Doing the Right Thing vs. During the Survival Thing

[FrugalChick]

I experienced a severe illness towards the latter part of last year. During this illness I had to pay someone to care for me, but didn't qualify for actual in-home nurse aide through my insurance provider, nor did I qualify for any type of disability benefits, as I was struggling to work whenever my body was cooperating, had a severe reduction in work hours, and also had a few thousand dollars in necessary repairs directly before my illness that left me in a situation of needing to utilize my 401k monies in an early withdrawal (I know, very stupid for me to do, but I did not have any other resource at the time). During my illness I ended up using payday loan companies to pay for food and gas, etc., which only further set me back, as I tried to work through my illness, but was unable to.

Due to my illness, I have experienced more negative replies from my boss and I greatly fear for my job. My illnesses were excused by my doctor and the appropriate hr forms allowing me to have unpaid time off. Despite this, my boss's actions make me extremely worried about my job and I am often extremely stressed, anxious, and unable to sleep.

I ended up depleting all of my sick and vacation time and 401k savings. I am currently in a situation where I am trying to get back to working full time and receiving a full paycheck. I am around 3-4 months past due on most of my credit cards. I have entered into one repayment plan with Cash Call, but am seriously considering filing for bankruptcy.

I contacted one of my credit card companies about getting back into good standing (I've had my accounts with them for over 15 years and they are also where I do my banking) and after reviewing my average income and my living expenses, the representative stated that they would write off the debt on their end as he did not see it possible for me to meet my living expenses AND even pay their minimum monthly payments for each card (over $200+ dollars at that point). He was actually very nice and said he doesn't recommend bankruptcy, but that for peace of mind and to end the creditors from constantly calling, it might be the best option for me.

My plan during my illness was that I would get well, get a 2nd job (which is hard right now due to the economy) and get back into good standing with my creditors. I knew that I would have a significantly impacted credit report due to the late payments, but I really felt I could eventually get everything back to normal.

Now, as I am finding that my body is taking a long time is healing, that some of the creditors are not willing to do any sort of installment plan, and as I do not qualify for any type of consolidation loan due to my poor credit, I find myself wanting to focus on trying to work as much as possible and rebuilding my savings as I do not have the 3 months of emergency savings, nor do I have any other financial resources or support. I was adopted, and even though I have reunited with my biological family, I cannot depend on them. My adopted parents/family are deceased.

I know that some of the credit card companies have sold my debt to a collection agency, and that they will begin to call me as well. I just don't know what to do, other than bankruptcy, and I currently don't have enough money to file for that as well.

My questions are as follows:

What looks worse? A bankruptcy on my credit report, or having unpaid debt in collections? I have already sadly accepted that my credit may not be okay until another 7 years or so from now.
I am very upset at myself for getting sick, for allowing myself to be in a position where I did not have an emergency savings for times like these, etc. I am not blaming anyone else for my debt problems.

Would it be better to just file for bankruptcy? I have heard that for credit card debt, it is hard to file for bankruptcy. I know I will have an IRS tax payment to make due to the withdrawal from my 401k, and I am already unable to pay that as well.

What would you do in my situation? I really feel like focusing on saving the money I am earning (after paying for basics) because the amount of stress and fear I experienced with not having food, not having money at times for gas to get to work, etc., was horrible. I was poor as a kid, but never this poor as an adult. While sick I also saw that friends I had given money to and had helped, etc., were not there for me. I realize I am blessed to have a few close loved ones.

I am grateful for all of your advice. I never thought I would be in this situation, and prior to my illness, I did not have any late payments reflected on my credit report. My credit score was low only because the amount of debt I had was considered high (I incurred a lot of debt taking care of a now deceased relative) and the average amount of time I had all of my credit accounts was considered short.

[bjl584]

If you are unable to work due to illness, then bankruptcy may be your only option.

Ideally, you get better, get back to work, find a part time 2nd job, get on a budget, and begin to pay back what you owe. But, that is ideally. It sounds like you are still not 100% well, and who knows how long it will take to get there.

As long as you are prepared to deal with the fact that having a bankruptcy on your credit report for the next seven years is going to make it harder to get credit, then I think that you should do it.

[FrugalChick]

Thank you so much for your words of support. It really helps a lot right now.

I wonder what the Saving Advice community would do.... try to pay off the debt (though unable to make a payment to all of the debts each month) first, or try to build up emergency savings first? I feel that paying off some debt, and putting some away for savings might be futile as I would still have delinquent on most of my accounts and still dealing with paychecks that are short days, etc. Sigh. Sorry for the repeated questions, I am just trying to gain some advice to put my mind at ease.

[jpg7n16]

I wonder what the Saving Advice community would do.... try to pay off the debt (though unable to make a payment to all of the debts each month) first, or try to build up emergency savings first?

You are more important than your debt. Build a small EF up while keeping current on your debts. After you have 1-2 months expenses set aside, start attacking debts as you have the ability. Once the debts are gone, then build up to a full EF of 3-6 months.

You are always more important than any debt. So buy food before paying extra. Keep a roof over head before paying extra. Etc. Make sure you are taken care of, then worry about your debts.

[KTP]

Sadly it is too late for you since you have already raided your 401K, but for anyone else approaching a similar situation, try try try to avoid touching the 401K before bankruptcy!

The 401K money is protected from everyone in almost all bankruptcy cases. I hate when people draw money from the 401K to make a tiny dent in medical/credit card bills, then end up filing bankruptcy anyway a few months later. Now they have poor credit and no retirement funds

Best of luck to you personally though.

[heyaim]

There are times where bankruptcy is your only option. That's ok...you have to take care of yourself first!!

I was in a similiar position (not as severe) from Jan. 2008-Nov. 2010. Our business was failing towards the end of 2007 and sinking fast. The stress took a tool on me. I ended up with a migraine for 3 years. There were many times I spent $1000/wk trying to get some relief. Finally, Nov. 2010 I found a great Dr. who knew exactly how to treat me. He was my 7th Dr.

Anyway, thru all this we had to file Chapter 7 bankruptcy (all loans/credit cards are written off) in 2008. I'm not proud of this, but we had no choice. Several months after filing we were able to get a credit card to start rebuilding our credit. I would use it for gas or groceries then go home and pay off everything except for $5. This summer will be 4 years since we filed. Our credit score is currently just under 700 (used to be just under 800). We are refinancing our home right now (we continued paying the house payment through our bankruptcy). Our mortgage rate is going from 5.38% to 3.5%! You can bounce back, but it is a lot of work.

At the end of the day, you have to take care of yourself first! From your post, it doesn't sound like you are financially ignorant...you have been dealt some crappy cards! Good luck..Hope you get back on your feet soon!