Expert: Michael Brotherton - 1/9/2009

Question
I have been unemployed and under employed several times in the last 10 years and unemployed now. I have about $20k in old cc debt (from over 7 years ago). This old debt has ruined my credit score causing some extremely high interest rates on some car loans. I had a car that died over a year ago and was convinced to let it go and get a new one by a dealer. Got a new one & 17 mos. later it was repossessed (Oct). I collect unemployment which is just enough to cover household expenses now that I don't have a car payment.

I am considering BK7. Other than the 2 car repos, all my other debt is over 8 years old and have reached statute of limitations. Should I file ch. 7? If yes, how will it affect my ability to qualify for federal financial aid because I am going back college this summer. If no, what are the alternatives? I am saving what I can for a car or significant down payment. How soon will I be able to get a new or newly used car?

Answer
I see no need to file bk any time soon unless you just want to get it over with. Your debt is virtually uncollectable at this time. The alternative would be to offer a settlement when you get back to work or some sort of payment plan. The problem is that these debts are still accumulating interest and the debt will continue to grow until paid.

Credit is a consideration for federal student loans so you may have to concentrate on cleaning up your credit before applying for aid.

Anyone can finance a car these days. The biggest difference is the interest rate. Credit scores are the determining factor so again, you may need to concentrate on rebuilding your credit. It may be easier after you file bk than to try to pay the debt because it would take you potentially years to pay it.

I cannot say whether you need to file bk or not without completing an assessment of your finances. I recimmend you talk to at least two experienced bankruptcy attorneys before deciding. Your budget is only one factor. The collectability of the debt you owe is another. If your paycheck, home, or livelihood is at risk then I would say probably. But this is something an attorney or financial professional must determine.

Pull your credit reports from all three credit reporting agencies. Dispute outdated info to get it removed. See what is left and find some way to generate extra cash then negotiate with your creditors to re-establish your credit while agreeing to pay the debts. This is the best way to re-establish yourself.