WWYD Bankruptcy

[nevergiveup]

Scenario:  53 year old female friend, soon to be newly divorced, no children at home.

She is trying to start her own massage therapy business and currently has a part time job.

She is barely making ends meet and has around $20,000 debt in her name, which are from credit cards, medical bills, and massage therapy school, (husband has his own which will go to him in the divorce).

The only thing she may get from the divorce is part of the proceeds of the house (not sure how much they will clear on it).

She says everyone is saying she should claim bankruptcy, but is this the best choice for her?

I think she should take any proceeds she gets from the house and pay off her credit card so that she can still use it in the future if she needs it.  She has no savings, drives an old car, has several cats, so I am picturing something happening with any of them.  If she declares bankruptcy, she loses her credit card.  If an emergency pops up, she would have absolutely no way to deal with it.

 

Any advice?

[fairfarmhand]

I would tell her to try everything she can to avoid bankruptcy. It stays on your record for years so she may be 60 before she can be approved for a mortgage!

 

Most student loans don't go away in bankruptcy.

 

I'd take the proceeds of the house and whittle away at some of that debt.

[JumpyTheFrog]

She needs a FT job while she tries to get the business off the ground. Declaring bankruptcy doesn't fix her lack of income problem.

[Bootsie]

What assets does she need to start her own business?  This could be jeopardized by declaring bankruptcy.  She should also be sure about the allocation of debt in a divorce in her state.  Even if she is directed to pay certain debt and her ex-husband is directed to pay particular debt, she may still be legally obligated to pay some of the debt if her husband fails to (or vice versa) depending on community property laws in her state.  With no kids at home, I would encourage her to work hard to pay off the debt as quickly as possible.  Even if all of the debt has a 10% interest rate, she could make $500 a month payments and have it all paid off within four years

[Annie G]

Where is she planning to live? Even getting into a rental can be difficult after declaring bankruptcy.  Can her student loans be included in a bankruptcy? Most can't, but maybe her loans are not true student loans but just personal loans. 

 

She has an income problem. She needs a full time job (and maybe also a part time job) and to pare down her living expenses as much as possible.  Maybe work a method like the one Dave Ramsey touts.

 

I'd avoid bankruptcy if I was in that situation. 20K isn't a huge amount, especially since she has no kids at home and can work a lot and live cheaply to pay this off.  

[Joanne]

Bankruptcy considerations are a symptom of the problem - she needs a life plan first and then can make a decision.

[nevergiveup]

Bankruptcy considerations are a symptom of the problem - she needs a life plan first and then can make a decision.

Yes, indeed!  Her life plan is to make a living by doing massage full time.

I've gently tried to persuade her into getting a full time job but so far she is not interested mainly because she feels it will jeopardize her chance of getting established because she will not be available for appointments.

Thankfully, she does have a decent place to live right now, but the rent will increase in a year.

I see her spending money to decorate the place she is renting and consider that to be rather foolish considering everything she faces, but I would hate to live in an ugly environment, too.....Still, I see a pattern.  Her medical bills are in part due to a tummy tuck she felt she needed.  Once again, not something I would have done, but she and I are worlds apart on issues like that, too.

 

So general consensus is bankruptcy is a bad idea.  Would she benefit from a credit counselor? 

[brehon]

Credit counselor? She probably wouldn't benefit if she doesn't see the need to make some substantive changes in her current lifestyle. If she does decide to consult one, she should ensure that the person does not work for a for-profit company.

[umsami]

As an ex-massage therapist, I'm not sure starting her own practice is the best career choice for somebody trying to survive on their own.

 

She should try to get employed with a regular paycheck…Massage Envy, chiropractor's office, PT office, etc. 

 

 

[sandalwood]

It would be on her credit report for the next 10 years.  ANYTHING she bought be it car insurance, a car loan (if she was so lucky to even get one), a credit card would cost more for YEARS.  Forget a mortgage for the next 2-3 years if not more.  I used to work at a bank and it was quite a hurdle to get over.  If she got one, she'd have a higher interest rate and now they get substantial down payments which might not have been the case 10 years ago and all the bust with the housing market.    Even folks with good credit are jumping hurdles.    What was frustrating when I worked at the bank was to see people who didn't really "have" to claim --- file it--- it and then being surprised when they were financially ruined for a while.  Even a apartment deposit, ultility deposit,  water deposit,etc. will be more when she files.

 

If she can survive at ALL I would never recommend it.   If she had $100,00 in medical bills for cancer and couldn't work that is one thing.   At 53, she may not get over the hurdle for a while and then she is close to retirement age.  Where will she live, etc.?

 

Also, just as an FYI they tightened up the rules on filing bankruptcy. I am not so familiar with the new laws but it is not quite as easy as it used to be.  Plus it cost money.   A lawyer will ask for his fee upfront to file and it can easily be $1000 or more to do everything by the time they do it if complicated.  She'll deal with it forever.

 

Best case scenario is to take a job (or two) and deal with her debt head on.   Most dr.'s will work out payment arrangements but not sure about a "tummy tuck" dr.  That's more like a luxury surgery.  And then this:

 

I've gently tried to persuade her into getting a full time job but so far she is not interested mainly because she feels it will jeopardize her chance of getting established because she will not be available for appointments.

 

It just sounds to me like she needs a major wake up call and an action plan.   Not everyone wants to work full time but sometimes you just have to do things to survive, you know?

 

[nevergiveup]

As an ex-massage therapist, I'm not sure starting her own practice is the best career choice for somebody trying to survive on their own.

 

She should try to get employed with a regular paycheck…Massage Envy, chiropractor's office, PT office, etc. 

Thanks, umsami--it is good to hear directly from someone who was in the business.  Did you have your own shop or did you work for another place?  Why did you stop (if you don't mind my asking)?

[JustEm]

Yes, indeed!  Her life plan is to make a living by doing massage full time.

I've gently tried to persuade her into getting a full time job but so far she is not interested mainly because she feels it will jeopardize her chance of getting established because she will not be available for appointments.

Thankfully, she does have a decent place to live right now, but the rent will increase in a year.

I see her spending money to decorate the place she is renting and consider that to be rather foolish considering everything she faces, but I would hate to live in an ugly environment, too.....Still, I see a pattern.  Her medical bills are in part due to a tummy tuck she felt she needed.  Once again, not something I would have done, but she and I are worlds apart on issues like that, too.

 

So general consensus is bankruptcy is a bad idea.  Would she benefit from a credit counselor? 

 

Umm sadly from this description bankruptcy is probably what is best for her.  I only say that because she clearly is someone who does not prioritize her spending and instead spends carelessly.  It is likely she will get that money from the house sale and not spend it on her debts.  At least with a bankruptcy she will not be able to accrue more debt and will instead be forced to figure out her finances in a healthy manner or of course just fail, in which case its likely not something you can help her.

 

I would suggest you direct her to a finance professional to help talk some sense into her. 

[nevergiveup]

It would be on her credit report for the next 10 years.  ANYTHING she bought be it car insurance, a car loan (if she was so lucky to even get one), a credit card would cost more for YEARS.  Forget a mortgage for the next 2-3 years if not more.  I used to work at a bank and it was quite a hurdle to get over.  If she got one, she'd have a higher interest rate and now they get substantial down payments which might not have been the case 10 years ago and all the bust with the housing market.    Even folks with good credit are jumping hurdles.    What was frustrating when I worked at the bank was to see people who didn't really "have" to claim --- file it--- it and then being surprised when they were financially ruined for a while.  Even a apartment deposit, ultility deposit,  water deposit,etc. will be more when she files.

 

If she can survive at ALL I would never recommend it.   If she had $100,00 in medical bills for cancer and couldn't work that is one thing.   At 53, she may not get over the hurdle for a while and then she is close to retirement age.  Where will she live, etc.?

 

Also, just as an FYI they tightened up the rules on filing bankruptcy. I am not so familiar with the new laws but it is not quite as easy as it used to be.  Plus it cost money.   A lawyer will ask for his fee upfront to file and it can easily be $1000 or more to do everything by the time they do it if complicated.  She'll deal with it forever.

 

 

A lot to think about!  I am certain that the "everyone" who is advising her are not from a banking background.  Plus, the bolded part above--seems rather funny that you have to have money in order to declare that you don't!

 

So, whom should she talk to in order to see the bigger picture?  Lawyer?  Banker?  Credit counselor?

[Annie G]

 

 

So, whom should she talk to in order to see the bigger picture?  Lawyer?  Banker?  Credit counselor?

 

I don't think a lawyer, banker or credit counselor are going to be helpful. It's not so much WHO she talks to as much as it's what changes she makes. You gave her some excellent advice and she gave you excuses about why she can't work full time. She needs to listen to people like you, who are trying to empower her to take control over her life and her finances.  

 

I'm in favor for bankruptcy in certain cases- it can be life changing and a new beginning, especially for people who have medical debt due to circumstances beyond their control. But those are people who don't have a spending problem or a feeling of entitlement- and your friend seems to have that both spending issues AND a feeling of entitlement. 

[Jean in Newcastle]

Yes, indeed!  Her life plan is to make a living by doing massage full time.

I've gently tried to persuade her into getting a full time job but so far she is not interested mainly because she feels it will jeopardize her chance of getting established because she will not be available for appointments.

Thankfully, she does have a decent place to live right now, but the rent will increase in a year.

I see her spending money to decorate the place she is renting and consider that to be rather foolish considering everything she faces, but I would hate to live in an ugly environment, too.....Still, I see a pattern.  Her medical bills are in part due to a tummy tuck she felt she needed.  Once again, not something I would have done, but she and I are worlds apart on issues like that, too.

 

So general consensus is bankruptcy is a bad idea.  Would she benefit from a credit counselor? 

I know she's a friend and you're concerned but it seems to me that you need to remember that she's an adult who is going to make her own decisions no matter what you urge her to do.  If she's capable of starting her own business, she's capable of researching financial information.  I think you are going to end up frustrated and angry with her and she just might end up that way as well.  If she specifically asks, you can tell her "I think a financial advisor or credit counselor would be very helpful for you,"  But I would not try to become her financial advisor or credit counselor.  

[chocolatechip]

I would caution her to look closely at the terms -- most student debt is unaffected by bankruptcy, as some PPs pointed out.

[nevergiveup]

You ladies are very wise; thank you for all the advice.  There are several aspects of this situation I did not think about, that is for sure.

Jean, you are very insightful:  I, too, can see frustration in the future on both our parts.  I seem to be her "go to" person for help, but I think I will have to step back on this one.

 

Thanks everyone!

[Lanny]

If everyone is suggesting Bankruptcy to her and if she is contemplating Bankruptcy, she should arrange a Free appointment with a Bankruptcy Attorney, to discuss the various types of Bankruptcy and the pros and cons. I believe (but am not sure) that Bankruptcy is to protect assets and it sounds like she  has very few assets to protect. She needs to get a full time job. Starting a new business is something that costs $ and takes time and that may or may not succeed. The Bankruptcy Attorney can suggest the best way(s) for her to protect the assets she has. The Bankruptcy laws in each state are different, regarding what can be protected.

[umsami]

Thanks, umsami--it is good to hear directly from someone who was in the business.  Did you have your own shop or did you work for another place?  Why did you stop (if you don't mind my asking)?

 

I had my own outcall business, which means that I would go on house calls.  I also worked for businesses doing chair massage, which gave me some regular clients, but destroyed my forearms. (Why I left…and went and got my MBA).   This was 20 years ago, and it was tough then.  The massage schools have exploded in that time.  The rate for a massage has not changed.  What did change is the business model with the subscription-type plans like Massage Envy, which is great for new therapists.  

 

She can still start her own practice and have regular clients and have a "real" job too.  Most clients are not daytime.  They're evening or weekends.  Even working retail, and then doing massage therapy makes sense.  It's tempting to say, oh I'll make $65/hour or whatever doing my own outcalls…and start adding it up….but reality is that regular clients are not that regular.  IMHO, massage therapy is much better as a supplement career.  An extra $150 or more/week is great.  

 

Christmas is coming and gift certificates are always big business.  She can try and sell some and then benefit from the fact that strangely not everybody redeems them…even for a free massage. :)

[nevergiveup]

If everyone is suggesting Bankruptcy to her and if she is contemplating Bankruptcy, she should arrange a Free appointment with a Bankruptcy Attorney, to discuss the various types of Bankruptcy and the pros and cons. I believe (but am not sure) that Bankruptcy is to protect assets and it sounds like she  has very few assets to protect. She needs to get a full time job. Starting a new business is something that costs $ and takes time and that may or may not succeed. The Bankruptcy Attorney can suggest the best way(s) for her to protect the assets she has. The Bankruptcy laws in each state are different, regarding what can be protected.

Hmmm--I didn't know there was such a thing as a 'free' appointment when one is referring to lawyers!  I will suggest this to her.

Thanks!

[nevergiveup]

I had my own outcall business, which means that I would go on house calls.  I also worked for businesses doing chair massage, which gave me some regular clients, but destroyed my forearms. (Why I left…and went and got my MBA).   This was 20 years ago, and it was tough then.  The massage schools have exploded in that time.  The rate for a massage has not changed.  What did change is the business model with the subscription-type plans like Massage Envy, which is great for new therapists.  

 

She can still start her own practice and have regular clients and have a "real" job too.  Most clients are not daytime.  They're evening or weekends.  Even working retail, and then doing massage therapy makes sense.  It's tempting to say, oh I'll make $65/hour or whatever doing my own outcalls…and start adding it up….but reality is that regular clients are not that regular.  IMHO, massage therapy is much better as a supplement career.  An extra $150 or more/week is great.  

 

Christmas is coming and gift certificates are always big business.  She can try and sell some and then benefit from the fact that strangely not everybody redeems them…even for a free massage. :)

I think this is exactly what she is doing (above bold).  She has said that she "only" needs 2 clients per day, 5 days per week, 4 weeks per month in order to make a living (and this is with her part time job).  I pointed out that that is 40 people coming on a regular basis and I just can't see that happening, but I don't want to sound like a pessimist, either.  I guess she will just have to see what the future brings by living it.  Thanks for sharing your experience.

[umsami]

I think this is exactly what she is doing (above bold).  She has said that she "only" needs 2 clients per day, 5 days per week, 4 weeks per month in order to make a living (and this is with her part time job).  I pointed out that that is 40 people coming on a regular basis and I just can't see that happening, but I don't want to sound like a pessimist, either.  I guess she will just have to see what the future brings by living it.  Thanks for sharing your experience.

 

Yes :)  Most new therapists do this…and reality is quite different.  I have a handful of friends who have stayed in the business over the past 20 years, and it is still a struggle.  A few have gone on to become certified as estheticians because it expands what they can do, while giving their arms more of a break.  As a standalone, it's tough to have regular steady clients.  It's tough to establish referral patterns when say chiropractors employ their own therapists these days so have no incentive to.

[Lanny]

Hmmm--I didn't know there was such a thing as a 'free' appointment when one is referring to lawyers!  I will suggest this to her.

Thanks!

 

When I lived in Texas, in the TV section of the Dallas Morning News on Sunday, there were tons of ads for Bankruptcy Attorney's advertising their services. And I remember seeing them on TV and probably hearing their ads on the radio. Many of them will give a free introductory appointment. Obviously, a Bankruptcy Attorney who does that is hoping the people who come in for the free appointment will sign up as a client.  There may be better legal  options for your friend, that will be less damaging to her than filing Bankruptcy. 

[JumpyTheFrog]

We have a culture of "you must think positively!" People who see the downside of things are often called naysayers. It sounds like your friend has unrealistic optimism and would be unwilling to listen to anyone who she thinks sounds like a "pessimist."

 

I found out the hard way with my brother that most people only want to hear that their idea is sure to work. He had posted on Facebook about wanting to get into the career my DH is in. He seemed to think he could support himself after just 3-6 months. Now it took DH that long, with good connections through the apprenticeship he did just to get his first $500 job. I made the mistake of mentioning that what my brother wanted to do would take years of hard work. He got all offended and then I realized that no matter what he had written, all he wanted was to hear "That's a great idea." So now if I think something is a dumb idea, I try very hard to just tell the person "good luck."

[JumpyTheFrog]

I think in your case, your friend is making many decisions based on her feelings, rather than reality. Probably the only thing you might be able to get away with saying without damaging the relationship is something like, "When my sister was deep in debt she got an extra job and used the money to do a debt snowball" or "My neighbor was having financial trouble and really his life together after he started listening to XYZ podcast/radio show or read ABC book."

[sandalwood]

You've gotten some awesome advice for sure.  

 

Sometimes we can't "make" anyone do the right thing or the "best" thing.  It's sounds like she does need to talk to someone.  Yes, there are attorneys who only specialize in bankruptcy.   She can get a free appt. with one and at least find out fees/costs, regulations, etc. Like I said, it is not as easy as it used to be.    Then, of course when it is all said and done there is a court date, etc.   It is not the walk in the park she thinks it might be.  Back in the day (before homeschooling, a long time ago so rules probably have changed!!!), in MS you met at a federal courthouse with others who filed bankruptcy and you acutally were called up one at a time to a long table in the front of the room and met with several people  and asked a few questions and they signed off on it --  it is not the walk in the park she is probably thinking it is.  It sounds like she just needs some guidance but she probably needs some counseling like others have said.  Do you know if one of the churches in your area does free credit counseling by those who have been trained to do that???  That might be a good start. I know when we lived other places, that was an option at several of the bigger churches.  Here is a couple of links from a super quick google search about b'ruptcy court just as an FYI... again this may not be correct in your state!

 

http://www.attorneys.com/bankruptcy/what-to-expect-when-you-get-to-bankruptcy-court/

 

http://www.moranlaw.net/341.htm

 

I wish her the best and I hope she figures it out.

 

 

[Cindy in FL.]

My dh is a bankruptcy attorney. He offers free consultations and will tell people if he does not think that filing bankruptcy is the best option for them. He has people argue with him about it sometimes! A good, reputable bankruptcy attorney should steer your friend in the right direction.

[nevergiveup]

You've gotten some awesome advice for sure.  

 

Sometimes we can't "make" anyone do the right thing or the "best" thing.  It's sounds like she does need to talk to someone.  Yes, there are attorneys who only specialize in bankruptcy.   She can get a free appt. with one and at least find out fees/costs, regulations, etc. Like I said, it is not as easy as it used to be.    Then, of course when it is all said and done there is a court date, etc.   It is not the walk in the park she thinks it might be.  Back in the day (before homeschooling, a long time ago so rules probably have changed!!!), in MS you met at a federal courthouse with others who filed bankruptcy and you acutally were called up one at a time to a long table in the front of the room and met with several people  and asked a few questions and they signed off on it --  it is not the walk in the park she is probably thinking it is.  It sounds like she just needs some guidance but she probably needs some counseling like others have said.  Do you know if one of the churches in your area does free credit counseling by those who have been trained to do that???  That might be a good start. I know when we lived other places, that was an option at several of the bigger churches.  Here is a couple of links from a super quick google search about b'ruptcy court just as an FYI... again this may not be correct in your state!

 

http://www.attorneys.com/bankruptcy/what-to-expect-when-you-get-to-bankruptcy-court/

 

http://www.moranlaw.net/341.htm

 

I wish her the best and I hope she figures it out.

I never thought about churches as being a resource.  And, you are correct in thinking that she thinks it will be easy.  One of her sisters declared bankruptcy some years ago and she never saw her suffer much.

Thanks for the info!

[nevergiveup]

My dh is a bankruptcy attorney. He offers free consultations and will tell people if he does not think that filing bankruptcy is the best option for them. He has people argue with him about it sometimes! A good, reputable bankruptcy attorney should steer your friend in the right direction.

I am glad to hear that a good attorney will not just try to "sell" her on the idea.  She has been less than happy with her divorce attorney.  Finding another attorney who will give her a good, solid, free consultation would be a huge asset.  Any tips on finding one?

[poppy]

. She wants her debt to go away, be her own boss, work minimal hours?? Tell her she is being a fool. Honestly. A good friend sometimes gives the hard truth.

[Cindy in FL.]

The Bar has a referral service for each state that she could contact. Other than that, I'm not sure. Dh gets some business by word of mouth, and most from yellow page and online advertising. Your friend could look up some local attorneys and then see if she could Google them and find any reviews on them.

 

I am glad to hear that a good attorney will not just try to "sell" her on the idea. She has been less than happy with her divorce attorney. Finding another attorney who will give her a good, solid, free consultation would be a huge asset. Any tips on finding one?

[KenPatrick]

This is a situation where I would keep my mouth shut as it's too personal a decision, and I wouldn't be able to say anything positive about her plans.

The three prior divorces would make this a non-starter, as far as I'm concerned. Does he have financial obligations to some or all of the prior families? The quitting her job and moving strikes me as a very bad idea for someone in a precarious financial position, particularly in a lousy economy, unless she's in a great field or has something lined up.

If there is an outstanding mortgage, I'm not sure on your thinking about it being 100% equity with the parents involved. They might be willing to help with the current mortgage payments, but that means nothing about the equity in the house. She could actually have negative equity, even with the parents helping out, if the house is worth a lot less than what she paid for it.

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