Personal Finances

When You Need More Help with Your Debt: Counseling and Bankruptcy

Creditors are leery of debtors, so you may not be to convince them of your sincerity. You may need to consult with the consumer credit counseling agency in your community.

Counseling agencies

Creditors are leery of debtors, so you may not be able to convince them of your sincerity. You may need to consult with the consumer credit counseling agency in your community. Often, creditors will work with a consumer credit counseling service to renegotiate and consolidate your debt so you can make manageable payments. However, your credit rating may be damaged if your debt is not paid in full, because creditors will report charge-offs and slow payments to the credit bureaus that track consumer credit information. You also need to be careful about selecting a credit counseling or debt consolidation service, as there are many questionable firms entering the market. For a list of reputable services, you could contact the National Foundation for Credit Counseling (www.nfcc.org/), the Association of Independent Consumer Credit Counseling Agencies (www.aiccca.org/), or the Better Business Bureau (www.bbb.org/). It is a good idea to check a couple of these organizations to see what services they will provide and how much their fees are. Reputable firms charge customers low fees—creditors pay fees to credit counseling services, which saves you money.

You may need to consult a consumer credit counseling agency to help with your debts.

Bankruptcy as a last resort

If you cannot get relief from your creditors or consumer credit counseling services, you may need to consider filling for personal bankruptcy. This should probably be your last resort. If you file for protection under the U.S. bankruptcy laws, your credit report will show the bankruptcy for 10 years, which may adversely affect your ability to obtain financing or to otherwise borrow money.

Individuals filing for bankruptcy usually apply under one of two sections of the U.S. bankruptcy code: Chapter 7 or Chapter 13. Bankruptcy generally protects persons from their creditors, but how it does this is different according to the section under which one applies. Chapter 7 is generally referred to as the liquidation bankruptcy, while Chapter 13 is based upon the restructuring of debt and making payments over time.

Getting professional help with bankruptcy

Should you decide to consider bankruptcy, consult with a bankruptcy attorney in your community. Although you can file for bankruptcy on your own, the laws and rules are complex and you will probably fare better with professional help. You can check your local telephone directory, your local or state bar association, or the Better Business Bureau (www.bbb.org/) for bankruptcy attorneys in your area.

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