Bankruptcy or not?

22 Replies

Hi there-

I am in debt to credit cards. I have a low-paying job and at this point, no retirement. I am in my mid-50's, so I am a late bloomer to investing. I thought that claiming Chapter 7 would be a good idea, in order to wipe the slate clean, so to speak. Now, I am not sure and am questioning that decision. I have chosen to begin investing in real estate, within the year, after I reasearch and reactivate my Realtor's license. My question is: bankruptcy or not? I can barely pay my bills now, and have almost exhausted my work opportunities in my small town..I suppose I could wait the  years and then start, but I feel an urgency to get started pronto! Any and all advice / input will be highly appreciated. Thank you

Are you in Tomkins Cty NY?

I would 

  • sell everything possible, 
  • go chapt 7, 
  • I would get a small house share in Ithaca NY,  
  • then I would be a Real Estate Entrepreneur.
  • Fastest way to cash in my hand is a Lease Option assignment or a sandwich lease option.
  • Get your NY RE Lic.
  • Start a LLC in NY.
  • Get a Leasing Agent in your operating agreement.
  • Get access to the MLS.
  • Get a list of Expired Listings.
  • Get a list of listings of long DOM (Days on the market.
  • Start a blog - IthacaHomeSolutions - We Solve Problems for Buyers and Sellers
  • Listen to my videos and download my forms.
  • Set a time to discuss building a business quickly - NO CHARGE.
  • Is this a good time to help sellers sell on terms?  You bet!
  • Is this a good time to help buyers buy on lease 2 own?  You bet!
  • To set a time for a free consultation, email me or call me.
  • Merry Christmas!  2015 could be a "BREAK OUT YEAR" for you, @Elizabeth Sky  

I don't know if investing while you are in debt is the greatest idea.   Have you ever listened to Dave Ramsey?  You can check out his podcast or also his books, like Total Money Makeover.   He has a very clear and specific program for paying off debt, having an emergency fund, paying off debt from smallest to largest, and then saving for the future.

He advises people to avoid bankruptcy most of the time… but it depends on your specifics.

The most important thing you need to do is earn money.  Where can you get a good job?  

I also listen to Jim Cramer, who basically says not to invest when you have credit card debt, period.  How about cleaning up your personal finances before getting in deeper?  If you have investment property with no cash cushion it can be a recipe for disaster.  Dave Ramsey calls it broke, desperate, stupid.  You need to be in a place where you can think very clearly about your financial moves, and right now you need more stability and more income.  How much debt do you have?  

I would double the advice to sell stuff.  Can you downgrade your car or your home to save money each month?  Can you sell off your junk to get more cash to pay down your debt?  

Here are a couple great blogs for living well on less -- mrmoneymustache an earlyretirementextreme.  

Elizabeth -

First of all, getting in debt is all too common, and there are only 2 ways out of this.  1) Pay off the debt, and 2) file for bankruptcy.  Neither one is to take it lightly since it might be years before you are back on your feet.

Since the reasons you got to bankruptcy are very personal, giving any advice without knowing the specifics will be hard.  I would suggest you start by visiting a credit counseling organization (which you will have to do before you can file for bankruptcy).  You can discuss your situation and the can help you decide if bankruptcy is the best route for you.  Google "credit counseling bankruptcy requirements" and you should see links to approved credit counseling organizations.  Some of them might be free.

If you don't file for bankruptcy, you will have to pay all you owe to the credit card companies.  If you decide to go this route, contact the credit cards and try to negotiate a lower payment (they might settle to wipe out all interest and fees) since their alternative is for you to file for chapter 7 and they won't get anything.  Be aware that once you contact them, they might close your credit cards so be prepare for that.

If you file for bankruptcy, you will list anything you own and it could be sold to pay the debtors.  After all assets (if any) have been sold, the remaining unsecured debt is wiped out.  If you go this route, and your debt is discharged you won't be able to file for bankruptcy again during the next eight years.  You will have a hard time getting credit, but you should be free to start rebuilding your credit.

Good luck with your decision.


A few things.

There is a chapter 7 and a chapter 13. There are other chapters as well but for individuals these are the ones most use.

The chapter 13 is a restructure to get your debts paid off. Just the act of filing even if you do not go through with the BK or if you get conformation of your case and it gets dismissed for non-payment down the road it still counts as a BK on your credit. BK usually causes a few 100 point drop for good credit. Already bad credit not that much further to go down in score.

The chapter 13 is worse than a chapter 7 in that your credit is frozen in the crapper for years until the chapter 13 is discharged after the full payment plan of 3 years etc. is finished. Only then can you start rebuilding.

This versus a chapter 7 where all the debt is wiped out and you start clean rebuilding credit right away.  What I mean by clean is that the 7 will show on credit still but you can start with zero debt. Now if all or most of your debt is non dischargeable in a 7 then you might not want to do it and instead negotiate shorted payoff agreements considered settled in full in writing with your creditors. Just remember not everyone qualifies for a 7. In 2008 they changed a lot of the bankruptcy laws and you have the means test and other items to qualify. It might take 6 months to 1 year before they start giving you credit again and it may be things like a secured card where you put 200 in and they give you a 200 limit to start.

Not all debt is wiped out in a chapter 7. For instance some student debt, IRS taxes, child support etc.

So it is key to look at how much debt you have versus your assets. For instance if you are 8,000 total in the hole then it takes a couple grand to do the chapter 7 anyways. You might want to just pay down debts and sell off stuff and wipe it out without going the BK route. If you are looking at 50,000 or 70,000 etc. then it might make sense to just do the chapter 7. If you are having a huge medical procedure and will be stuck with leftover bills then waiting to file BK to include that might be the answer. I am not advocating BK at all. Just saying you need to carefully analyze when to use it and maximize it's effectiveness for you.

The credit counseling agencies do not do anything and it dings your credit. Most credit counseling agreements and also chapter 13 filings never make it to completion. Maybe about 10% do.

Some people with bad credit already do not want to wipe out debts but simply save their house. They can file a 13 cheap for a few hundred, let it lapse at a certain stage,  and then refile again in 6 months etc. They can string a lender out years in some cases. Eventually the house forecloses but they buy time.

At this point usually if you call a BK attorneys office they will have their assistant the paralegal meet with you and go over your documents and give some advice. A good firm will not just say file, file, file and take your money. Instead they will say to file or not file and the specific reasons relative to your case to do so.

No legal advice is given in this post.

As others have said, a BK won't solve your income problem.  Also, a lot of debts (school  loans, IRS, etc) aren't bankruptable.  Credit card co's will settle with you after a period of non-payment.  Where does @Elizabeth Sky  want to be career-wise in 5 yrs?  Once you figure that out, you can back into the small steps you need to take now to get there.  If reactivating your RE license is part of that, go for it!  Go out and be the best/hungriest agent in your area!  Generate some income and start punching your debt in the nose!

@Elizabeth Sky

Reduce expenses every way possible and use every possible opportunity to increase your income! Sell real estate, deliver pizza, baby sitting, house sitting, pet sitting, and anything else you can think of. Constantly apply for jobs to move up at your day job and for side/part time work.

Exhaust all non-bankruptcy options first.  This is no time to invest, but stick with BP to improve your prospects as an agent and to learn for future investing opportunities after you get out of consumer debt.

Also, Dave Ramsey has great advise for a person in your situation, as mentioned above. PM me with a mailing address and a promise to read it and I'll send you a copy of one of his books :)

You can either cut expenses or make more money it's that simple, and I think if you just try to solve solves problems that have no equity and do some going to seller financing on that and exit onto lease with option that's your fastest way of making money. It doesn't cost that much money to knock on the door it has expired listing and you don't need to be licensed. It does help to have a license agent on the tenant buyer sidethat is showing houses

Again I would rather make more money than cover expenses , 

And Elizabeth I'm not buying anything I'm entering into a lease and option and then signing that lease for a fee of 3% in your area and it's ago you could probably find houses between 69 and 20,000 with 100,003% that's three grand in 10 hours can you make that with your job?

@Brian Gibbons  

While theoretically attractive, is a lease option / sandwich lease a real possibility?   

If someone were to apply to lease one of our properties, one of my first steps would be to run a credit history on them.  If it came back with bankruptcy or any indication the individual was overextended and not meeting their obligations, there would be no lease.

Most everyone is saying this is not a good time for you to invest, BS this is a great time for you to wholesale and to do other things that make money including getting your license activated., It will produce income which is your prime goal. You fail to say how much debt you have but it would be nice to know in order to give better advice.

Also you don't have a Realtors license, there isn't any such thing, you have a real estate license from some state.

I don't know anything about where you live but Brian seemed to know and I second his advice to get the heck out of there to more fertile territory. Now sit down and list every penny you owe anybody and you will start to work on that list.

Do I know what I am talking about? Yes, at 34 I could have retired thanks to real estate and never worked another day in my life but I financed a start up silicon company and took my shot at joining the jet set. Just missed by inches, only mistake was the timing which was unforeseeable, If we had started just over a year later, I would have been in the world of private jets and large yachts and Monte Carlo. Instead my wife and I were in the world of a few bucks in the bank and owing about a million dollars after selling off all our real estate including our home. Loved that house. Plus two collector cars and my 2 newer cars. and started driving a 12 year old ford station wagon. 

Like the others said earn money anyway you can, legal of course, If someone would have asked me to shine their shoes for a buck I would have done it,

Sometimes a potential tenant that has finished a BK and wiped out debts can be a good prospect.

The reason is they are no longer carrying all the debt anymore and can't re-file and complete another BK for a lot of years.

This versus someone with good credit but carrying a ton of debt wanting to lease from you. They might be a few steps away from BK. So it's not just a function of how much money someone makes or if they filed BK it's about how they manage their money and what have they done lately??

My BIG point is 

Get off your A$$

Pretend if you do not get a deal in 30 days you will die

or your relative will die

or you will lose the use or your legs or arms

Fear of loss is the greatest motivator

Sound like you are in a shittty little town (sorry) I almost went to Ithaca in 1978 to play lacrosse, I chose Ohio Wesleyan (Delaware OH), then St Michaels College (Burl Vt)

Be like an immigant of of Ellis Island.

Go to the REIA in Ithaca

Tell the President you will do ANYTHING, his-her slave, you just need to make income.

Website URL:
Contact Person: Jack Zimmerman
Email Address: [email protected]
Phone Number: (315) 475-0701
Fax Number:
Postal Address: 1000 LeMoyne Ave
City, State & Zip: Syracuse, New York, 13208

Membership Cost: $75/year
Meeting Time: 6 pm Dinner, 7 pm mtg, Second Wednesday of each month.
Meeting Location: Bella Domani Catering, 5899 E Taft Rd. N. Syracuse, NY.

Talk to me I'll coach you for free until you start making money, you can pay me off of your profits, you need to hustle and work 24 7.

Cmon, get off your A$$.

@Brian Gibbons  I have to disagree with you on the Ithaca, NY market. There is so much opportunity here. It's a very stabilized market. Even during the housing crisis in 2007-2008. Home values were barley affected. The 2 colleges (Cornell and Ithaca College) have isolated the town very well from a housing and job perspective over the years. I actually built my home in 2007-2008. I just built a brand new duplex right down the road from Slaterville and have 2 more going up beginning of next year and all 3 are fully rented through 2016. There is plenty of opportunity out there, it just needs to be worked for. You can check out to take a look at everything that is going on around here. 

@Chris Petrillose   I aam NOT sating Ithaca is bad, not at all.

I love BIG RED (Cornell) and Ithaca.

I am saying get out of the villages and MOVE to Ithaca.  Talk to sellers and buyers.

I really think finding sellers that have a problem and offering a cash solution and a terms solution (sub2, lease option, or a wrap) on acquisition will get you into a profit faster than any other plan.

See my BP Blog.

@Brian Gibbons  Agreed. Thats where the bread and butter is. There are pockets of distressed properties and motivated sellers. Development is starting to sprawl out more. There is a small shopping plaza that is going in just past Ithaca College which is making land farther out more in demand. 

Elizabeth, u have received a heck of a lot of advice. I'm sure that if u commit to pursue this advice, u will get past your present situation. Good luck.

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I disagree with those who are saying you should get out of debt before investing. You need to increase your income and reduce your debt concurrently. Investing in real estate is a good way to increase income, and you can do so without using a lot of your own capital. 

Consider wholesaling, which requires little money other than marketing. Also look for cash flow generating properties you can acquire with seller financing. The key to both is finding distressed sellers. 

I am relatively new to real estate investing. If someone told me two years ago that it is possible to buy a house without using your own money or using bank-provided credit, I would not have believed him. However, just last week I closed on my fourth property using seller financing. (I have two more deals lined up that will include seller financing.) I was skeptical about seller financing, but I have found it to be a great strategy and one that a surprising number of sellers are willing to offer. 

Dave Ramsey has great advice about getting out of debt, but his strategy focuses on only half the picture and is based on a scarcity mentality. Yes, follow his advice on reducing debt and managing finances, but also focus on developing an abundance mentality in which you take charge of your life and find ways to grow wealth. Real estate investing is a great way to do that without using credit or a lot of your own capital. 

Thank you to everyone that has replied to my quandry. I just received Brandon Turner's book on investing with little to no $ down and will consult that. I have also decided to call the credit card companies, AGAIN, to see if I can get them to come to some sort of deal, instead of moving forward with BK, and them receiving nothing. I am in debt to the sound of around 25K. Not a huge amount, but still enough. I know I am wasting my time at this crappy low-paying job, and will continue looking for a way out. 

The talk about wholesaling and seller -financing has piqued my interest. I will investigate further. Also, I am going to check out Dave Ramsey's philosphy as well. 

I do feel isolated living outside of town, and will consider other opportunities as they come along. Thanks again for your time and consideration.

And yes, I do not have a Realtor's license, I have a NYS real estate salesperson's license and I better start using it again!

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