Dealing with bankruptcy and credit card debt

Ask the expert: Do bankruptcy and credit card debt mix?

Question: In 1997, I declared bankruptcy after a terrible divorce. I was doing fine until I got laid off a few years ago. My problem is, when I’m under stress, I like shopping therapy. It never really works but I keep doing anyway.

Even though I have a wonderful new job, it doesn’t pay what my old one did, and I have more than $20,000 on various credit cards. I’m getting angry calls from debt collectors, and the stress is making me lose my hair — literally!

So I’m considering bankruptcy again. I hear the law has changed, but it’s hard to figure it out by searching the Internet. Can you give me some advice?

— Vanessa in Tennessee

Howard Dvorkin CPA answers…

Howard Dvorkin on how to get out of debt fastMore so than any other financial topic, bankruptcy is both complicated and depressing. Think about it: Mortgages are also complex, but after you navigate the process, you own a house!

Bankruptcy, however, is simply a “fresh start,” says the federal government. Unfortunately, the government’s explanation of the process isn’t exactly user-friendly — it’s called “Bankruptcy Basics,” but it looks like this. Not very basic, is it?

So here are three crucial things to know, Vanessa…

1. Chapter and verse

Most people only ever hear about two kinds of bankruptcy, although there are more: Chapter 7 and Chapter 13.

The former is much more popular — about twice as many Americans filed Chapter 7 than Chapter 13. Why? Because Chapter 7 is called “liquidation.” Essentially, your assets are sold off to pay whatever debts can be covered. The rest of your debts are forgiven.

Meanwhile, Chapter 13 is often called “debt adjustment.” Why? Because a bankruptcy judge creates a plan for you to pay back your debts. Now, I know what you’re thinking: “Why would I choose to pay something back if I can simply walk away debt-free?”

Like everything else in bankruptcy, the answer is: It depends. For example, under Chapter 13, you can keep all your property. Don’t have any? Then Chapter 7 is probably best.

2. What a “means test” means

When you sought bankruptcy protection, Vanessa, the law was different. That was before 2005, when Congress created something called a means test. Basically, someone else — appointed by the bankruptcy court — studies your financial situation and decides if you even qualify for Chapter 7 or 13.

Bottom line: It’s indeed harder to declare bankruptcy today than it was before 2005.

3. There’s good news

While the government has made bankruptcy more complicated than it once was, the private sector has stepped in to make it easier. has partnered with some of these experts, and you can ask them for a free consultation.

Also, I don’t want to end my reply without addressing something you said in passing. While we talked a lot about bankruptcy law, there’s another called the FDCPA — short for Fair Debt Collection Practices Act. It protects you from harassing debt collectors. I urge you to read about that in’s Collector Harassment section, where you can also sign up for help in ending any harassment you’re facing.

Finally, Vanessa, also offers all sorts of free advice on controlling your spending. I hope you’ll click around the site — and I hope you’ll find some other hobby than shopping!


Have a debt question?

Email your question to and Howard Dvorkin will review it. Dvorkin is a  CPA, chairman of, and author of two personal finance books, Credit Hell: How to Dig Yourself Out of Debt and Power Up: Taking Charge of Your Financial Destiny.

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