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Im considering filing for bankruptcy, but its such a big

I'm considering filing for bankruptcy...
I'm considering filing for bankruptcy, but it's such a big decision, I want to know if some other alternative might be better for me. I owe over $40,000 in credit card debt (4 cards, 3 banks). I'm underemployed, just barely making all my minimum payments. Other than a retirement account worth about $40K (frozen now, due to divorce proceedings), I have no assets. The debt is shared debt with my husband, but I doubt I'll ever get anything from him. Since our split, I've already paid over $20,000 off our debt by myself. The cards are only in my name, so I don't think bankruptcy will affect the divorce much.

Despite this deep debt, I have a credit score in the 700s, and no points against me for late payments, etc. I'm still able to do balance transfers for better rates, so about half the debt is at an APR under 5%, and the rest is under 18% (ie no penalty APR hikes so far). I could probably shift more to a lower rate, at least temporarily.

1) Are there options I should consider before bankruptcy?
2) If I do declare bankruptcy, but get a judgement in the divorce that says my husband has to pay back half of the $20K I paid toward our debt, will that money be taken to pay my debt?
3) Should I consider cashing in my 401K to pay this debt? I no longer work for the company that set it up.

One of my cards is due today, the rest in the coming week. If I'm going to stop paying eventually, then the sooner the better, I assume? I've never made a late payment, but I don't think I'll even have rent money if I pay the minimums on my cards this month...
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Answered in 2 minutes by:
10/21/2013
WALLSTREETESQ
WALLSTREETESQ, Attorney
Category: Bankruptcy Law
Satisfied Customers: 17,253
Experience: 14 years exp., CH 7 AND 13 Bankruptcy cases, AFL-CIO UNION PLUS, UFT NYSID AND ALL MAJOR UNIONS
Verified

WALLSTREETESQ :

I would suggest that a bankruptcy is your best option,

WALLSTREETESQ :

since you have limited assets and income, a simple chapter 7 would wipe out all your debts,

WALLSTREETESQ :

and you do not have to worry about paying balances or interest.

WALLSTREETESQ :

Your other options will only delay the issues,

WALLSTREETESQ :

a debt consolidation program may allow you to pay 50% of the balances, however your credit rating will go down, and you will owe to the IRS any debt that was charged off as income.

WALLSTREETESQ :

In a chapter 7 you will not owe any tax on the discharged debts,

WALLSTREETESQ :

also after a few years your credit score will improve.

WALLSTREETESQ :

Paying minimums do not help you, and a bankruptcy should be considered.

Customer:

Thanks for your quick response. What about the 401K, and possible money I'll get in the divorce settlement -- would they be affected?

WALLSTREETESQ :

your 401k and other retirement accounts will be protected,

WALLSTREETESQ :

divorce funds could be taken, and that may be an issue, where you may want to consider filling bankruptcy after your divorce is final.

Customer:

Is it really as "all or nothing" as it seems? No point in trying to pay off one bank, for example? Also, I do have two smallish medical debts that have just gone to collections. Is there any way to look "better" or "worse" in this, or will my credit be equally demolished (temporarily, at least), no matter how I go about it?

Customer:

If I file post-divorce, then the settlement won't be affected? If I stop paying my cards now, do I need to file right away, or how long should/can I wait?

WALLSTREETESQ :

Your credit already would have taken a hit due to the medical debt, your score will go down somewhat, but since you have no high balances and collections after the bankruptcy it will get better faster,

WALLSTREETESQ :

Also, in CA personal property to a limit is exempted, meaning you can keep much, look at the exemption list linked above

WALLSTREETESQ :

You can file the bankruptcy at anytime, collections and judgment take time so you will have one year or more,

Customer:

Thanks for the link. One year or more for..... what?

WALLSTREETESQ :

It would take one year or longer before a creditor tries to sue you or collect from you,

WALLSTREETESQ :

when you stop paying the debts,

WALLSTREETESQ :

in fact you should top paying them now if you will be filing bankruptcy

Customer:

Is there anything I can do now that will help me when I start trying to build my credit back up?

WALLSTREETESQ :

not unless you want to pay the creditors,

Customer:

I have no intention of going on any spending sprees, but how does it work, if I use credit cards after I've stopped paying them off? (sorry -- after this I'll stop asking questions, and look at the links you sent more)

Customer:

I guess my question is, How is it decided how much debt is discharged?

WALLSTREETESQ :

you should not use them anymore,

WALLSTREETESQ :

if you have to make sure it is only for minimal purchases,

WALLSTREETESQ :

typically I advise clients not to file until their last use was 6 months

WALLSTREETESQ :

all debt will be discharged, if you qualify for a chapter 7, which is based on your household income,

WALLSTREETESQ :

and household expenses,

Customer:

Do I wait to file until I'm sued? Does that make any difference? Should I tell the banks what I'm doing, or just let them figure it out? Ok. Now I'll stop. :) thank you

WALLSTREETESQ :

you can tell them you are going to file, they will stop harassing you,

WALLSTREETESQ :

you can wait even after a lawsuit

Customer:

thank you so much for your help.

WALLSTREETESQ
WALLSTREETESQ, Attorney
Category: Bankruptcy Law
Satisfied Customers: 17,253
Experience: 14 years exp., CH 7 AND 13 Bankruptcy cases, AFL-CIO UNION PLUS, UFT NYSID AND ALL MAJOR UNIONS
Verified
WALLSTREETESQ and 87 other Bankruptcy Law Specialists are ready to help you
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WALLSTREETESQ
WALLSTREETESQ
WALLSTREETESQ, Attorney
Category: Bankruptcy Law
Satisfied Customers: 17,253
17,253 Satisfied Customers
Experience: 14 years exp., CH 7 AND 13 Bankruptcy cases, AFL-CIO UNION PLUS, UFT NYSID AND ALL MAJOR UNIONS

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