12 Mar $200,000 in debt. Is bankruptcy next?

Q. I am 62, self-employed and deeply in debt: $125,000 to the IRS, $65,000 in credit cards, $8,000 on a car loan. I have a stable job, decent income, I don’t own a home and I never plan to buy one. Should I file for bankruptcy to wipe away my debt and the crippling interest payments?
— Red-faced for mismanagement

A. That certainly is a huge weight on your shoulders.

We’re sorry you didn’t reach out for help sooner, but we’re glad you’re trying to get control of your situation.

Facing a problem is always harder when you put off the inevitable.

“When I was 7, I woke up my parents in the middle of the night to tell them I was going to get a D in a class that I was taking,” said Jerry Lynch, a certified financial planner with JFL Total Wealth Management in Boonton. “My dad’s response was, `Why are you telling me now and why didn’t you tell me this a few weeks ago when I could have helped you?'”

It’s kind of the same thing here.

Your first step would be to see a bankruptcy attorney so you can learn about your options.

Debt to the IRS is only dischargable under certain circumstances, but you’ll have to take the details of your debt to an attorney to understand your choices.

Negotiating could be an option.

The IRS may be willing to accept less if it realizes there is no way you can ever pay them, Lynch said.

The other loans are dischargeable but you would still need a car, so that’s something else to consider.

Lynch said you have to face that you have a problem.

“Unless this debt from a medical situation, you are spending money at an insane level and nothing and nobody is stopping you,” he said. “You may even want to speak to a psychologist on this as there are mental health conditions that cause major spending issues.”

After you speak to an attorney and to a doctor, Lynch recommends you give a trusted friend or family member control over your money.

“You get an envelope per week with cash and you can only spend what you agree to,” he said. “The rest of the money gets saved and you cannot have any access to it.”

Also, he said, burn the credit cards and never go there again.

Lynch said you should look carefully at your employment situation, and consider getting a full-time job instead of staying self-employed.

“Max out any retirement plan you have access to and possibly work a second job,” he said. “You need to start saving money so someday you can retire.”

Don’t even consider filing for Social Security benefits until you’re age 70, he said, so you can at least get the highest possible payment.

“The best way to solve a problem is to totally avoid it,” Lynch said. “When it becomes a big problem that is in your face, you really have no options.”

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This post was first published in March 2018.