- Advertisements Promising
- May Be Offering
Washington, D.C. -- Debt got you down? You're not alone. Consumer debt
is at an all-time high. What's more, record numbers of consumers-more than
1 million in 1998-are filing for bankruptcy. Whether your debt dilemma is
the result of an illness, unemployment, or simply overspending, it can
seem overwhelming. In your effort to get solvent, be on the alert for
advertisements that offer seemingly quick fixes. While the ads pitch the
promise of debt relief, they rarely say relief may be spelled
b-a-n-k-r-u-p-t-c-y. And although bankruptcy is one option to deal with
financial problems, it's generally considered the option of last resort.
The reason: its long-term negative impact on your creditworthiness. A
bankruptcy stays on your credit report for 10 years, and can hinder your
ability to get credit, a job, insurance, or even a place to live.
The Federal Trade Commission cautions consumers to read between the
lines when faced with ads in newspapers, magazines or even telephone
directories that say:
"Consolidate your bills into one monthly payment
"STOP credit harassment, foreclosures, repossessions,
tax levies and garnishments," "Keep Your Property."
"Wipe out your debts! Consolidate your bills! How? By
using the protection and assistance provided by federal law. For once, let
the law work for you!"
You'll find out later that such phrases often involve bankruptcy
proceedings, which can hurt your credit and cost you attorneys' fees.
If you're having trouble paying your bills, consider these
possibilities before considering filing for bankruptcy:
- Talk with your creditors. They may be willing to
work out a modified payment plan.
- Contact a credit counseling service. These
organizations work with you and your creditors to develop debt repayment
plans. Such plans require you to deposit money each month with the
counseling service. The service then pays your creditors. Some nonprofit
organizations charge little or nothing for their services.
- Carefully consider a second mortgage or home equity line of
credit. While these loans may allow you to consolidate your
debt, they also require your home as collateral.
If none of these options is possible, bankruptcy may be the likely
alternative. There are two primary types of personal bankruptcy: Chapter
13 and Chapter 7. Each must be filed in federal bankruptcy court. The
current filing fees are $160. Attorney fees are additional and can vary
widely. The consequences of bankruptcy are significant and require careful
Chapter 13 allows you, if you have a regular income
and limited debt, to keep property, such as a mortgaged house or car, that
you otherwise might lose. In Chapter 13, the court approves a repayment
plan that allows you to pay off a default during a period of three to five
years, rather than surrender any property.
Chapter 7, known as straight bankruptcy, involves
liquidating all assets that are not exempt. Exempt property may include
cars, work-related tools and basic household furnishings. Some property
may be sold by a court-appointed official-a trustee-or turned over to
creditors. You can receive a discharge of your debts under Chapter 7 only
once every six years.
Both types of bankruptcy may get rid of unsecured debts and stop
foreclosures, repossessions, garnishments, utility shut-offs, and debt
collection activities. Both also provide exemptions that allow you to keep
certain assets, although exemption amounts vary. Personal bankruptcy
usually does not erase child support, alimony, fines, taxes, and some
student loan obligations. Also, unless you have an acceptable plan to
catch up on your debt under Chapter 13, bankruptcy usually does not allow
you to keep property when your creditor has an unpaid mortgage or lien on
Visit the Federal Trade Commission web site, or
contact the AFSA's Education Foundation at 1-888-400-2233 for more
credit/money management information.