A reader asks:
I messed up big time but I’ve learned a lot of lessons.
- I earned just a hair shy of $200,000 in my first year as a real estate agent at 20 years old.
- I was way too immature to have that kind of money, and blew most of it without saving.
- I invested my tax savings in growing my team which I thought would have been an easy pay back. Lost it all. No worries though just sell more houses.
- Depression strikes, mother gets very sick, I took on an expensive apartment and car. Not emotionally mature enough to handle these things like an adult yet.
- Hemorrhaging $7k on personal bills/supporting family/business expenses = did not pay the tax man + credit cards maxed and near collections.
- Realized that I hated real estate, and only was in it for the money. Lost many good relationships.
- (insert life changing self development story) I feel like a new man and my I’ve never been happier than this moment.
- I let go of my ego attached to being a realtor and quit to find something I’m happy doing. I’m extremely entrepreneurial and love working with business owners, because there’s very low competition for me and the company is getting well known while In early stages I can’t say any more.
- Things are looking up, time to take care of my debt.
Story time over. Here’s the hard facts.
- Owed income tax: $32,000
- GST owing: $7,000
- credit cards (in collections): $6,000
- private debt (angel who is giving me time):$15,000
Assets: Nothing. Credit score: 570.
Things are looking up now. Assuming I earn enough to pay back all this debt, it would still take me roughly 4-7 years. Then I would be at square 1, with still shitty credit, and no money.
Bankruptcy: saving $60,000 forward over that time period. Not stressing about back debt, clean start, shitty credit file (nothing I can’t manage with).
I’m not panicking, I just genuinely believe it may be the best option. Even if bankruptcy is declared I will still pay back the Angel who is owed $15k no matter what, he’s a good man with a good heart who’s helped me immensely, even if legally I don’t have to pay him I will.
TLDR: I have no assets, money is starting to come in, I owe $60,000 all together, my credit is shit already. Do I wipe the debt clear with bankruptcy and start saving? Or do I spend the next 5 years paying it back, And then still have no savings but at least no bankruptcy?
First, you should be pretty proud of yourself – earning $200,000 at 20 years old in sales is pretty damn impressive. Once you learn how to better manage your personal finances you’ll be pretty much unstoppable.
Now, to address you query about filing bankruptcy:
- When you file for personal bankruptcy, your creditors are subject to a “stay of proceedings”. This basically means that you’re under bankruptcy protection. Two things happen: (i) interest stops accruing on your debt; and (ii) your creditors cannot commence or continue legal action to recover their debts from you (e.g., no wage garnishments, bank garnishments, lawsuits, etc.).
- However, filing bankruptcy does not make your debts go away. Your debts are only extinguished when you obtain your discharge from bankruptcy. If you’ve never been bankrupt before, you are eligible for an automatic discharge either 9 months or 21 months after after filing bankruptcy.
- Assuming you’re single with no dependents (i.e., no under aged children), if your average net monthly income during the first 9 months of your bankruptcy doesn’t exceed $2,203.00 you’ll receive your discharge in 9 months
- OTOH, if your average net monthly income during the 9 months exceeds $2,203.00, your bankruptcy will be extended for an additional 12 months after which you’ll be discharged after you’ve made surplus income payments into your bankruptcy.
- What is surplus income? The concept is simple: your creditors are “innocent bystanders” – they wouldn’t have lent you money in the first place if they knew you’d be filing for bankruptcy. Consequently, if you have the ability to repay some of the money back to your creditors, you should do so. The formula for calculating your surplus income obligation is:
(average net monthly income during first 9 months – $2,203) x 50% x 21 months = total surplus income obligation
So during your bankruptcy, your Trustee will have to monitor your income and the more you earn, the more you’ll have to repay to your creditors in accordance to the surplus income formula above before you obtain your discharge.
Moreover, if you have any assets, your Trustee will have to liquidate them. In your original post, you mentioned that you “took on an expensive apartment and car” but later mention that you have no assets. Were the apartment and car rentals?