Should I file for bankruptcy?

[Account Closed]

A couple disclaimers before I start:

• If you look through my profile and previous posts, you'll see that I am young (just turned 22), and also may believe I don't have the right mindset or maturity yet to start REI. This is understandable, but also note that this isn't really a REI question, but more of a financial strategy question from those more experienced than me.
• I know that all this should be taken as simply advice and I can't base this decision solely on the opinions/guidance of people from the internet. Trust me, regardless of the responses, I will still make the best decision I believe for myself. I'm just trying to get some light in my relatively dark tunnel, for lack of a better expression. I know plenty of people have experience in this subject or at least enough to offer some words of advice to a young entrepreneur.

Now, like I said, I'm only 22. I have NO student loan debt. I had a good job for about a year. In this time, I went and financed things like crazy. Long story short, I was laid off. I'm currently over $20k in debt. All my debts are unsecured. I have loans and credit cards, that is all. I moved back in with my parents and my next focus is going back to college. I plan to get a degree in Construction Management. I feel like this would be very beneficial being that I eventually want to buy homes to fix and also possibly spec build homes at some point.

With that being said, I've read a lot into filing. My parent's have had a few friends file. One filed and 3 years later, bought a new home and a new truck. One has amazing credit and he filed 5 years ago. I've also heard it's not as bad as most people think. A bunch of people believe if you file, you just can't do anything for 10 years, but that isn't the case. I've read a bunch of positives as well as negatives. Obviously every situation is different. But given what you know with my situation, what do you believe is best? If it were up to me right now, with no guidance... I would say to file and take it as a lesson learned. I think dealing with the consequences of having no credit or access to any for a few years while I go back to school and focus on my education would mature me. But I'd like to hear your advice!

[Jim Shepard]

I think everyone has given a lot of good, solid advice. I will throw one more angle at you. Even after 7 years when the bankruptcy has disappeared off of your credit report, you will be asked on every application that you fill out, "have you ever filed bankruptcy"? It will follow you the rest of your life.
At 22 years old you can work a 40 hour job and go to school at the same time. You can pay that 20k off a lot faster than you think while living with your parents. Here's two scenarios while you are in front of a banker asking for a loan a few years from now:
1. Yes, I filed bankruptcy when I was 22. I bought a lot of stuff I didn't need.
2. Yes, my credit was terrible when I was younger. I bought a lot of useless stuff and financed it. I didn't file bankruptcy because I knew I owed the money and pay all of my debts. I have learned by my mistake and won't repeat it.
Who do you think will get the loan?

[Marcus Johnson]

First off it's nice to hear someone admit their failure.  Second, why would you declare bankruptcy over 20k?   Since you've moved in with your parents, your only 22, plus you've had a good job in the past, why not take the next year or two to pay off the debt and go to a community college or Technical school to pursue your dreams?  I mean you'd only be 24 or 25 and have no debt whatsover, so long as you don't go heavily into debt with school loans if you were to choose an expensive school.  I went to a technical school for 5k a year and got a great degree in Network Administration and make a very good salary.  

Don't file!!!!!

[Account Closed]

@Marcus Johnson, there aren't many technical colleges to choose from in my city. I go to one now online just to obtain my real estate license. I'd also like to get a Construction Management degree. I would get enough from tuition to go to school for practically free as long as I kept my GPA in a good standpoint. My only problem is working while I go to school is really hard for me. I can handle it physically, just not mentally. I pretty much have to devote most of my time into school. Even if I worked some small part time job while going to school, paying off over $20,000 in debt would take years and I couldn't do it in a timely manner. My credit seems like it will be ruined regardless and there's no need for me to get anymore credit cards anytime soon. So I feel like it would make more sense for me to file than to pay off for 5 years and in the end my credit still not be that great. I know people who had around a 650 credit score 2-3 years after filing. Obviously not amazing, but I'd probably be around the same boat anyways, maybe...

[Asa Gunderman]

I agree, pay off the debt. Doing so may also teach you how to be more frugal, which I feel is a necessary trait early on as an investor. Look at consolidation loans or 0% balance transfers to get the interest down. Filing bankruptcy then trying to jump into investing is going to be rough and probably set you back more than the time to pay off 20k.

Asa

[Account Closed]

@Asa Gunderman, I wouldn't look into investing into real estate right now with any loans. While I'm in college, the only kind of investing I plan on doing would be along the lines of wholesaling. If I were to do any major investments like a rehab, I would try to go through a company that would offer the money without a credit check. Perhaps a home with an ARV of $150,000, repairs at $25,000, and they would sell to me for $80,000. So a $105,000 loan for a $150,000 ARV home. Those are obviously hypothetical numbers, but I just mean to say that I would have to be given an opportunity that attractive for me to do one, because I would need the money from a place that bases their approval only on the end $150k. Something along those lines.

But also with that said, I literally have no money to pay back the $20k. I'm drawing unemployment right now until I find another temporary job. Then going back to college. In college there's no way I could have a decent paying job anyways. So I don't see how it would be possible for me to pay off the $20k+ without ruining my credit in the process. It's really around $26k total.

[Frank Jiang]

Please keep in mind that bankruptcy affects more than just your credit score.  It can affect your insurance rates, your ability to find housing, and (as insane as it is) you can even be turned down from corporate jobs for having a bankruptcy on file.

I also see from the other thread that you lost your job only 9 days ago.  To speak very bluntly, I wouldn't recommend any action other than polishing up your resume right now.  9 days is too short of a time frame to process and internalize your new situation, in my opinion.  You should not be making any moves as drastic as declaring bankruptcy before truly settling down and approaching your situation from a centered mindset.

[Jeff B.]

Issue is secured vs unsecured debts.  secondly, BK  recovery is not difficult for unsecured write-offs;  Apply for prepaid credit cards (they act just like a bank debit card).  Banks like these as they know you're attempting to recover and will be faithful.   Your FICO score will begin recovering in the 2 or 3rd year post BK

BK on secured debit is another matter (car, boat, timeshares, home loans).  These will impact your ability to get  loans much longer.

Both will stay on the CR report for 7 years.

To file BK or not to file is a personal decision and is the law of the land - - make sure you have a story to tell about it that YOU would be impressed to hear if it were told to you.

It just CAN'T be, "I didn't want to"!

[Miguel Garcia]

I went through a BK (Chpt. 7) and although I wouldn't recommend that being your first option, it is an option, and if you feel like that will give you the freedom to start all over, do it.  It will humble you and teach you to be fiscally conservative.  It will teach you to save and look towards the future as opposed to just now.  The BK and insecurities has held me back from beginning my Investing career, but I believe this relief has given me strength.  Good luck!

[Brent Chauvin]

It sounds like you already have your mind made up to declare bankruptcy. I would work 2-3 jobs for 2 years. Pay off your debt and then go to school. Just seems like you are taking the easy way out.

[Jim Shepard]

I think everyone has given a lot of good, solid advice. I will throw one more angle at you. Even after 7 years when the bankruptcy has disappeared off of your credit report, you will be asked on every application that you fill out, "have you ever filed bankruptcy"? It will follow you the rest of your life.
At 22 years old you can work a 40 hour job and go to school at the same time. You can pay that 20k off a lot faster than you think while living with your parents. Here's two scenarios while you are in front of a banker asking for a loan a few years from now:
1. Yes, I filed bankruptcy when I was 22. I bought a lot of stuff I didn't need.
2. Yes, my credit was terrible when I was younger. I bought a lot of useless stuff and financed it. I didn't file bankruptcy because I knew I owed the money and pay all of my debts. I have learned by my mistake and won't repeat it.
Who do you think will get the loan?

[Carlos Fojo]

Like Brent said you admit that you came into a difficult situation when you lost your good job. Sorry to hear that. Now that you recognized your difficult circumstances it is time for a game plan. Although from your statements, I sense that you are leaning towards bankruptcy in my opinion the amount is minor and like recommended the easy way out in my book has no consideration. Responsibility comes with failures. Every failure should be a learning experience and a reason to do better next time. I personally have had some failures and the easy way out was never considered. You choose to get the loans, so contact those that you owe to and let them know that you are responsible and wish to pay off your debt and would need some help in doing so. At times financial institutions will be negative about helping you but do not give up. As a contractor part of board that is going to issue your license will look at your history of responsibility. They are there to ensure that only responsible contractors are issued licenses. That is their way of protecting the general public from ripoff artists. As a final note - your education is the only thing that no one can ever take from you. Best wishes.

[Russell Brazil]

$20k in the whole probably feels like a huge weight, but honestly its not that bad.  It is the amount of a modest new car.  At 25 I was about $60k in the hole.  I actually think being in debt helped me in the long term, because I was forced to live way below my means to pay it off. When I had finally paid it off, I was so used to that money coming in going out to service my debt, that I very quickly had a huge bank roll to invest with.

So my advice would be to just learn to master your finances and pay the debt off.

[Account Closed]

Have you thought about wholesaling for awhile to pay off the debt and possibly save some money from wholesaling to pay cash for college so you won't have student loans. I have declared bankruptcy and I regret it. Yes you can get a car loan and house loan in 2-3 years afterwards, BUT, it's at a super high interest rate. I have had a clean drivers license for over 4+ years and pay all my bills on time, even my high interest rate car loan but my car insurance is STILL double what it should be BECAUSE I declared bankruptcy. All insurance companies base your rate off of your credit. If you don't mind paying high interest rates and higher insurance rates, then go ahead and declare bankruptcy. But like I said, I filed 8 yrs ago and TOTALLY regret it.

[Nick Montville]

I'm with some of the others who say to put bankruptcy on the back burner. You're young, as I am, and have a lot less at stake than if you were older with your own home and children. Take it as a learning experience instead of getting overwhelmed and reaching immediately for the "get out of jail free" card. Be patient. Try and negotiate the terms of the debt, or as others have said, try and refinance to lower interest rates. Some creditors can be lenient if you communicate there's a problem, explain the situation, and that you want to work out a deal to get it paid down.

That's just my two cents. I'm also 22 and I would go out and get the highest paying crappy job I could find and hustle my *** off and slowly work through it. You have a lot less to lose than you think, and as bad as it feels in the moment, it's not the end of the world. You could end up with some valuable, though expensive, life experience.

[Account Closed]

@Brent Chauvin, I see how it would come off as I'm taking the easy way out. Honestly, that does have something to do with it. But also mathematically it just doesn't make sense to me. I could enroll in a program to pay around $340 a month to eliminate a good bit of my debt. This is for 4 years. Then it's over with. But I'll still have another $6,000 give or take to pay on my own. When I go back to school, I can't work full time and honestly can't handle the mental exhaustion from that anyways. I swear it's not laziness, I just can't physically work that much and maintain a good GPA. Please don't look at this as an excuse. So, I work part time. My leftover tuition will pay for my housing. I don't plan on staying with my parents when I'm back in college. Preference and other reasons, I would if I could. So it just doesn't mathematically make sense how I'll be able to work a part time job and pay for my food, gas, etc. Housing is taken care of. But then I have a $340 debt consolidation bill, then about $6k worth of other loans to pay which equals around $200+ a month. I would rather avoid filing, the only reason I'm lenient on it is because the math from it. I'm trying to be realistic. Wouldn't it be better to file sooner rather than later and save all the money I can now? Again, not trying to lean. I'd rather not file.

[Account Closed]

The problem that I'm having in my situation is I simply cannot just work to pay off the debt. I have about 7 months until I go back to school full time. So even if I find a decent paying job tomorrow, what happens once I get back in school? I can't pay all my debt off with a part time minimum wage job and also feed myself. I have to move out once I'm back in school, this is undebatable. But the tuition I have left after my classes are paid will cover my rent. So I'm pretty much left with food, gas, minor expenses. Those can be covered with a part time job. But as far as an additional $340 per month for a credit consolidation company and another $200 for other loans, it would be impossible. I feel like it's all I can do. I swear, I do not want to file. I understand the consequences. I just feel like I have no choice. Mathematically, I would have to I believe. Again, any advice urging against it or somehow making it work another way is strongly appreciated, I promise my mind isn't completely made up on filing. I just can't see creditors working with me for years. But maybe they will, I have no experience in this.

[Karen F.]

The good thing is that you've recognized that you have a problem here.  I get the feeling that you just don't want to have to pay for all the stuff you bought on credit.  Is there anything that you can SELL in order to pay some of it off?  Are you paying off a high car loan, that you can get out from under?

You're lucky.  Your parents have let you move back in.  It's time for you to sit down with your parents, confess what you've done, and ask for their advice and help.  I suggest that you CUT UP THE CREDIT CARDS!  Since you've moved back in with your parents, it's not like you need one for an emergency.  You could pay all this debt off in a year, if you were to work two jobs, sooner if you can sell some of the stuff you bought, unless it all went to consumables, like drinking and dining out and vacations and entertainment.  Don't spend a penny.  Don't even buy yourself a cup of coffee outside of the house.  Drink and eat at your parents' house.  You don't even have to pay for health insurance, since they can keep you on theirs for another 4 years or so.  Since you're going to be working 16 hours/day seven days/week, you won't need entertainment.  You can do this!

I have seen other young people who went this route.  They lived off of credit cards, built a house of cards of debt, finally declared bankruptcy, and immediately went on to acquire MORE consumer debt!  You need to teach yourself how to live within your means, not declare bankruptcy and just keep going along the same path.

As for real estate investing, I don't think you're going to learn much of use in college.  Most people start small, with a fixer upper two family at your age, and then that turns into their first rental property, and they acquire more and more.  It's not like you've got any downpayment or anything to get yourself started in real estate investing.  Get yourself a job in home construction as a grunt, and you'll learn stuff.  Or get yourself apprenticed to a plumber or an electrician or HVAC installation/repair - you'll learn valuable skills.  Or get a job on a roofing crew - at least you'll learn how to do that.  Or get a job installing windows - you'll learn how to do that.  Something practical, so that you learn skills you're going to need if you get into real estate investing.

Right now, before you get a job, call the creditors and explain you got laid off.  Ask them to reduce the interest rate on the debt.  Maybe you can even negotiate down the principal.  You can get free debt counseling advice almost anywhere in the US.   As soon as you have a job, so that you have income you can show, keep your eye out for zero percent interest credit card balance transfer offers, so that you can keep the debt from growing rapidly while you are trying to pay it off.

Seriously, if you don't learn how to control your spending, you're never going to be able to develop financial security.  You're 22, you have no degree, and you've gotten yourself 20K into debt.  It's time for a serious re-examination of how you got into this mess, and how to change your habits so that it doesn't happen again.

Best of luck to you.  At 22, this is not the end of the world.  You should be able to clean up the mess in one year, and be able to move on with your life.  Thank your parents daily for having allowed you to move back in!

[Account Closed]

@Karen F., thank you so much for the detailed post. I actually have a lot of construction experience, labor wise. I was going to go to college just to know the financial side behind it. As for paying it off in a year's hard work, I only have 7 months. You may have only read the top post, but my last two above yours explain the financial situation for me. Also, it might take me two months just to find a job. So, I may only have 5 months to save before college comes back. 

[John Shipley]

Well, you've gotten a lot of good advice here.  Everyone says do not file, but it sounds like you've already made up your mind to file.  I'll add my voice to everyone else.  

Please do not just focus on your short term math calculations.  Filing will affect other areas people have already mentioned - job applications (really important), insurance rates, contractor licensing, etc.  These items don't fit into your calcs but they are very important and will follow you for a long, long time.  

Please consider other options.  You say you have to start school in 7 months.  Why?  Can't you put that off for a year, even two, if necessary?  You'll be surprised how much you can pay off in a year if you work at it.  $26,000 may feel like to big of an amount to handle, but believe me you can do it if you want to.   

Read the posts again from @Jim Shepard and @Account Closed.  There's great advice in those posts.   Also, ask yourself how you will feel about yourself under both options.  I can guarantee you working through this debt and paying it off will provide you with an great deal of confidence and self-worth that will be invaluable to you for the rest of your life.  

Whatever you decide good luck to you.

[Jason Krick]

Hunter Groover

I've read through the post and only got bits and pieces of your expenses. How about you do this. Can you lay out what your schedule and expenses will be when you are in school. How many credits are you taking, how much is your monthly payments currently, what are your payments with the consolidation, will you be paying tuition as you go, will you be paying rent at school, etc?

I have a Ch 7 that I am still trying to overcome. It is not as easy as some have you believe. It sucks, to be honest. It's embarrassing at times.

Lay out your payments and let everyone here analyze them and we can give you advice. Analyzing numbers is all that the members here do.

I'm not saying it's not an option, but it might not be best declare bankruptcy and immediately take on more debt.

[JD Martin]

A couple of questions here:

1. You're getting unemployment, and you moved in with your parents. Why not just use your unemployment, until you land a suitable job, to pay off the debt? Even at $250 a week, you'd be paying off $1000 per month - OK, let's say $800 to leave you $200 drinking money. That would be a huge dent after 7 months.

2. You may not want to work full time and go to school, but there's no good reason you can't work part time and go to school.

3. Most all creditors will work with you if you make a payment plan and stick to it. 

4. If you can't "mentally" handle working full time and going to school, forget about being a real estate investor. 

The cold, hard truth is that being a successful real estate investor means busting your ***, and going to school and working full time at a mindless job is a mental vacation. Guess how much time I spend thinking about real estate investments? All the time. There's no "off" hours. Go ask anyone who has been successful at investing, and they will tell you that even when they are relaxing they are letting scenarios and possibilities play themselves out in their mind. When I'm pulling weeds in my tomato bed, I'm kicking around ideas. 

I think you can guess my vote - buckle down and pay it off. If you can live on Ramen noodles and pay off your debts, not only will you not have been sullied by a bankruptcy, you will have learned a boatload of valuable lessons about money and hard work, far more than you are going to learn in college - and I say this as a guy with a doctorate. You are at a crossroads. You can choose to be hard, or choose to be soft. Soft guys get roasted on fires like marshmallows. Hard guys retire at 45.   

[Account Closed]

@John Shipley maybe he doesn't know what wholesaling is, or maybe he isn't cut out to be a REI… whatever the reasons are, it doesn't matter what we say because he is going to file bankruptcy anyway because it's an easy way out. His mind is set on going to college and getting a job. When someone has their mind set on something, even if others don't agree, there's no changing their mind. I know, I used to be that way. He's young, he'll learn. Everything happens for a reason. Lessons learned. All we can do is give our experiences and advice. Ultimately he has to decide, does he want to take the easy way out or does he want to work hard and fix his problems he caused that ultimately lead him to a bankruptcy option. The problem is, there's always an easy way out and hardly anyone wants to work hard to fix the problems they caused. Just my opinion.

[Karen F.]

Why do you HAVE to go back to school at all, let alone in 7 months from now?  Don't get me wrong, I'm all for education, but not when it's only going to get you deeper into debt.  And why do you have to move out of your parents' house to go back to school?

You have a lot of construction experience?  That's great!  You should be able to get a higher paying job then!  You should be able to get extra handyman jobs on the side, too.

I suggest you delay going back to school for a year, get yourself employed (and with your skills, it shouldn't take you a couple of months to find a job) and get going on paying off the debt completely.

I'm not sure, can you get student loans if you've just declared bankruptcy?

[Scott Carder]

You gotta man up. Work 2 jobs. You don't like your home life, then work so many hours that you are only there to sleep. Delay college for a year. You have to also consider the people that are going to get stiffed when you bail on your debt. At some point you need a kick in the rear. Tough love.

[Ariel Cohen]

Why would your want to start off your your professional career with a bankruptcy over your head? You are only 22 which means you have so much of your career left and starting with a BK seems like a really bad place to start.

Like others have said, $20k may seem like a ton of money when you don't have it, but it really not a ton of money, and even if it takes you 3 years to pay if off, it will be an accomplishment rather than having the mental baggage of a BK.

[Ariel Cohen]

Sorry for the double post. New app doesn't let scroll when I type.

And going to school and working at the same time is a given for most people. Not sure why you are writing it off as impossible.

Sometimes the easy way out is the hard way in the long run.