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Personal finances: Options to avoid filing bankruptcy
The number of people filing for personal bankruptcy has been up nearly 20% since the start of the year, according to court filings. Many people are struggling to keep up with high inflation and interest rates. FOX 26 Consumer Reporter Heather Sullivan has Smart Sense on your options before filing for bankruptcy.
HOUSTON - The number of Americans who have filed for personal bankruptcy has been up nearly 20% since the beginning of the year, according to data from legal services firm Epiq.
In March, Chapter 7 filings, where debts are discharged, were up 13%, and Chapter 13 filings, where filers plan to repay debts, were up 24%.
While filing for bankruptcy can alleviate serious financial pressure, it can also impact credit scores for up to ten years and make it harder to secure housing, loans, jobs, and even security clearances.
"There are definitely alternatives to bankruptcy that are super successful if done right," said financial attorney Leslie Tayne.
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Credit card delinquencies are climbing, especially for people ages 18 to 39, at 8.3% from 5.1% a year ago, according to the New York Fed.
And Cox Automotive reports borrowers more than 2 months late on auto loan payments was 26.7% higher in December than a year earlier.
You can consider transferring high-interest credit card debt to a 0% balance transfer card. But be sure to calculate the transfer fee and interest you'll pay if you don't pay it off before the offer expires.
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You can also consider consolidating debt through a lower interest rate personal or consolidation loan.
If those are not options, ask your credit card lender to lower your interest rate. LendingTree reports it works 76% of the time.
Tayne says you can also consider Debt Settlement, which is an agreement to pay off a negotiated lower balance.
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"Debt settlement is a way in which you hire a professional who understands how to renegotiate your debt," explained Tayne.
Or, she suggests, Debt Resolution.
"Debt Resolution can include debt settlement but also could include renegotiation of the interest rate only. There are options to do that and a full balance repayment," said Tayne.
If debt collectors are contacting you, Tayne says don't feel pressured or promise to pay what you can't.
"Write down the information you’re getting from debt collectors. Tell them you need some time to think about it. If you’re questioning what the debt is, ask them to provide you with proof that you owe the debt," said Tayne.
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Experts say bankruptcy should only be considered if you cannot repay unsecured debt, such as credit cards and medical bills, within five years, and your total unsecured debt is more than half your gross income.
Watch out for scams. Check out any debt relief agency with the Better Business Bureau before signing on.
You can get low-cost help through non-profit credit counselors through the National Foundation for Credit Counseling, such as Money Management International and GreenPath, and law schools, such as TSU's Earl Carl Institute.