One CafeMom asks Jean a few questions about getting out of debt and filing for bankruptcy. Jean goes over some of the best options for getting out of debt and discusses when bankruptcy might be the right option for you.
Question: We have so much debt and no money to pay — and filing bankruptcy is too expensive... Is there any way to file and not have to pay? I really want to move on and be happy in life. We made our mistakes, and now I feel like they are following us around.
Answer: No matter what mountain of debt stands in front of you, I always advise people to consider bankruptcy only if you’ve exhausted all other options. You might think that bankruptcy will solve your problems, but what’s to follow — a damaged credit score, increased difficulty in obtaining loans, and higher interest rates — is nothing to take lightly.
Your best bet is to start with a credit-counseling agency. In fact, the Bankruptcy Reform Act of 2005 now requires that you go through credit counseling before filing. You’ll be able to find an agency through the National Foundation of Credit Counseling, a not-for-profit network of over 100 Member agencies and 850 offices throughout the country. Their help is either free or low cost and available in-person, via phone, or online.
Once you’ve connected with a counselor, they can put you on a debt management program that ideally will get you out of debt within three to five years. With a debt management program, or a DMP as they're commonly called, a counselor will work with your creditors to help you pay off your debts at lower interest rates. (If you have more debt than you'd like, but not so much that you need counseling, my Debt Diet Online can help you pay it down faster and cheaper.)
When should you consider bankruptcy? If your income can’t support the repayment of your debts within the five-year time period. If you're in this boat, there is little the credit counselor can do to help. It’s then that you should look into possibly declaring bankruptcy.
If you must file and you feel as though you don’t have the money to pay the filing fee as you mentioned, you do have options. First, you can apply to pay the fee in installments over a period of four to six months. If you feel as though you can’t pay the fee at all, you can request a waiver of the filing fee, which is available at www.uscourts.gov. A judge will ultimately decide whether or not you have to pay the fee, but as the law states, the fee can only be waived if your income is less than 150% of the official poverty line applicable to your family size and if you’re unable to pay the fee in installments. Poverty guidelines can be found at www.uscourts.gov.
Ask Jean Chatzky your financial questions today in the comments below. Jean will be back soon with an answer for one lucky reader.