What should you do when you’re deep in debt and considering both personal and corporate bankruptcy?

One of our readers, Surbhi, had this question:

Hello,

First of all I have written to you before and have found your advise very useful, and actually most of the advise you gave me actually worked so thank you for that.

My husband and I are in a lot of debt. I have already called most of the credit cards and reduced my APR to 6 % or lower. But since we are already in so much debt it is getting increasingly difficult for us to make our bills every month.

There are few facts I want to bring to light.

1 We bought an apartment last year in which we invested a lot of this debt. The apt at this point is a little bit more but not a whole lot. We tried refinancing but since this is a co-op we cannot go under the FHA program and the equity we built is so low that doing a home equity loan is not possible as well.

2 At the same time period we also bought a business and since had already invested a lot of the money at home had to pick some on our credit cards which put us in further debt. The business due to economy and other reason did not do well. At this point we have almost closed that company and partnered with some one else to keep the business afloat.

Here are my questions for you:

1 I would like to pay all my cards, and I think that we can remove most of our debt in the coming 5 years. Is it possible for us to call the credit cards and request them if they can help us and somehow hold the account for 3-6 months. That for us would be a perfect solution cause by that time we would find other means to increase our income which we are looking at very positively at this point of time. How would that effect our credit score and the APR they offer us after the time period elapses

2 Should we declare bankruptcy for the old company. How will that effect my husbands credit. and even though my name is not in the company will it effect mine.

3 If we choose the option of declaring personal bankruptcy which truly will be our last option can we keep both our credits separate some how. If we separate our names legally from most credit cards is that something doable. Also in that case do we fill for separate taxes in this coming year.

4 I have read a lot of your website and found contradictory information as in, there are areas where you say that bankruptcy is worse than going to a credit counseling agencies and other areas where you say otherwise. I would like a clarity on that.
Thanks
For taking the time to read this
Surbhi

Surbhi,

Thanks for your question! This is something that you should take to both a debt reduction expert, and possibly a bankruptcy lawyer to better explore your options. I can give you some idea of what to expect though, which should help you explore your otions a little better.

Let’s take a look at your questions one at a time:

Credit Card Hardship Programs –

It is possible to call your credit card companies and ask them to hold payments for up to three months. Not all credit card companies will do it though. Still, if you could negotiate with even some of them to do it it might help you.

To have your payments frozen for a little while, you will need to call and ask about a hardship program. Explain to them that you lost your job. (Losing a job / your business going under is a valid reason). Tell them when you can expect to make a payment, and ask them how that will show up on your credit report.

You will want to make sure that you aren’t going to have three months of non-payment showing on your credit reports. As far as them changing your terms or interest rates because of your agreement, it’s possible. All you can do is ask them what will happen if you do it since each credit card company is different. This is a situation where you may have to speak with a manager.

Also, it’s possible they will tell you that they can’t help you because you aren’t currently past due. If that’s the case, you will have to be late on a payment in order to negotiate to temporarily suspend your monthly payments. That may or may not be something that it’s worth it for you to do.

Calling your credit card companies to ask about these things won’t hurt anything on your account – the worst they can say is no.

Declaring Corporate Bankruptcy:

If your company was incorporated, and you (or your husband) did not personally guarantee the debt, then your credit will not be affected by a corporate bankruptcy.

However, if your company was not incorporated, and you did personally guarantee the loans by giving your social security numbers, then you are still liable for the debt even if the company goes under.

As far as your personal credit being affected (not just your husband’s) it shouldn’t be. Unless you personally guaranteed a loan for the business using your own information.

Declaring personal bankruptcy:

You can declare personal bankruptcy jointly, or together. So, if you wanted to declare corporate bankruptcy with the business, and personal bankruptcy for your husband because he secured the debts, you could do that.

As far as separating your credit, you could do that as well. Especially if you are not both going to declare bankruptcy.

If you hold joint accounts and you want those accounts included in a bankruptcy, make sure that you take your name off of them before hand.

Otherwise the spouse that didn’t declare bankruptcy will still be liable for the debt.

Credit Counseling vs. Bankruptcy:

If you get a bad credit counselor, then it can actually be more damaging to your credit score than a bankruptcy is – that’s why you see the conflicting information on our site. You have to choose who you go to very carefully.

After reading through your details, I think that you should contact Sam Sky – the debt reduction expert that we ran the interview with yesterday. He is a debt reduction expert.

Debt reduction is different from credit counseling, and I think it will benefit you far more. It may even help keep you out of bankruptcy because he (or someone like him) will be able to reduce your total debt and get you set up on a payment plan that you can afford.

If bankruptcy really is the best option for you, he should be able to tell you that by looking over your financial statements as well.

My honest advice to you is to try to avoid bankruptcy if you can. Don’t be afraid to get qualified help. It doesn’t hurt to grab a free consultation with a debt expert as well as a bankruptcy lawyer. That way you have all the facts and have two experts lined up and ready to help you choose the best course for your family.

To find out more about debt reduction, you can visit Sam’s website:

Sam is truly the real deal, and he’s the best expert I can recommend you to. As far as a bankruptcy lawyer, you will have to call one in your state because each state’s laws are different. I do suggest taking an afternoon to talk to both. That way you can work out a plan that will get you out of debt one way or another.

Sometimes the hardest part about debt is not knowing exactly what to do with it, or how to manage it. Once you have a plan, all you have to do is follow it to get out of debt. Getting this financial situation settled is essential to your family’s peace and well-being, so don’t be afraid to call in some help. You won’t regret it!

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This entry was posted on Wednesday, February 11th, 2009 at 18:28 and is filed under Bankruptcy FAQ. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.