The most widely known choices for getting out of debt are credit counseling or a debt settlement plan. But you can “DIY” more easily than you think. Many consumers believe they can’t settle their own debt. But after looking into all of your choices, you may decide to pursue a solution you never considered – or even knew about. Whatever choice you make, it’s time to dig yourself out of debt.
Bankruptcy is often the fastest and least expensive way to deal with problem debt – but it’s the last option most consumers consider.
Ironically, we live in a culture where companies file bankruptcy to deal with their underlying debt problems – and are applauded for taking action. Yet consumers suffer in silence and reject bankruptcy, because of what others may think. About 1.2 million consumers will file for bankruptcy this year, but that’s actually less than half of 1% of all individuals who file for bankruptcy, according to population data from the Census Bureau.
In my experience, consumers make decisions about filing for bankruptcy based on rumors and whispers, not facts. If they truly understood the facts, I think more consumers would file for bankruptcy sooner.
What is bankruptcy?
Bankruptcy is the process of paying back some, or all, of your debt. A Chapter 7 bankruptcy wipes out your debt in a few months and costs less than $2,000. Filing may cost much less, depending on where you live. About 70% of consumers file a Chapter 7 bankruptcy; the minority file a Chapter 13, which requires a three- to five-year repayment plan.
How does bankruptcy compare to other types of getting out of debt?
• Bankruptcy is actually a very easy process when you have a lawyer representing you.
• Bankruptcy costs less time and money. If you compare the cost of bankruptcy to the cost of a credit counseling ($50 a month x 60 months, or $3,000), you can see the time and cost savings clearly.
• In addition, if your debt is discharged quickly, you can immediately get back to rebuilding your credit. Rebuilding your credit using a couple of secured cards that report to the credit bureaus is extremely easy once you file bankruptcy. In fact,
consumers are surprised how quickly they get new offers for credit.
• Bankruptcy can stop collection calls and lawsuits, because it is the only legal tool that gives consumers power over all of their creditors. When a consumer files for bankruptcy, a creditor must accept a repayment plan based on what the person
can really afford, or eliminate their debt in a few months. Those bogged down in debt get a fresh start and a second chance to break free of an impossible financial situation, learn from their mistakes, and do better at moving forward with their
Then why don’t more consumers take advantage of bankruptcy?
The fear of social stigma holds people back from filing bankruptcy. But the reality is, very few people would ever know you filed for bankruptcy.
The bottom line is, bankruptcy shouldn’t be considered the last option of getting out of debt: It’s a bonafide choice to factor in when evaluating your best options.
Meet with a local bankruptcy attorney to discuss your situation and learn what bankruptcy would mean for you. The National Association of Consumer Bankruptcy Attorneys offers a searchable database by zip code and most offer free consultations.
Steve Rhode is a consumer debt expert who has been helping people find good solutions for bad debt problems since 1994. Having lived through financial problems, which led to his bankruptcy in 1990, he decided there must be better ways for people to face debt issues.
Suze Orman offers her advice on what debts you should consider paying off first.