Thinking about filing for bankruptcy…any advice?

I (30F) have about $48,000 in student loans, and my husband (34M) and I owe $41,000 on credit cards. It’s one of those situations where we spent more than we should have in our 20s, plus we got hit by the pandemic, and we’re struggling to recover.

We also owe $11,200 in taxes because of some mistakes my employer made that went unnoticed for a while. My husband works as a freelancer, and tax season is always stressful for us.

So in total, we’re looking at over $100,000 in debt. It’s terrifying.

We live in NYC in a rent-stabilized apartment, which we’ve had for five years. We just renewed the lease and don’t plan to move soon. Our combined income averages around $90,000 a year, but it can fluctuate because of the nature of our work. We own an old car with no payments, but that’s our only asset.

Our original plan was to pay off our credit card debt in two years, but with taxes and student loans, we feel overwhelmed. We know we can’t get rid of tax or student loan debt through bankruptcy, but clearing the credit cards would make the rest easier to manage.

We want to start a family in a few years, but with this debt, it feels impossible. We’re considering bankruptcy as a way to get a fresh start while we’re still young and child-free.

My husband feels like a failure for even thinking about it, and I’m struggling with shame and worry about what others will think. Does anyone have experience with bankruptcy? Did it help you? How did your life change afterward? We’re so scared about how it will affect our future. Any advice?

You both might need to look at picking up extra work. It won’t be fun, but it could help get that debt down a lot faster.

Over the years, I’ve tried to get my husband on the same page with budgeting. He always complained about not making enough. Now we’re in our 60s and still paying off debt, even though it’s only $12,000. Our retirement savings are low, too. Don’t make the same mistakes we did. Start by talking to a lawyer about bankruptcy and maybe see a financial counselor.

I had to close my business and file bankruptcy after COVID hit. Now, I rely on disability benefits. It wasn’t what I planned, but I’m grateful for the help. Just be prepared for things to look different after filing.

Vote for policies that protect social programs. People like us need them more than ever.

I agree, we need to hold onto those programs.

For student loans, just pay the minimum. Call the IRS and get on a payment plan. They do this all the time. For the credit cards, start with paying off the smallest balances and then see if you can get a consolidation loan or a zero-interest card. You guys have enough income to work through this, but you need to really tighten up your budget.

That’s not going to work like you think.

No one goes to jail over $11K in taxes.

Yeah, but if they ignore it, things could get worse. They should call and set up a plan.

True, they should get on it ASAP, but jail isn’t going to happen.

There aren’t debtor prisons in the U.S., so they’re not going to jail.

Honestly, you may need to find more income if you want to avoid filing. But bankruptcy isn’t the worst thing in the world. My brother did it, and it helped him, but it does stay on your record for seven years. It could be a time to reset, clear out the debt, and rebuild better habits. Just remember that if you go this route, you’ll need to change your lifestyle too, or you might end up in the same place again.

We’ve already made a budget and cut out extras, but the taxes on top of credit cards make it overwhelming. The IRS wants $400 a month, which makes it hard to pay off the credit cards like we’d planned.

Have you thought about picking up side jobs? My husband and I did that, and it really helped us get out of debt. Also, bankruptcy can make life harder.

I already have two jobs. Why does it make life harder?

Bankruptcy made my life a lot easier. Did you have a bad experience with it?

I filed bankruptcy a year ago, and it was the best decision I made. I struggled with debt for years, and bankruptcy finally gave me a clean slate. Yes, it stays on your credit for a while, but it’s manageable. I was able to start rebuilding my credit, and it’s actually better now than before. The shame I felt at first disappeared when I realized I wasn’t alone and that many others go through this.

One thing to remember though, getting loans for your business could be difficult for a while after bankruptcy.

Luckily, I don’t rely much on business loans. I plan to get a business credit card soon, though.