While you may be asked to pay a nominal fee to participate in a non-profit consumer credit debt reduction program, be aware that these services receive the bulk of their income from creditors. Indeed, these services are financially rewarded every time consumers enter their counseling programs and do not make money off of consumers who by-pass their services or who declare bankruptcy. Pending federal legislation would require all consumers to enroll in a non-profit consumer credit management service program before they would be allowed to file for bankruptcy.
Avoid Credit Doctors: In contrast to the non-profit consumer credit counseling services mentioned above, be extremely cautious of the many private, for-profit credit doctors that advertise in newspapers, flyers, and send spam to your computer. These credit doctors usually charge an arm and a leg for their services and siphon money away from legitimate repayment activities. Given this, consumers should avoid these agencies. They prey on people experiencing credit problems and offer nothing more than false hope. There is very little likelihood that a credit doctor can assist in the repayment process. Instead of wasting money on the dubious services of a credit doctor, you are better off following the steps outlined above.
Bankruptcy May Or May Not Be An Option: Under federal bankruptcy law, you may be allowed to avoid or alter the amount of money owed to your creditors. Bankruptcy protection is intended to give people with significant credit problems a “fresh start” so they can resume their lives out from under the cloud of overwhelming indebtedness. The great thing about bankruptcy is that it clears out your debts. This is why many large organizations and weathly individuals choose this option. So, if you’ve got a stack of debts that you will never be able to repay, bankruptcy may be the correct choice for you.
But, do not rush off to bankrutpcy court just yet. When confronted with a sizable debt load, many people think of bankruptcy as a preferred way of dispensing with their credit problems. Bankruptcy, however, is appropriate for a small percentage of people who are in such dire financial straits that there is no realistic prospect of repayment. As a result, bankruptcy should be viewed as a last resort and should only be turned to after all other attempts to resolve credit problems have failed.
If you are considering filing for bankruptcy, consider the following:
- Under the federal Fair Credit Reporting Act, a bankruptcy will remain on your credit report for ten years from the date of entry of the order for relief or the date of the bankruptcy adjudication. This is three years longer than most other types of obligations will be reported. As a result, declaring bankruptcy may hinder your ability to get credit, a job, insurance, or even a place to live;
- A bankruptcy may not necessarily dissolve all of your debts. Alimony, child support and maintenance, educational loans, taxes, fines, penalties, and government forfeitures are exempt from bankruptcy; and
- State laws govern the types of assets you may be able to keep if you declare bankruptcy. Since these laws vary widely, check your state’s law.
Should you choose to declare bankruptcy, find a competent attorney who is experienced in federal bankruptcy law. Understand that attorneys’ fees are additional and can vary widely. Do not rely upon ads placed online, in newspapers, magazines, or telephone directories. Ask friends, relatives, or business associates for their recommendations and advice. Find legal representation that you are comfortable with before proceeding. The only way to get one good lawyer is to interview a dozen.
The Federal Reserve Board has a number of consumer publications online at www.federalreserve.gov/consumers.htm. Of particular interest is the brochure Shop: The Credit Card You Pick Can Save You Money at www.federalreserve.gov/pubs/shop/.
The Federal Trade Commission’s Bureau of Consumer Protection has a large number of consumer credit publications online at www.ftc.gov/bcp/menu-credit.htm . The FTC’s Knee Deep In Debt at www.ftc.gov/bcp/conline/pubs/credit/kneedeep.htm contains lots of useful information. If you are unemployed, check out the FTC publication Out Of Work: How To Deal With Creditors that is online at www.ftc.gov/bcp/conline/pubs/alerts/outwkalrt.htm. Other FTC publications that may be of interest include: Ready, Set, Credit at www.ftc.gov/bcp/conline/pubs/young/readycrdt.htm; Ads Promising Debt Relief May Be Offering Bankruptcy at www.ftc.gov/bcp/conline/pubs/alerts/bankrupt.htm; and Credit Repair: Self-Help May Be The Best at www.ftc.gov/bcp/conline/pubs/credit/repair.htm.
The non-profit consumer group Consumer Action has quite a few credit-related publications in its online library at www.consumer-action.org/English/library/credit_cards/index.php. Consumer Action’s brochure Understanding Credit Card Costs: Tips on Reducing Finance Charges is available online at www.consumer-action.org/English/library/credit_cards/1996_UnderstandingCreditCosts/index.php.
(1) Detailed Sources from above: American Bankruptcy Institute: www.abiworld.org/stats/newstatsfront.html;
CardFacts.com: www.cardfacts.com (media status, user name, & password required);
US Department Of Commerce, Bureau of Economic Analysis, National Income & Product Accounts Tables: www.bea.gov/bea/dn/nipaweb/TableViewFixed.asp?SelectedTable=35&FirstYear=2001&LastYear=2002&Freq=Month;
Federal Reserve Board: Statistical Release G.19, Consumer Credit, 9.9.2002: http://www.federalreserve.gov/releases/g19/ & Survey of Consumer Finances 1998;
www.federalreserve.gov/pubs/oss/oss2/98/scf98home.html.
This report was researched and written by: William Kent Burnette, Writer, Lawyer and Advocate
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