James Trewartha, an assistant principal in Virginia, filed for Chapter 13 bankruptcy protection with his wife.
Credit...Hadley Chittum for The New York Times

They Were Ashamed About Their Debt. Bankruptcy Gave Them a Second Chance.

Many people who should consider filing for bankruptcy avoid doing so out of shame or fear it could ruin their credit. But it can provide much-needed relief.

by · NY Times

In my 20s, while attending law school at New York University by day and concerts by night, I racked up over $30,000 in credit card debt. I wasn’t thinking about my credit score; I was solely living in the moment.

After three years, I left law school without graduating. The $40,000 salary for my administrative assistant day job barely covered rent and student loans. I made minimum payments on my credit cards, cringing as hefty interest rates ballooned my balance.

A friend whom I confessed all this to advised me to “never declare bankruptcy,” citing a bad experience. He was older and, I assumed, wiser, so I took his words to heart, crossing that option off my list.

Instead, I consolidated my debt with a service that promised to streamline the repayment process. But because my monthly income wasn’t high enough to pay extra toward the principal, I didn’t make much headway after several years of making payments. So I researched bankruptcy options, discovered that I was eligible and decided to file. The process was far less painful than I had anticipated, wiping my debt slate clean.

I regret not filing sooner. Many people avoid filing for bankruptcy out of shame and embarrassment around their financial circumstances, because they receive poor advice or because they’re too proud. But bankruptcy may be a prudent option to eliminate burdensome debt, save a home from foreclosure and end collection calls.

According to Adrienne Hines, a bankruptcy lawyer in Port Clinton, Ohio, who has a popular TikTok account where she offers advice, many of her clients feel they have an obligation to pay off the debt themselves.

“It makes me so heartbroken to see people sit in their own misery thinking that it’s their own fault,” Ms. Hines, 53, said. Creditors, she said, can run amok with unsecured lending, and bankruptcy is one solution that the government provides to protect people.

The two bankruptcy options for individuals are Chapter 7 and Chapter 13 of the federal bankruptcy code. Chapter 7, also called liquidation, is the easier and more coveted option because you typically don’t have to pay back any of your unsecured debt, Ms. Hines said. However, you do have to meet an income limit for your household size based on your state; a means test is used to determine eligibility.

If you don’t qualify for Chapter 7, you may be eligible for Chapter 13 bankruptcy, in which the debtor creates a plan that’s submitted to a bankruptcy judge to pay back your creditors over a three- to five-year period. The crucial advantages of Chapter 13, Ms. Hines said, are that interest stops accruing on your debt and “a federal bankruptcy judge is there to protect you from your creditors” so they can’t sue you, repossess your car or foreclose on your house.

There are downsides to filing for bankruptcy. Bankruptcy remains on your credit report for up to 10 years and can have an effect on your ability to borrow money. It can deduct up to 200 points off your credit score. Some of your nonessential assets can be sold to help pay off your debt. Even then, under the right circumstances, it can offer you a fresh start.

The Right Candidates for Bankruptcy

A good candidate for bankruptcy has over $10,000 in unsecured debt — such as credit cards, medical bills or personal loans — and no plan to pay it off within three years or less without borrowing more, Ms. Hines said. Those who fit these criteria should consult with a bankruptcy lawyer, many of whom offer free consultations.

For James Trewartha Jr., an assistant principal in the Hampton Roads area of Virginia, the $18,000 debt that he shared with his former wife, incurred when she was unable to find a job and he wasn’t earning enough money, kept him up at night.

“When you have the stress of money and finances, it consumes you — it’s all you think about,” Mr. Trewartha, 46, said. After the couple had a baby in 2010, they had to charge formula on credit cards.

Mr. Trewartha said the decision to file for Chapter 13 bankruptcy as a married couple was “such a relief,” as the incessant phone calls from creditors he had been receiving at work and at home ceased.

He has since been able to rebuild his credit, aided by the recent forgiveness of his student loans, which generally aren’t covered in bankruptcy filings.

Cara O’Neill, a lawyer in Pleasanton, Calif., and the author of “The New Bankruptcy,” said it was to a debtor’s advantage to work with a qualified lawyer because “most bankruptcy lawyers can predict a bankruptcy filing’s outcome with great accuracy, including potential hiccups, and take steps to remedy problems proactively.” She suggested checking hearing calendars at local bankruptcy courts to find a lawyer.

Bankruptcy lawyers’ fees vary based on location and a case’s complexity, but Ms. Hines said that in her Ohio area, the cost could start at $1,500 for a straightforward Chapter 7 case.

For Robb Platt, a special-education teacher in Las Vegas, health issues from slip-and-fall injuries made him take a medical leave of absence in 2023, kicking off a debt spiral. He used all his available sick days, and was not paid for three months, forcing him to live off credit cards, payday loans and food found in trash cans. He eventually lost his lease and moved into a friend’s garage.

Mr. Platt, 46, racked up just over $100,000 in unsecured debt, along with $145,000 in student loans. He lived paycheck to paycheck juggling 16 credit cards, refinancing and transferring balances.

Mr. Platt tried to stanch the problem by using a credit counseling service, but never received the promised letter from it stating he had completed the program.

In 2018, he spent $300 to consult with a bankruptcy lawyer, but his friends’ skepticism put him off, convincing him that bankruptcy was “terrible.”

A credit card company garnished his wages, and Mr. Platt began supplementing his income by teaching adult education classes. He started to feel as if there “was no end in sight.”

Mr. Platt finally filed for Chapter 7 bankruptcy in January, prompted partly by effective advertising and social media.

“I think my phone probably listens to me and the algorithm put things together,” he said. He was served ads about bankruptcy and discovered lawyers on TikTok like Jay Fleischman and Ms. Hines, whose videos he praised as giving him hope for a second chance.

Overcoming Shame Around Debt

Thomas Faupl, a licensed psychotherapist in San Francisco who works with clients around their finances, said working with a financial therapist in addition to a lawyer provided an opportunity for those filing for bankruptcy to regain confidence.

“When people feel shame, they go into a freeze — they don’t take action,” he said. “We want to unpack that shame.”

It’s important, Mr. Faupl added, to get support from friends or family, or join a group such as Debtors Anonymous.

Mr. Faupl worked part time for 12 years at a nonprofit providing financial counseling and education services and said a consumer counselor could be a cheaper alternative to paying a therapist out of pocket.

In addition to discussing feelings, there are financial literacy skills to learn, such as how to develop a saving and spending plan and how to read credit reports. The National Foundation for Credit Counseling also provides access to free counseling.

When Bankruptcy Isn’t the Right Solution

For Deborah Johnson Miranda, a money coach in Seattle and caregiver for her sister, who has Down syndrome, a trip abroad in 2015 resulted in a financial crisis. She was being paid as a full-time caregiver, but while she was out of the country, she called to confirm her monthly hours in order to be paid but couldn’t get through to the appropriate number.

That missed payment made her unable to pay her mortgage that month. Because she lacked savings, “everything snowballed,” Ms. Miranda, 54, said. At the end of 2016, she began receiving letters threatening foreclosure.

Ms. Miranda wanted to keep her house, so she looked into bankruptcy. She chose a law firm that told her she was a good candidate for Chapter 13 bankruptcy and filed in 2017. But even though she made on-time payments on her plan for the next six months, her case was dismissed, with the trustee saying she didn’t have enough income to qualify for Chapter 13, a possibility that her lawyer hadn’t discussed with her. Her payments were refunded, putting her back at square one.

Ms. Miranda had her mortgage transferred to a different servicer and tried to resolve the situation on her own. But she was unsuccessful, and in 2019, she refiled for Chapter 13 with a new lawyer, with the same result.

Her worst-case scenario came with a lesson: “It wasn’t until I was forced to sell the house that I realized maybe this all happened for a reason,” Ms. Miranda said. “The house needed a lot of work, so if I had been able to make those payments, it would have stretched me completely thin.”

Ms. O’Neill said that with Chapter 13, if a case was dismissed before being approved by a bankruptcy judge, “it’s likely because the plan didn’t pay creditors properly or the filer’s documentation didn’t prove an ability to afford the plan payment.”

In retrospect, Ms. Miranda said, “I wish I had gone to attorneys who dealt only with foreclosures.” She added, “If they had been real with me and said, ‘They aren’t going to approve you with your income even if you can make the payments,’ who knows?”

Life After Bankruptcy

Mr. Platt said his successful bankruptcy took away “a huge amount of anxiety.” Before he filed, he calculated the wisdom of every purchase. His grocery budget was $30 per week, and he was very aware that each dollar spent was the equivalent of a third of a pack of ramen. Now he treasures simple indulgences, like subscriptions to streaming services.

Despite the outcome of her bankruptcy filings, Ms. Miranda is grateful for the experience, which changed her outlook on her finances and led to her becoming a money coach.

Mr. Trewartha is thankful for the “restart” the bankruptcy process gave him. Without it, “I don’t know that we would have ever gotten out of that,” he said.

There’s light at the end of the tunnel after a bankruptcy. My current credit score is in the 800s, I own a home with my boyfriend (purchased under his name because of my credit history) and I’m fanatical about paying my credit cards immediately after making a purchase, things I never could have foreseen when I was having charges declined at stores.

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