You can achieve a complete absolution of your debt through a variety of ways, the most extreme of which is bankruptcy. Absolving debt means eliminating it, and filing for personal bankruptcy can certainly accomplish that. Chapter 7 bankruptcy, which is for people with low-to-modest incomes, allows you to eliminate credit card debt and other unsecured debt in about four months. Chapter 13 bankruptcy, the other form of personal bankruptcy, requires a five-year payment plan to your creditors based on your income and expenses. Unsecured debt remaining at the end of the five years will be eliminated. Bankruptcy destroys your credit, but other less painful options for absolving debt are available.
Find a nonprofit credit counselor. Ask your bank or credit union to refer you to a reputable counseling agency like those affiliated with Consumer Credit Counseling Service. Or seek a referral from community organizations such as The United Way or Red Cross.
Make an appointment with the counselor to discuss your financial situation. Authorize her to pull your credit report for an analysis of your debt.
Discuss various debt-elimination strategies with the counselor, including bankruptcy, debt settlement and debt management plans. Nonprofit counseling agencies generally help only with debt management plans, which require a four-year commitment and strong oversight of your finances. You will mail a check each month to the agency for all your debts, and the agency will send individual checks to your creditors. The agency will also negotiate better interest rates and ask your creditors to lower your balances by reversing some finance charges and fees. At the end of the four years, you should emerge with your unsecured debt eliminated or greatly reduced.
Start debt settlement if you'd rather take a different course. Debt settlement allows you to eliminate your debts by paying less than the full balance. In 2009, at the height of a financial crisis in the United States, some card companies were settling delinquent debts for as little as 20 percent of the balance, according to The New York Times. Settlement offers are generally for about half the balance, however. Settlements usually are available from your creditor after you fall three or four months behind. Accounts are generally sold to debt collectors after six months. Contact your creditor directly to ask for a settlement agreement and try to settle for as little as possible.
See a bankruptcy attorney if you prefer more drastic action. Initial consultations are usually free, and you should use that to your advantage by seeing three or four attorneys before making a decision.
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