collections representatives were, without doubt, the rudest reps I’ve ever spoken to, and it seemed like they had no desire to actually help me resolve my debt with them.

My First Premier credit card was the only credit card I took with me into my bankruptcy. After dealing with them for nearly a year, and watching the fees on the card rise every month, I simply had no way to pay them back.

It is my belief that they are the worst of the worst, and if you can, try to avoid them completely as you work to rebuild your credit. I’ve seen other horror stores online, other people that have had very similar experiences.

So, if I had it all to do over, (and thankfully I do!) I took the lessons below to heart:

1. Secured credit cards are the best option - There are so many reasons for this. For one, they usually have lower interest rates. Also, the money that you send them gets put into savings, and you get it back when you close the account. That’s a far better deal than just paying a bunch of fees.
2. If I couldn’t afford the $300 up front to get a secured credit card, I probably had no business trying to get a credit card in the first place.
3. We should have had an emergency fund - That way when my husband went into the hospital, we would not have had to pay for it with a credit card.
4. You just can’t make a late payment ever when you’re seriously trying to rebuild your credit - Companies like First Premier, they just make a bad situation worse. It was wrong of us to miss a payment, but it seriously felt like this company was just waiting for us to do it so they could leap on us and tack on fees for three times the amount we actually owed.
5. No matter how bad your credit is, you still have options - There is no reason to let yourself be forced into taking on one of these high fee “credit builder” credit cards. I should have taken the time to read up on the card, and the company before I put my money and my trust in them.

And finally, the biggest lesson that I took from the whole First Premier experience was this: Not every company will be willing to work with you to settle your account. So, as you rebuild your credit, choose carefully. You may want to Google the company, visit the forums here on Ask Mr. Credit Card, and just generally see if other people have ever had drastic problems with a card before you sign on the dotted line.

Obviously, if all goes well, you may never have to see the dark side of your credit card company! Still, it never hurts to know what kind of customer service you can expect if you were to have a problem.

I wish you much luck and persistence as you go about rebuilding your credit. If you’re reading this because you’ve been nailed by First Premier, you have my total understanding. If you’re working to rebuild your credit, and you are exploring your options, skip First Premier - check out Orchard Bank’s line of cards instead. They aren’t the “perfect” company, but they’ve treated me far better than First Premier did, and I am still very happy to have a credit account with them.

As always, I love your questions and comments! Please feel free to get in touch with me by using the comment box below. Thanks!

Keep Reading:

• Can Your Creditors Still Sue You After Bankruptcy?
• Repairing Your Credit After Bankruptcy Part 1
• Will Credit Counseling Hurt Your Credit Score?

We have had some awesome reader comments and questions on our bankruptcy articles over the last week or so.

I wanted to take little time to answer the questions, and also to thank several of our readers.

Special thanks go out to Clever Dude, for linking the posts, and also to our readers Jeannie, Jnet, Rann and Susan who took the time to share some of their opinions and expertise in the comments section of my articles “Can Your Creditors Still Sue You After Bankruptcy?” and “Repairing Your Credit After Bankruptcy Part 1” I really appreciate your comments and advice!

As for the questions, let’s take a look:

One of our readers, Jean wondered:

Hi,

I thank you in advance for your kind advice. I am seriously considering declaring bankruptcy. A friend recently told me that American Express Card debt cannot be listed when declaring bankruptcy just as federal school loans. Is that correct?
Thank you and have a nice weekend.

Jean Bellego

Jean,

American Express credit cards get included just like any other credit cards when you file for bankruptcy. To the best of my knowledge (and research) the only things you really cannot include when you file bankruptcy are student loans, and any money that you owe the government.

All credit cards are included. So, that is one less account to worry about. If you want to verify this on your own, you can give any bankruptcy lawyer in your area a call. That is a question that they can answer for you over the phone for free- without you even having to set foot in the office.

Thanks for your question.

We also had another reader, Salinguesa, who asked:

Can you tell me more about how you went about obtaining adequate health care coverage? My current job does not offer health benefits. My husband’s job does, but we can not afford to pay an eighth of his take home pay to cover him, much less a quarter of his take home pay to cover both of us.

We had looked into an individual policy in the past, but since my husband has been diagnosed with diabetes, we were told that he would never be able to be approved for an individual policy. This is a terrible irony — after the diagnosis, my husband lost a lot of weight and went from being told that he would be on insulin for the rest of his life to controlling his blood sugar with diet alone. He’s now, as a diabetic, in better health than he’s ever been before in his life.

Thanks in advance for any advice you can offer!

Thanks for your question Salinguesa!

You and your husband should both be proud of the changes you are making!

After we declared bankruptcy, we purchased health insurance through my husband’s job - and we bought the maximum amount we could reasonably afford (which wasn’t much at first.) Most likely his company offers several different plans, so you might want to check to see if you can get by cheaper than you think. You also have a few other options (that do not involve expensive individual coverage).

• You can seek out government assistance - this will depend on your income, but it is available.
• You can use free, or low cost health clinics - I have done this before, and it wasn’t a terrible experience.
• For things like Dental or Vision coverage, check out your local college. Most of them have discounted programs where you can go in and let the students take care of you. I have also done this, and it was mostly not a horrible experience. Most of these schools have a sliding payment scale depending on your income, and they are used to helping people with no coverage. If you have a choice, go near the end of the semester, not the beginning.
• There are tons of Dental and Vision discount clubs that let you choose a network. You can sometimes get services done as much as 60% off by paying about $15 a month.
• All hospitals have a low income assistance program. You just need to ask the billing department what you need to do. This can usually cut your average bill in half in case of an emergency.

None of that really answered your question, I know! I just wanted you to know the options are out there if you really can’t afford any sort of insurance right now.

So, if you want coverage, and you can’t afford an individual plan, and you can’t find a cheap enough alternative at your husband’s job, then I recommend taking any of these steps:

• Take a part time job (you or your husband) - with a restaurant , or grocery store chain, even McDonald’s. All of these places offer low cost family insurance if you work around 15 hours a week.
• Seriously consider getting different full time job that pays more for benefits than they one your husband currently has.
• Look for low cost group coverage - This can still get pretty expensive! But you can visit places like the National Writers Union (It’s free to join) and research their plans. Since they all go in as a group, it’s a little cheaper than just an individual policy - but not by much.

Honestly, since we wanted the insurance coverage after our bankruptcy, my husband changed jobs, and I worked two jobs just to have it. Things have evened out now, with us just working one job a piece, but we really had to change out lives around to get everything in order, and to have enough money to pay the premiums.

Thanks again for your question.

If you have a question, or a comment, please give me your thoughts below - I’d love to hear from you!

Thanks,
Jenna

Keep Reading:

• Will Credit Counseling Hurt Your Credit Score?
• Bankruptcy Laws Are Changing on October 1, 2008
• Repairing Your Credit After Bankruptcy Part Two

Bankruptcy helped my husband and I in a number of ways - the most important was that we were suddenly debt-free after struggling for well over two years with our debt. But as much as it helped us, it hurt us too, and there were several hard lessons we had to learn before we could ultimately get our credit and our lives back on track.

1) You know, after you declare bankruptcy it’s hard to get a loan! We knew that going into our bankruptcy, but what surprised me was that after nearly three years of doing everything I could to rebuild my credit score, there are still some lenders who will not even consider me with a bankruptcy on my credit report.

There were a few shady types, auto lots mostly, who started soliciting us before our bankruptcy was even discharged. Aside from that though, we are pretty much financial pariahs.

And really, that’s as it should be. It makes things tough, but if I were lending money, I wouldn’t lend us money after bankruptcy either - not until our credit scores catch up to a normal rate.

So, realizing this was the case, we built up our emergency fund instead. It sure does make you self reliant when you know there is no creditor in the world who is going to be willing to help you when you need it.

This meant that we had to accept responsibility for our finances, and our futures completely. That was tough for a while, because we didn’t have very good habits prior to our bankruptcy (obviously). It got easier as we went along though. Much easier.

2) No health insurance is not an option - Our bankruptcy was almost completely caused by overdue medical bills. So, after we declared bankruptcy, the first thing we did was to secure a good amount of health, and life insurance. We made that mistake once, and we didn’t want it to happen again.

3) We learned to live within our means - When you have no credit card to just “go out and buy something” it becomes very easy to start living within your means. In fact it’s the ultimate discipline. It’s either spend the money you have, or don’t, but there’s no “pay it later” option. I can honestly say that is the most valuable thing that came out of our bankruptcy.

4) We realized that we didn’t make enough money to support ourselves - We had to declare bankruptcy because at the end of the month, we had about $100 over and above our normal bills (rent, utilities, etc.) and we were trying to buy food and gas with that. Basically just scraping by. There was no room to pay the medical bills too. If we couldn’t pay for the gas to get to work, then we had no hope of ever paying anyone back.

So, after the bankruptcy my husband and I sat down together, and worked out a plan. He went back to school and took a new job, plus another part time job. I kept my full time job, and also took on a part time job.

I worked both jobs for two years until I felt like we were back on our feet, and then I went down to one job.

In retrospect, if we’d had any brains we might have done this before the bankruptcy, and possibly been able to avoid it. Hindsight is 20/20 I guess, and while I do wish we had thought of it then, there is no going back to change it.

I guess it made it easier to work those two jobs when I new that it was giving us a fresh start, instead of going to pay off whichever collection company our debt had been sold to that month. Make of that what you will, but it’s the truth.

5) I learned that repairing our credit wasn’t cheap! - The lower your score is, the more it will cost you to raise it back up. I know, the old adage, “Just pay your bills on time, and your score will go up” Yeah, in ten years when the bankruptcy falls off our report!

We do pay our bills on time, but it has been very expensive to actively raise our score as fast as possible. We have spent money on:

• Credit monitoring services (to see how our actions are affecting our credit scores)
• Secured Credit Cards ($300 each card)
• Unsecured Credit Card ($250 in fees up front)
• Sending certified letters to the credit bureaus
• Paid high interest rates, and yearly fees on the few credit cards we were able to get.

Now, I’m not griping here, I swear! I am thankful for every bit of credit I have been able to get since our bankruptcy. I just didn’t expect it to be quite so expensive just to be approved for credit so that I could “pay my bills on time!”

So for those out there who would think that declaring bankruptcy gets you off scott-free, think again. Yes it erases most debts, but it is also one gigantic barrier to moving forward. And it’s a barrier that only the most persistent people will ever be able to overcome.

It’s taken my husband and I a lot of time, and a lot of education, and a lot of hard work just to build back up from where we were. No one can go back and undo decisions they made in the past, but those past decisions certainly stick with you for a long time in cases like this. The best advice I can give anyone considering bankruptcy as an option is this:

Consider carefully. You can’t undo it onces it’s done. It may wipe out the bills that you owe right now, but it will be a very long time before you are financially solvent and credit worthy if you choose to take this route. If you can pay off your bills in under 5 years, then it will probably be best to just commit and pay them off because with a bankruptcy you never really recover for at least 5-7 years, and possibly as many as ten years.

As always, I love your questions and comments! If you have a question for me (or for Mr. Credit Card who specializes in credit questions) you can leave a comment below!

Keep Reading:

• Can Your Creditors Still Sue You After Bankruptcy?
• Repairing Your Credit After Bankruptcy Part 1
• Repairing Your Credit After Bankruptcy Part Two