posted: Apr. 8, 2013 @ 5:12a
I thought about creating an alt ID to post this, but I hate when other people do that, so I decided to post on my real username. This involves my GF of several years, whom I am likely to get married to (thus why this might become "my problem"). She was sick a few years ago and racked up huge medical bills during a two year time frame when she did not have any health insurance. She used CCs to live off of and paid off her medical bills with her (meager) salary. She now knows this is a bad idea, as she could have negotiated down the medical debt easily and never had to use CCs, but thats not something that can be fixed now. The CC debt over the period of a few years was large but not insanely large until she could no longer float it on 0% or low interest cards, now its exploded to about ~80k. She has never missed a payment on any CC and everything is current. Her job situation is that shes a graduate student and isn't expected to get her PhD for 3-4 more years. She now is under the university health plan so while she still has some medical expenses, the cost is now manageable even on a TA salary.
Once she graduates she will probably start at 70-85k, but she also has about 55k in student loans from undergraduate (subsidized stafford). However, she will almost certainly get a tenure track job at a public university, so those will be forgiven after 10 years through the public service forgiveness program (thanks taxpayers!).
I am aware of three options:
(1) Bankruptcy - Wipe it all clean, deal with the 10 years bad credit. My question is - if she does something like gets a secured credit card that reports to the bureaus and keeps it at $0 balance, will the credit recover enough to where its impact will be more manageable in a few years? Or is the 10 years of bad credit basically just that - no credit of any kind from anyone until its off the credit report?
(2) Stop Paying - This will from my understanding result in 7 years of bad credit or so once the balances get charged off. However, in the mean time she gets to deal with debt collectors and given that some of the individual balances are large (1 card is a 20k balance) - will she be sued for the larger amounts?
(3) PAY YOUR BILLS DEADBEAT - Always the preferred (and in my opinion, the best option) but realistically not feasible. She would not even be in the position to negotiate a pay off for deletion type strategy until she gets a job, which again is at least 3-4 years down the road. She is currently throwing every dime she has from her $20k/year TA salary at keeping current, her only other expenses are rent and food, and its not enough to decrease the debt at all. She called all the CC companies a few months ago to ask if they would be willing to lower interest rates or work out some sort of lower payment plan, but all of them refused to do so until she was delinquent with the payments.
Which option is best here? I am leaning towards recommending she pursue bankruptcy (cost: 1.5k, according to the lawyer she talked to) just to get it over with, but it may be better dealing with debt collectors for 7 years if it means 3 years sooner where she can get credit (and use it responsibly, this time). We are of course both reading credit boards about this, but I wanted to get the FWF opinion (with all the negative that will include) as well.