Bankruptcy Won't Help These Money Woes

Dear Bankruptcy Adviser,

I am debating whether to file bankruptcy. I am 28 years old and have an eviction that is ruining my chances of getting a decent apartment. I previously paid off a broken lease with another company. When I was 18, I opened some credit card accounts, never paid them off, and the accounts were closed. I also co-signed on a car that was repossessed.

Along with this, I have broken contracts with three cellphone providers, and I have a hospital bill that has not been paid.

Any help here would be great. Which type of bankruptcy would I need to file -- Chapter 7 or Chapter 13? I am just tired of not being able to get my own place, and the places that will take me are not so pleasant.

-Richard

Dear Richard,

Bankruptcy may not be the solution for you. You need to understand why you keep getting into financial trouble before making any major decisions such as filing for bankruptcy protection. A bankruptcy today will solve past issues only. For you, avoiding future financial pitfalls is just as important. You need to first get control of what appears to be a series of bad financial decisions.

That being said, there are two accounts that you could potentially file for, but hopefully you can avoid bankruptcy. Let's look at each account.

Broken lease: A broken lease may show up on your credit report. It depends if the landlord actually did evict you through the courts. If the landlord formally evicted you, the eviction usually gets reported to the credit bureaus. Future landlords that look at your credit will see that eviction even if you file bankruptcy. The negative mark remains on your credit for seven years, even while the bankruptcy eliminates your liability to pay.

Old credit card debt: You state you are now 28 years old. You may not be legally responsible to pay on these debts anymore, although they could still be on your credit report. Each state has a specific period of time, called the statute of limitations, in which a lender can sue you for an unpaid balance. The statute of limitations period begins from the date of late use or last payment on the account, whichever is later.

Once that time period runs out, the lender can only ask you to pay and not sue you to pay. If you can't be sued, you don't need to file bankruptcy to wipe them out. Eventually, they will fall off your credit report, but in the meantime, they are affecting your score.

Cellphone contracts: I will assume the balance is likely very small and the collection agency handling the account is unlikely to sue you to pay such a small balance. Sometimes you can settle these accounts for as little as 20% of the balance. While the settlement will not help your credit and will leave a mark on your credit report, it is better than having an open, delinquent account on there.

Repossessed vehicle: This account could force you into bankruptcy if the statute of limitations hasn't run out. Once the car is repossessed, the lender sells the car, and the remaining balance after the sale is your responsibility. The lender does not have to sue the primary borrower before coming after you. Usually, the co-signer had the better credit, so you are more likely to be sued. Hopefully, the remaining balance is outside the statute of limitations, but if it is not, you likely will be sued for failing to pay.

Medical bill: You don't state the balance owed, but most collection agencies want to settle these accounts and will usually do so for 20% of the outstanding balance. Obviously, the balance will determine whether you can afford to settle. It will also likely be on your credit report.

At the end of the day, if the statute of limitations hasn't run out on the repossessed car balance and the medical bill, you could potentially file bankruptcy for those two missteps. Know that most, if not all, of your financial troubles should be on your credit report if they are within the statute of limitations. These are likely what is making any landlord wary of renting to you. If you do end up filing, I would suggest filing Chapter 7, which is an elimination of all your debt. Try to confirm you are eligible for Chapter 7 bankruptcy before you file.

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