Many Americans are suddenly finding themsleves deeply in debt as inflation chews up family budgets like popcorn and the credit crunch grinds away.
If you are among them, you needn't suffer sleepless nights, riled innards and anxiety attacks. There are ways to, bail yourself out of the situation.
"You've got four alternatives," says Richard Willis, head of the Bankruptcy Clinic at George Washington University Law School.
"First," he says, "if collection companies haven't started hassling you, there's a chance you might be able to work things out with your creditors."
He adds that this is usually only possible when you have one or two debts. If, however, there are troubles with lots of creditors, one of them might refer you to a Consumer Credit Counseling Service office. This service is offered nationwide and is supported by local mercahnts, banks and loan companies. Each CCCS board usually has some consumer-oriented members (from labor unions, consumer groups) as well as local creditors.
The third and fourth possibilities involve the nearest U.S. bankruptcy court. At court, you can go one of two ways: "Chapter 13 Debt Adjustment Plan, or straight bankruptcy. "If it's determined that a debtor can pay off the bulk of what's owed within a three-year period," says Wills, "Then a Chapter 13 plan may be in order."
When the court approves the plan, creditors must stop dunning you, and the threat of repossession ceases. All interest and late charges are stopped. tDebts can be stretched out and even reduced by the court. If a friend or relative co-signed a loan, the creditors are not allowed to go after him.
It's a good way to pay off your debts under the protection of the court, but you'll need a lawyer. Some lawyers are good at working out Chapter 13 plans and others are a waste of time and money.
The court can usually provide a list of lawyers that do bankruptcy work, but you won't get specific recommendations. A nearby university law school might be able to help.
If your debts are piled so high you simply can't pay them off within three years, you may have to take the fourth and final step and declare yourself bankrupt.
By going bankrupt, you wipe the slate clean except for support payments and recent income taxes. In most states, you're allowed to keep up to $7,900 per person in your home ($16,-800 for a couple) plus specific items such as the equity (the amount you own) in your car, jewelry, furniture and other personal effects. Legislatures in seven states -- Virginia, Kentucky, Ohio, Indiana, Louisiana, Wyoming and Florida -- have overturned the generous, federal asset exemptions and impose their own, more stringent rules. California allows you to keep even more assets than the federal exemptions permit.