Why Personal Bankruptcy Is a Last Resort to Getting Rid of Debt
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Here's your money briefing for Friday, December 30th. I'm J.R. Whelan for The Wall Street Journal. All this week in our special series on how to get out of debt, we've highlighted solutions that financial professionals say can loosen the stranglehold that debt can put on your finances. But what if those solutions or any plan to get out of debt don't work? For some people, they're left with one last resort, filing for personal bankruptcy.
When someone's already tried to minimize their debt, they've tried to budget, they've gone to credit counseling agencies or nonprofits, they've tried debt resolution, and they're still in a position where they cannot keep their heads above water.
On today's show, we'll speak with Natalia Brown from National Debt Relief and the American Fair Credit Council about the process of declaring personal bankruptcy, but also the long-term harm it can do to your financial life. That's after the break.
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As we've heard throughout the week, there's no quick and easy way to get yourself out of debt. And while financial professionals often recommend programs and services that can ease that process, there's one path to being debt-free that stands alone and is seen as a last resort. Natalia Brown of the National Debt Relief and the American Fair Credit Council joins me to talk about the pros and cons of declaring personal bankruptcy. Natalia, thank you very much for being with us.
Thank you so much for having me. I really appreciate it.
So Natalia, when people think about personal bankruptcy, for a lot of them it can seem like a scary thing or even a shameful thing. How do you think people should think about bankruptcy?
I absolutely agree with you.
What situations make personal bankruptcy a last-resort option?
Bankruptcy can be very scary. They should really think about it as an option. I like to call it the last option. There are many alternatives before you get to bankruptcy, but it is another tool that anyone could use to get out of debt and resolve some of the stress issues that they're having in relation to their debt that they are going through.
So when might filing for bankruptcy be the right decision for someone?
It's the right time when someone's already tried to minimize their debt. They've tried to budget. They've gone to credit counseling agencies or nonprofits. They've tried debt resolution, and they're still in a position where they cannot keep their heads above water. It might be related to the income that they're making. They could have lost a job or there might be some medical bills that impacted their ability to pay. And bankruptcy is kind of the last alternative that allows someone to wipe out their debt. And there's generally two types of bankruptcy. There's Chapter 7, which I like to put in simple terms can be considered as a liquidation of all of the person's assets. and everything gets paid off with whatever they have.
And then chapter 13, which is a little bit more common, is when someone is kind of on a forced payment plan, just to put it in simple terms, where a judge may decide how much disposable income someone has, and they'll put every cent of that disposable income and leave that person with a very strict budget to kind of pay off their debts.
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