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  • Writer's pictureBrian D. Shapiro

I owe $1,400 to collections and defaulted on three personal loans. Should I consider bankruptcy?

Updated: May 17, 2022

This was a recent headline on a reddit post. The poster stated:

I took out three $3,000 personal loans through my bank, and had other accounts sent to collections for WiFi and cellphone bills. In total I am about $11,000 in debt. Over the last three years, most of those accounts have been closed and I have not had any credit card in my name, or credit in general. I applied for multiple credit cards and it said that I had no more lines of credit available (shocking, I know) I have learned from my naive 18-20 year old self and am determined to get back to being financially healthy. I talked to a bankruptcy attorney and we went over every account that I defaulted on, the repossession of my car, and the three personal loans. They recommended that I file for a Chapter 7 bankruptcy due to me having no assets. Now, of course a bankruptcy attorney is going to want me to file so I guess I’m just trying to see what other people who are educated on this matter might think about my situation. My first question is with so little amount of debt owed, is it truly necessary for me to declare bankruptcy? Are there anyways to get back my lines of credit without filing for chapter 7? I know I owe $1,400 to collections and I am working on paying those off. That will help my credit score go up, but is it pointless to pay those off if I still have no line of credit after doing so?

My answer to such a question is that it depends on ALL of your circumstances. That is why it is extremely important to consult with an experienced bankruptcy attorney. If you don't feel comfortable with an attorney you met with, then go find someone else and get another opinion.

As to the set of facts above, for some, $11,000 worth of debt is not a significant amount but for others, it is a substantial amount that they may not be able to overcome.

Perhaps Bankruptcy may not be warranted, and you may be able to increase your credit score, if you have the ability to negotiate a resolution with the creditors (most creditors are happy to negotiate in lieu of getting nothing in bankruptcy...especially a reduced lump sum payment) or start paying the debt with the highest interest rate first. Rest assured, you can rebuild your credit, it just takes time and consistency. Conversely, if you are unable to pay the debt and you’re not expecting any increase in your wages, you may be "throwing good money after bad" by paying the debt as you will not be able to overcome the large interest rate. Imagine, if you didn't pay the debt and started anew, you would have "extra" funds to save for your future. Again, it is all dependent upon your particular situation.

If you are having financial issues and need assistance in Las Vegas, Nevada then please contact my firm and I will discuss potential options directly with you.

~ Brian

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