Bankruptcy Isn’t Right For Everyone with Overwhelming Debt

 Most experts recommend that if you cannot pay back outstanding consumer debt in 3 to 5 years, bankruptcy may be the best option for you.  Of course, bankruptcy isn't an "easy" out.  Depending on which kind you file, it can make it difficult for you to obtain new credit for up to 10 years, a consequence that must be weighed against the benefit of relief from your debts. The two types of bankruptcy are:

• Chapter 13, or "reorganization," allows debtors with a steady income to pay off all or part of their debts over a 3 to 5 year period instead of surrendering property.
• Chapter 7, or "straight bankruptcy," is the most drastic type of bankruptcy. Debtors turn over to a court representative all of their assets for distribution to creditors. Unlike Chapter 13, there is no repayment plan, and the court will then declare that legally the debtors are no longer in debt.

Before you decide whether either of these choices is right for you, you may want to go through your credit report and find out exactly how much you owe and to whom you owe it.  By seeing everything on one page, you may realize the amount you owe is less than you thought.  You can also consider calling creditors and working out repayment plans.  Although some of these accounts may be considered settled, that is less serious than a bankruptcy. Additionally, it’s always important to check your credit report for possible inaccuracies so you’re sure that potential lenders are basing decisions on your accurate credit history.

One easy way to get started is to get a FREE credit report and a 30-day free trial of the CreditCheck Monitoring Service. You’ll not only see where your credit stands now, but you can track improvements with monthly online Monitoring Alerts that inform you of key changes to your credit file. As a CreditCheck member, you’ll also have access to unlimited free credit reports, so you can check your credit file anytime.

If after looking at your credit report you are still feeling overwhelmed, you might also want to consider credit counseling or enlist the aid of a local branch of the nonprofit National Foundation for Consumer Credit (NFCC). The NFCC offers free or low-cost debt counseling, financial education, budgeting assistance, and other financial services for consumers. To locate an office nearby, you can check the NFCC web site at http://www.nfcc.org or call toll-free 1-800-388-2227 for 24-hour automated office listings.

The NFCC also offers Debt Management Plans that can sometimes lower your payments, fines, or interest. A Debt Management Plan offers a systematic way to pay down outstanding debt. You would deposit your debt repayment funds with the agency each month and the NFCC would disperse the funds to your creditors according to repayment plans it negotiated with them. The NFCC can often negotiate reduced or waived finance charges and fewer collection calls, so you might be able to bring your debt under control more quickly. Again, this option will still impact your credit rating and is not as good as paying off your debts in full. However, it also can be a better plan for your credit future than declaring bankruptcy.