Dave Says: File Bankruptcy? That’s Really Bad Advice

Dear Dave,

My husband co-signed a loan for an old girlfriend four years ago. Apparently, she hasn’t made a payment in almost two years, and a collection agency called him last week wanting the balance of $3,000. We make about $80,000 a year combined, and an attorney we spoke with recommended we file bankruptcy. Is this really the best thing to do?

— Scarlett

Dear Scarlett,

If you have the money, and you can pay it off without putting yourselves in a bind financially, do it. That’s the right thing to do, both morally and legally. If you don’t have that kind of cash on hand, try haggling with them. See if they’ll agree to settle for $1,500. At this point, they might even take less. But if they go for the idea, do not give them electronic access to your bank account. Make sure you get the agreement in writing, too, before sending them a penny.

Here’s the deal. This collector bought the loan for pennies on the dollar. It’s an old debt, and that means the expectation for collection is very low. At the same time, your husband did co-sign for the loan. They’ll probably threaten to sue and whatnot, but my guess is you can work something out. It might take two or three weeks — and a little patience — but that’s a small price to pay if it saves you a bunch of money.

Oh, and the attorney you talked to? He doesn’t sound very bright. A bankruptcy stays on your record for years. Trashing your financial life over $3,000 would be stupid.

Good luck, Scarlett!

— Dave