Bankruptcy and Your Money
financial situations. For more information, try the Consumer Credit Counseling Service (http://www.nfcc.org) or Debt Counselors of America (http://www.dca.org ).
Is Bankruptcy Ever the Best Alternative?
Though bankruptcy has probably become overused, there are always some consumers for whom it is the best way to begin piecing financial life back together. These people include those for whom most or all of the following are true:*
Previous attempts to control spending and credit use have failed, even with the help of a credit counselor or a debt-consolidation plan
The debtor cannot meet debt obligations on current income
Attempts to negotiate repayment plans with creditors have not worked out
The ratio of debt to annual income is at least 40% to 50%
Bankruptcy may also be preferable for those who already have a number of "charge-offs" on their credit reports. These are debts that are at least 150 days past due, are still owed, but have been written off by the creditor for accounting purposes. Debtors with several charge-offs are considered equally bad credit risks to those who have filed bankruptcy. A bankruptcy also at least indicates debt has been dealt with rather than ignored, and may actually look better on a credit report than a series of charge-offs. To find out if there are any charge-offs on your credit report, contact one of the national credit-reporting agencies, including Equifax (http://www.equifax.com), Trans Union Corp. (http://www.transunion.com), and TRW (http://www.trw.com).
The complexities of the bankruptcy process means it's good idea to hire a lawyer, which can cost anywhere from $400 to $1,000, though some legal service programs handle these cases without charging attorney's fees. Any rates and payment plans should be agreed to up front.
*Source: National Institute for Consumer Education.
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