Dear Penny: I’m Drowning in Credit Card Debt. Should I Declare Bankruptcy?

A woman sits on her bed with an upset look on her face.
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Dear Penny,

I have so much credit card debt, I’m starting to be well under water. I am 73 years old, and I worked for 31 years as a social worker and have a nice pension. I also work as an online therapist and work on a military base as a fill in. I used to work part time. I’ve been supporting my daughter, who had a chronic illness. She passed away in November 2023.

Should I go into bankruptcy? I just work to make credit card payments. I am so heartbroken about my daughter; she was my best friend. What should I do? I live with my ex husband, and she also lived with us. Many thanks for any advice you can give me.

— Under Water and Heavy- Hearted

Dear Under Water,

I’m so sorry for your loss. Piling out-of-control costs on top of chronic illness and stressing over debt in the midst of a loss are cruelties of our financial systems that no one should have to endure — but you’re far from alone.

Bankruptcy exists to offer relief in this kind of situation. You might have to prove the debt payments are too much of a burden with your income. And a bankruptcy settlement might require you to sell any non-essential assets — like an extra car or property, or money in a savings account — to repay some of the debt. (Your primary home, vehicle and pension account should be safe.) A bankruptcy lawyer can help you determine whether that path is a good fit for your financial circumstances.

Bankruptcy wipes out your debts, and the event lives on your credit report for 10 years. It’ll knock your credit score way down for that period, so be careful about using this option if you plan to buy a house or expect to need a loan or credit for anything else in that time.

If bankruptcy isn’t right for you, here are some other options:

  • See if a debt consolidation loan could reduce your interest rate and get you a single, lower monthly payment.
  • Negotiate a lump-sum payment with the credit card companies to eliminate the debt. Speak with a lawyer to ensure you have paperwork that confirms the debt is cleared.
  • Stop making payments and let the debt go to collections; then negotiate a lump-sum payment with the debt collector (which is likely to accept a lower offer than the credit card company would). This would hurt your credit score, but for a far shorter period than bankruptcy.
  • Stop making payments, and let the debt go unpaid. This comes with the risk of being sued by a debt collector for a settlement or wage garnishment, and it’ll hurt your credit score as long as the debt is owed. About 15% of debt collection cases end up in court, according to the Consumer Financial Protection Bureau.

Dana Miranda is a Certified Educator in Personal Finance®, author, speaker and personal finance journalist. She writes Healthy Rich, a newsletter about how capitalism impacts the ways we think, teach and talk about money.