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Dodge costly bankruptcy bullet
McLEAN, Va. (6/14/10)--Despite a growing number of student loan defaults, home foreclosures, and credit card loan defaults, only a fraction of debtors in serious financial distress are filing for bankruptcy--often because they simply cannot afford to file (USA Today June 9). The bankruptcy laws changed in 2005 to curb abuse. Now it’s harder and more expensive to file Chapter 7 bankruptcy, which erases most debts. Higher attorney and filing fees have resulted in many debtors postponing a bankruptcy filing until they receive a windfall such as a tax refund, but experts fear that a delay could lead to even more financial problems for the individual or family. A bankruptcy cannot wipe out student loans unless you can show undue hardship. It cannot prevent a secured creditor from repossessing property. And it cannot eliminate child support or alimony obligations, or free you from most tax debts. Even more critical: Once you file, the bankruptcy stain stays on your credit report for 10 years, and there is no way to legally remove the filing from your report ( June 8). If you’re struggling financially, consider these tips to dig out and dodge the bankruptcy bullet:
* Talk to creditors. The sooner, the better, particularly if you think you soon may fall behind on payments. Making a good faith effort early on could be the most important move you make to protect your credit during tough times. * Consider refinancing your home. With record-low interest rates, a lower monthly payment could give you a much-needed financial cushion and allow you to pay down other debt. Ask the credit union to run the numbers, based on your credit score. Remember: Avoiding bankruptcy protects your credit score. * Spend smart. Find hobbies that don’t require opening your wallet. Identify spending leaks. Ask family members to identify less-costly alternatives. * Don’t add new debt. Keep balances low, and don’t sign up for any more loans or credit cards. Get off prescreened credit card and insurance solicitation lists at or call 888-5opt-out. * Steer clear of credit repair scams. If you see a promise to “eliminate bad credit” or “erase negative information,” run the other way. It’s a scam. Visit for more warnings about credit repair scams. * Get help. Ask the credit union about consolidating credit card debt and how to connect with local credit counseling assistance. Visit or call 800-388-2227 for the consumer credit counseling service office nearest you.
For more information, read, “Tough Times Series: You Can Avoid Wage Garnishment,” in Home & Family Resource Center.
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