Americans are taught that the only thing worse than the utter moral failing of bankruptcy, is the abject disaster it will cause your life.
Both of these are a lie, propagated by creditors, most of whom use bankruptcy, loan renegotiation, and loan default as a daily business tactic.
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Bankruptcy is not a moral failing. Nearly all loans and credit cards are legally stacked to keep you in debt as long as possible, if not forever. They hold all the cards. You are the patsy.
Prior to the 80's, the common 19%, 21% and 30% interest rates credit cards regularly, currently charge was considered criminal loan sharking. This changed when South Dakota changed its laws to attract the credit card companies.
Honestly, the second it becomes clear you can't manage to pay your debts (especially when CC debt is involved) file for bankruptcy. If you're more than 6 months past due...file. This is even more true when you have few to no assets.
Granted, a bankruptcy on your record will make it harder to rent an apartment, buy a car, or buy a house - but generally no more difficult than a credit report with multiple 90 day lates on it!
After filing for bankruptcy, you will get endless offers of credit (since they know you can't go bankrupt again.) So, the only fear there is you'll sink yourself again. But if you're worried you can't get ANY credit - that's just a lie.
Anyway, after 10 years, it leaves your credit report. Which is, honestly, about how long it takes to get all those 90 days late to stop affecting your credit as well.
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If you're still hesitant to actually declare bankruptcy, you can still use it as a tactic to renegotiate your debts. If you pay an initial filing fee with a bankruptcy lawyer (it is usually $2000 for the whole bankruptcy, but after you pay around 10%-20% of that) you can start referring creditors to them. After the first time the creditor is forwarded to a bankruptcy attorney, you will be amazed how few pennies on the dollar a debtor will accept to cancel out the debt (especially if you'll qualify for a clean chapter 7.)
Now, the canceled debts still negatively affect your credit report, and you may have to pay taxes on the canceled portion (the IRS will consider it income at that point) - but this is still better than what happened in the story (I.e. lots of 90 days late already destroying her credit report, and a CC taking 25% of your paycheck, which even the IRS generally won't do for back taxes. They'll work out a reasonable payment plan with you.)
