Ask Stacy: When Should You File Bankruptcy?

Jane is selling her belongings at yard sales to pay her creditors. Stop and read this, Jane.

The magic word when it comes to debt problems is “income.” If you have it, debt problems are often solvable. If you don’t, they’re not, especially when you’re in Jane’s situation: no savings and no prospects for significant future income.

In a story I did years ago called “Dealing With Debt: Bankruptcy,” the lawyer I interviewed gave me some simple advice: If you don’t have enough income left after eating and putting a roof over your head to make even minimum payments on your debts, it’s time to talk to a lawyer.

What about your moral obligation?

If you’ve read much of my stuff, you know that I’m a believer in paying back what you borrow. (See Website Says It’s OK to Walk Away – No It Isn’t.) But Jane’s situation is a textbook example of why we have bankruptcy laws. Sometimes bad things happen to good people, and the last thing those people need is to be verbally abused by collection agencies or made to feel guilty.

When a credit card or other company loans you money, they understand the risk they’re taking. The interest rate they collect compensates them for it handsomely.

Of the , nine are based in the United States. Of those nine, two are banks: Wells Fargo and JPMorgan Chase. After taxes, JPMorgan Chase had net income of $17.4 billion last year. Wells Fargo made nearly $22 billion.

Let’s put that in perspective. Imagine stacking dollar bills on top of each other. Stack a $1 million worth, you’d have a stack 36 feet high: about three stories. A billion dollars in hundreds, on the other hand, would be more than five miles high: about the height a jet flies. 20 billion? That would take you well into outer space, an amount that’s literally out of this world.

Here’s the point: You owe your creditors your best effort to meet your obligations. But you don’t owe them your health, your life, your sanity or your self-respect. If you’ve done your best, put your head up, shoulders back, and deal with it.

Jamie Dimon, JP Morgan Chase CEO, was paid , he’s going to be fine.

How do you pay a bankruptcy lawyer when you’re broke?

Just because bankruptcy is the correct course for people like Jane, doesn’t make it easy. In the ultimate , many Americans don’t have enough money to become bankrupt. In an article called , CNN/Money says hundreds of thousands of Americans can’t afford the $1,500 to file bankruptcy. Result?

“It ends up being the relatively better off, or middle-class consumers who can actually afford to file, and the people with lower incomes can’t afford to file.”

Have you ever read stupider words? Only people who by definition aren’t broke can afford to go broke. Sometimes life is truly stranger than fiction.

What Jane should do is find a local and get a free consultation to explore her options, like perhaps creating a payment plan or finding a pro bono (free) lawyer. But she shouldn’t be surprised if that attorney ends up saying something like:

Got more money questions? Browse lots more Ask Stacy answers here.

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