Many experts recommend that if you cannot pay back outstanding consumer debt within 5 years, bankruptcy may be the best option for you. (Of course, that doesn't include long-term loans like mortgages, which are normally repaid in 15-30 years.) Bankruptcy isn't an "easy" out--depending on which kind you file, it can make it difficult for you to obtain new credit for up to 10 years, a consequence that must be weighed heavily against the benefit of debt relief.
Before you decide, you may want to speak with a credit counselor about your situation. Just keep in mind that most credit counseling agencies are funded by credit card issuers and other lenders, so their leaning is always away from bankruptcy, even if it may really be the best option for you.
In April of 2005, the Bankruptcy Prevention and Consumer Protection Act was passed into legislation, making it more difficult for individuals to receive a Chapter 7 discharge. Pre-filing credit counseling and post-filing financial education are now required. Additionally, the Supreme Court held that assets in an individual’s IRA account are exempt from withdrawal from the bankruptcy estate.
For credit counseling, you may want to enlist the aid of the nonprofit National Foundation for Consumer Credit (NFCC). The NFCC offers free or low-cost debt counseling, financial education, budgeting assistance, and other financial services for consumers. Visit
www.nfcc.org or call them toll-free at 1.800.388.2227 for 24-hour automated office listings.
The NFCC also offers Debt Management Plans that may lower your payments, fines, or interest. A Debt Management Plan offers a systematic way to pay down outstanding debt. You would deposit your debt repayment funds with the agency each month and the NFCC would disperse the funds to your creditors according to agreed upon repayment plans. The NFCC can often negotiate reduced or waived finance charges and fewer collection calls, so you might be able to bring your debt under control more quickly.
