Expert: Regan Shinski - 8/31/2010

Question
My daughter has reached a low point in her life and is facing mounting debts
and bad credit at only 25 years old. She is extremely depressed and feels
hopeless. She came to us for help only after losing her job and she had her
car voluntarily repossessed. Her phone was shut off and she could not pay her
rent.
She has realized she needs to change her ways and turn her life around and
become more responsible, but does not know where to begin or what the best
course of action is. We are not sure how to help her either - it is
overwhelming.
She wants to rebuild her credit if that is even possible, and get out from under
the debt in one way or another. Her dream is to own her own place someday
even if it is a mobile home somewhere, and have her life on track. In the
meantime she can't even rent an apartment because of her past history with
breaking her leases.
She owes a couple of banks about 300.00 for overdraft fees, the hospital for
close to 4,000.00 (She has no insurance) and she has broken a couple of
leases on apartments and those are close to 5,000.00
Along with those debts she has mobile phone bills, tollway charges and some
tickets that became warrants. The warrants are being dealt with so she can
hopefully resolve those with the judge.
What is the best course of action for her? Our fear is that she will work to pay
all this off and may still be blacklisted from apartments from now on
regardless of her efforts. And the hospital bills, how do they affect her credit
overall? Would bankruptcy be an option at this point?
Please let us know what to do and how to begin helping her clear all this up.  

Answer
Hi Pamela:

I realize the situation sounds hopeless but it really is not.  First of all, $10,000 is really not that much in debt in the scheme of things.  Like many things in life, it's really about dedication, sacrifice, and attitude.

She has options for credit repair and even bankruptcy but it really doesn't matter without income.  I know it's easier said than done but what good does it do to perform repair credit or file bankruptcy only to get back in the same situation because of a lack of income?

If she has support or low-cost living options bankruptcy could be an option but like I said, I don't think $10,000 is a huge amount of debt to have a ten-year bankruptcy blemish on her credit.  A bankruptcy can affect ability for leases and even some jobs.  It certainly affects credit and the interest rates she can obtain down the line.  Strictly from a financial standpoint, the one thing she may want to avoid is failing the bankruptcy qualification because of a new job.  In order to qualify for chapter 7 bankruptcy dismissal of debts, you have to prove you cannot pay the debts back.  If she does wait and then take a high paying job, the new job may make her unqualified for the chapter 7 bankruptcy.  Chapter 13 (repayment# is still an option in that case.  Again, I wouldn't use this as a reason to rush out and file bankruptcy, just keep it in mind as you research her options.  I go back to the point that $10,000 - although overwhelming now - is not that much in the scheme of life.  You will likely have to pay an attorney anywhere from $1500 - $4000 up front to handle the bankruptcy.  If you can pay an attorney that much, that a decent start on repaying the debts right there.

She is a good candidate for credit REPAIR, but part of credit repair is having the option to settle some debts for a fraction of the amount owed and/or to make monthly payments.  If she has no income or assets to do this with, her credit repair effectiveness may be limited.

It really is difficult for me to give a black and white answer without knowing her WHOLE financial situation and outlook, so I'm just trying to present broad options.

In the interim, you are right to focus on the warrants.  I would then go to bank issues.  The reason is she does not want to get on ChexSystems or companies like that.  These are companies that build a database of people that have defaulted on banking accounts.  As long as she has a negative account there, she will have difficulty opening a new bank account - with any bank - not just the one's she defaulted on.

The other thing to stay on top of is to try and avoid judgements at all costs.  Judgements can lead to garnishments, freezing of assets, even confiscating of personal property in some jurisdictions.  She should try and settle or fight these at all costs.  So she may need to just react as each individual account progresses through the collection process.

I would also preface all of this by saying that she should first try and build a cash savings.  Cash is always king.  Previous bad leases can be overcome with a larger deposit in many cases.  As stated above, having some cash can lead to settled debts for pennies on the dollar and deletion from credit reports.  It also gives peace of mind.  So even if she lands a job, don't put EVERY penny to paying of debt.  Ideally she should build up a good saving amount and then use it to deal with these accounts one at a time.  Of course, she must have discipline to hold it.

My company completes credit repair.  Our fee is $249 for one year for an individual.  We would have a detailed phone conversation and review of the ENTIRE financial situation and develop a specific plan of action.  Then we tackle the actual negative information on the credit reports.  You would be amazed at the success that can be accomplished.  I would want her business, however as stated above, she is a stronger candidate for our services with at least the option for monthly payments she can easily keep.  To do this, she either needs income or assets.  This is not debt consolidation or counseling - it is professional credit REPAIR.  Our goal is simply to improve an existing credit score.

Good luck, I wish I could be more specific but without the review through our credit repair process, it's just unfair to give her information without knowing the full situation.  I hope this general information still helps.

Regan
mbscompany@aim.com