A reader with $80,000 in credit card debt is looking for a way out, and wants to know whether bankruptcy will solve his problems.

Question: We have roughly $80,000 in credit card debt. We have 4 children, 2 in college and 2 yet to go. We own a small business that we run out of our home in addition to my being a teacher.

How much are we really going to lose through bankruptcy? We didn’t get into this situation by buying everything we’ve ever wanted! Most of it came from being in a smaller amount of debt and we’ve only ever had enough income to cover minimum payments, making no progress.

Five years ago, after searching for years for ways to try to increase our income, we bought a business that we thought would help do that. Our business is making money, but it took time to get to that point and in doing so, increased our debt significantly. We are now completely maxed out on credit cards and just about every bit of our income goes to covering minimum payments.

We struggle to have cash to buy groceries, gas, general necessities. We have avoided the thought of bankruptcy out of the fear of losing our home, our equipment for our business, the damage it would do to our children’s ability to get college loans. Can it really help us?


Steve Rhode answers…

Steve Rhode on how to get out of debt fastDear Casey,


I understand the fear and the uncertainty you have. It is absolutely understandable you are afraid or concerned.

Money problems are solved by increasing income, reducing expenses, a combination of the both, or intervention. Bankruptcy is the only legal process that forces your creditors to have to deal with the debt by eliminating it or establishing a payment plan you can afford.

Your situation is a good example of why the Federal Reserve Bank of New York says bankruptcy is better for consumers than financially limping along.

There are some important points in your situation that might impact the outcome. For example, is the business owned personally or in a corporate name?

But these questions can be resolved by meeting with a local bankruptcy attorney and discussing your particular situation. Most bankruptcy attorneys will meet with you for free to discuss your case.

Bankruptcy over business debts is a process followed by companies every single day. Even major companies like American Airlines and Radio Shack have turned to bankruptcy as a way to reorganize their debts.

Assuming this is all debt you personally owe there are two likely outcomes based on how your debt is structured and your income. One option is you will be able to file a chapter 7 bankruptcy, like 75 percent of consumers do. In that case your debt would be eliminated in about 90 days and you could get back to focusing on doing better moving forward.


If your chapter 7 bankruptcy is over then you are eligible again for federal student loans. But keep in mind, student loan debt is among the worst types of debt to have. Private student loan debt is a horrible problem for students.

The other option in bankruptcy would be a chapter 13 repayment plan where you would make payments over three to five years and at the end of that time any remaining balance due would be forgiven.

One big advantage of bankruptcy is that all the forgiven debt is not taxable as income. When a creditor forgives or writes off a bad debt you may owe tax on that forgiven debt if you are not insolvent.

But the bottom line is something is going to have to change here. It is very unsafe to live on such a narrow financial ledge. You need to take action that will get you back saving for retirement, living within your income, and setting aside money for emergencies.

Steve Rhode is the Get Out of Debt Guy. He’s been helping people with personal finance troubles through advice and education since 1994. If you would like to ask a question, visit Get Out of Debt and let Steve help you for free.

Meet the Author

Steve Rhode

Steve Rhode


Rhode has been writing since founding a nonprofit in 1994 to help people get out of debt.

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Article last modified on May 18, 2017. Published by Debt.com, LLC . Mobile users may also access the AMP Version: Get Out of Debt Guy: Is There Hope for Us In Bankruptcy? - AMP.