T u r n i n g p o i n T s n Avoiding Bankruptcy Understand All Your Options for Dealing With Debt by Monica SteiniSch Being deep in debt can feel a lot like as a “fresh start.” Bankruptcy should be drowning. Just when you think you finally considered only after all other options have can keep your head above water, something been exhausted. happens to pull you back under. All it takes And you do have options. There are many for hope to disappear is another unexpected steps toward recovery you can take on your car repair, a new medical bill, or an increase own, and many others you can take with the in gas prices. At such a time, it may be help of your creditor, a counselor, or a credit tempting to throw in the towel—to ignore union adviser. Exactly which routes will be the situation and hope it resolves itself, or to available to you will depend on factors such file bankruptcy. as your financial situation, your creditors’ While the mantra “I’ll think about that policies, and your goals. In any case, the tomorrow” helped “Gone with the Wind’s” sooner you ask for help with your debt, the Scarlett O’Hara make it through another more options you’ll have. day, avoidance and procrastination are never wise strategies when it comes to dealing with debt. Neither is taking action— and far-reaching.” Bankruptcy can make particularly as drastic an action as filing for Questions: it difficult to obtain credit at reasonable bankruptcy—without considering all the rates, rent a house, get insurance, or n How can my credit union help me consequences. qualify for a particular job or promotion. avoid bankruptcy? The Federal Trade Commission (FTC), And since many filers find themselves still n What options besides bankruptcy the nation’s consumer protection dealing with the fallout many years down do I have if I’m having trouble agency, Washington, D.C., describes the the road—bankruptcy stays on your credit paying my bills? repercussions of bankruptcy as “long-lasting report for 10 years—it can hardly be touted n I have enough income to make partial bill payments. Should I file MEDICAL BILLS CUT DEEP for Chapter 13 bankruptcy, or try to repay my debts on my own? As reported in the New York Times in June 2009, high medical bills cause almost two-thirds of bankruptcies, according to a study published by The n How can I avoid getting to the American Journal of Medicine. Medical problems contributed to 62.1% of point where bankruptcy seems like all bankruptcies in 2007. That number probably has increased during the my only option? current recession, which began in December 2007. The report also noted n I’m having trouble paying my that, between 2001 and 2007, the percentage of all bankruptcies attributable bills. Should I file for bankruptcy? to medical problems surged by 50%. Among families bankrupted by medical problems, those with private insurance had average medical bills of $17,749, compared with average costs of $26,971 for those without insurance. “The U.S. health care financing system is broken, and not only for the poor and uninsured,” wrote the study’s authors. “Middle-class families frequently collapse under the strain of a health-care system that treats physical wounds, but often inflicts fiscal ones.” Turning Points 2 Avoiding Bankruptcy How can my credit union who participate agree to lower payments, troubles and bankruptcy. “Emergency help me avoid bankruptcy? reduce interest rates, waive fees, and re-age savings is hugely important, especially accounts. Counseling is free or low cost. in uncertain times,” says Todd Mark, vice The people at your credit union strive to There is a DMP fee of $20 to $50 per month, president of education for Consumer Credit maintain a lifelong relationship with you— though a reputable agency shouldn’t deny Counseling Service of Greater Dallas. “It’s through all of life’s financial ups and downs. you services if you can’t afford to pay. (See the life raft that keeps you afloat.” When you belong to a credit union you’re How to Find a Reputable Credit Counseling Mike Schenk, an economist at the Credit more than just a customer, you’re a member. Agency in this publication.) Union National Association (CUNA), says it’s Other financial institutions expect customers If you need to borrow to make ends meet never too late to ask for help at your credit to just come and go. until things improve, a credit union loan union, though the earlier you do it, the more Lately, the U.S. economy has given us officer can help with credit cards, mortgages, options you’ll have. “As a member-owned more “downs” than “ups.” Foreclosures, home equity loans and lines of credit, and not-for-profit institution, your credit union layoffs, and a stock market free fall seem really is looking out for your best interest.” to have left no family untouched. Times are tough. But things will get better. And What options besides when they do, you’ll be relieved to have avoided bankruptcy and its long-lasting bankruptcy do I have consequences. Here are some ways the if I’m having trouble people at your credit union can help you do paying my bills? that. There are many options besides bankruptcy If you’re having trouble paying your bills, for dealing with debt, particularly if you’re and your debts include credit union willing and able to make some changes. accounts, contact a credit union represen- “Your money troubles may be insurmount- tative to discuss the possibility of modifying able under current circumstances, but there your loans or credit card terms to make are things you can do that make it more payments more affordable. Modification feasible to repay your debt,” says Mark. “No could mean, for example, lowering the matter how desperate your situation may interest rate or extending the loan term. seem, taking positive steps now has value.” Other concessions that could help might To determine what changes you’ll need to include waived fees, a “payment holiday,” or make, you first have to find out just how “re-aging” the account to bring you current much you’re running short each month. after you’ve missed a payment. There are many tools available on the If you have non-credit union debt Internet for calculating your income, living you’ve fallen behind on, a credit union expenses, and debt payments; look for the representative can refer you to a credit other products generally at lower interest Budget Blueprint calculator on this Web site. union counselor or to a reputable nonprofit rates and better repayment terms than you Enter your numbers, print the results, and credit counseling agency for help. A can find elsewhere. This makes credit more then do one or more of the following to close credit counselor can look at your financial affordable for you. It also protects you from the gap. picture—income, expenses, and debt—and lenders who prey on borrowers who believe present possible actions, one of which might they have no other options. n Increase income. Pick up overtime hours be participation in a debt-management plan if they’re available, find an additional job, As times get better, your credit union can (DMP). or start a small side business offering a help you establish or strengthen a direct service you’re qualified to provide, such as In a DMP, you repay all or some of your deposit savings plan to help you build an babysitting, gardening, senior assistance, debts by sending a single payment to the adequate emergency fund. Being prepared music lessons, sewing, or repairs. If you credit counseling agency, which distributes for the worst is the best way to avoid money have an extra room or an unneeded garage, it among your creditors. Many creditors Turning Points 3 Avoiding Bankruptcy consider renting it out. Think about selling Kiplinger’s “Save Money on Practically What not to do: Turn unsecured debt—such some of your assets, such as an RV, a second Everything” as credit card debt—into debt secured by car, jewelry, or collectibles—you could lose your home unless you’re absolutely sure AARP’s “25 Ways to Cut Costs on Just About them if you had to file bankruptcy. If you you can make the payments for the long Everything” normally get a tax refund when you file, term. (Otherwise, if you get behind on your consider changing your withholding to have What not to do: Cut costs by not paying mortgage payments, you could put your less money taken out of each paycheck. insurance premiums. Rather than let home at risk of foreclosure.) Keep in (The IRS provides tips and a worksheet to your policies lapse, talk to your mind that by doing this, you will calculate the correct amount.) insurance agent about a pay more over the long haul payment plan, consider because you’re taking short- What not to do: Wait until you need the reducing coverage if you’re term debt and financing it money immediately, making a pawn shop overinsured, or shop for as long as 30 years. your only option. A pawnbroker will give you around for better rates for a fraction of the value of your possessions— n Consider borrowing from comparable coverage. But much, much less than you would get if you a friend or family member. don’t choose an insurance had time to sell them on your own terms.