Is Bankruptcy My Only Option?

Due to loose lending guidelines and the encouragement of spending freely to spur economic growth has lead to many recent problems, most notably the Subprime mortgage crisis. But other problems are not getting the same attention because it is not affecting big business in the same manner. Bankruptcies are a serious concern for the middle/working class. Especially now with tougher bankruptcy laws enacted by Congress and less options available for the average American.

Consumer debt has risen to all time highs, according to a recent study; the average U.S. household carries $18,654 in revolving debt . More and more Americans are having a tough time keeping up with the minimum payments each month. Now consider all the Adjustable rate mortgages that have or are about to recast, and inflation, it is not hard to see that many citizens are drowning in debt. With little protection and help from the government, and rising foreclosures, many Americans will have to face a difficult decision and have to decide whether to file for bankruptcy. But is that their only option?

Bankruptcy should be the last option anyone would resort to. It has lasting effects on credit, which could report negatively on a credit report for up to 10 years . Most cases require the debtor to payback most of all the debt included in the bankruptcy because it is now harder to file for total liquidation (Chapter 7). New laws require that all debtors receive credit counseling with approved counseling agencies prior to filing a bankruptcy petition and to undertake education in personal financial management from approved agencies prior to being granted a discharge of debts under either Chapter 7 or Chapter 13 .

If not Bankruptcy, then what? A growing trend with people in financial hardship is turning to Debit relief agencies such as negotiatemydebt. Many of these offer different services depending on the specific situation. These include Debt consolidation, Debt management, and Debt settlement.

Debt consolidation is primarily for consumers that are homeowners, with equity in their property and excellent credit. Through this, a debtor would transfer all unsecured debt into a line of credit usually backed by real property. However the problem with this is that the consumer still has the debt, all be it consolidated, and now they have zero balances on the accounts they had paid off which often leads to the consumer falling deeper in debt. This also poses a risk because now this debt is secured and if the consumer goes through another hardship may face losing their home.

Debt management is a proactive tool for people trying to get rid of their debt faster. Generally the consumer contacts a debt relief company and enrolls into their program and they are placed on a budget and begin making payments to the debt relief company directly. The relief company then negotiates lower interest rates on the balances and pays off the accounts faster because more of the payment is going towards the principle rather than interest. These debt relief companies have established relationships with creditors and often are able to get a debtor out of debt within 2-3 years. This is typically ideal for people with decent credit and who have not fallen late on payments yet.

Debt settlement is the offered by some debt relief companies, as a way to avoid bankruptcy. By this point a consumer is normally behind payments and is in bad need for help before things get worse. The way debt settlement works is a debt relief company will start a trust account for the consumer and the consumer begins making payments into this account. This trust account is protected and often can only be accessed by the consumer. The debt relief company negotiates a settlement with the creditors and then pays off the settlements one at a time when the funds are available from the trust account. Typically the payments made to the account are significantly lower then the minimum payments on the accounts.

Although some of these debt relief companies have come under fire as scams, most are trustworthy and honest. A consumer wants to do their homework regardless and know the company they are working with will do the service as promised. They should check and double check the contracts, references, etc. When working with one of these debt relief companies there is a percentage their fee will be based on, typically between 15-20% of the debt that is being worked with.

This is a growing industry and working with the right company can save thousands of dollars. I would encourage all consumers in a difficult situation to do their own research, but in my research a company like Negotiatemydebt [] would be ideal, because they are a full service debt relief company which offers all the services listed above. Consumers should know that there are options out there for them.