Business

The Business of Business

How to deal with credit card debt?

Wednesday, November 12, 2008 5:58 PM PST

Al Coddington

Question: I have fallen on some rough economic times and I am unable to pay all my credit cards bills. They phone me at work, they phone me at home at night, they write me threatening letters. I couldn't take it anymore. In desperation, I signed up with a debt consolidation company. They promised I would be OK. But although I have paid more than $5,000 to this company, I'm still getting calls, my credit is still whacked, and I don't even know where the $5,000 went. They explained that I can't declare bankruptcy because the laws have changed. Is there something I can do to start over?

Answer: It sounds to me like you're having a pretty rough run. After listening to your question, I wonder if the debt collection industry has your best interests and welfare at heart. There is a possibility that they are just using you to make money. I am especially interested to hear that they have advised you that you are unable to take advantage of the bankruptcy laws. It seems like this is the kind of question that would be best discussed with your attorney.

“The laws have changed,” says Jim Rush, attorney at law in Novato, “But bankruptcy still may be a viable option for anyone wishing to start over.” Rush has handled many bankruptcy cases in federal court. He is quite convincing when he explains the benefits someone like you might get by contacting an attorney.

“Chapter 7 is the traditional liquidation or 'straight' bankruptcy,” says Rush. “It typically benefits persons with limited assets and income who are looking for a fresh start. However, after the changes to the federal bankruptcy laws in 2005, not all potential debtors will qualify for Chapter 7.”

Rush continues, “Chapter 13 is a form of debt reorganization within bankruptcy. The debtor proposes a plan that provides for monthly payments to creditors over a term of three to five years, and certain debts will be discharged upon completion of the plan. Chapter 13 benefits persons who wish to keep most of their property during the bankruptcy, or those that cannot qualify to file a Chapter 7 due to a high income or substantial assets.”

Bankruptcy may or may not be the right course for you. It is a major event in one's fiscal life. Don't make the decision to enter bankruptcy lightly. It will affect you in many ways for a long time to come. However, it is right for some people. It seems unlikely that the debt consolidation company's advice, that bankruptcy protection is unavailable to you, is accurate. The best thing to do is to gather up your financial information and go seek advice from an actual attorney at law. Ask your attorney about how the law can be applied in your particular circumstance. After that you will have the information you need to make a decision as to whether bankruptcy is right for you.

You might also ask the attorney about consumer protection laws that govern when debt collectors can phone you. You may be able to avoid bankruptcy and meet all your goals through a less formal debt repayment structure that you yourself manage.

 

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