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And how is it done? I haven't been able to make minimum payments for the past two months on credit cards and loans. I've been paying *something* just not the minimum payments. Is there a particular time when one should consider filing for bankruptcy? Or should I hope that this is just a temporary lull that I'll be able to recover from in the near future.
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Well I can't tell you when, but I can give you some advice as to how as I have been working on some bankruptcy cases. The first thing you need to do is decide whether you want to file Chapter 7 or Chapter 13. The process is slightly different for each one. I suggest this website to help you in your process. You will also want to get a copy of your credit reports so you know exactly how much you owe each creditor. Once you have a copy of all of your debts you should meet with a bankruptcy attorney and discuss with him/her what your options are. You will be required to take credit counciling before filing and between the attorney's fees and the manditory court fees for filing bankruptcy it can become quite costly. Before you go that route, I would suggest contacting your creditors directly to see if you can work out some sort of payment plan, and only look at bankruptcy if that is not feasable.
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The other thing I have thought about doing is debt consolidation, but after doing a bit of research on the internet, have discovered that most people are extremely disgruntled by the process and the effect it has on their credit rating. (also, the debt consolidation businesses have been known to intentionally make payments late)
I have had friends have bad experiences with debt consolidation.
But David had the best advice...talk to the creditors. They will likely be willing to work something out with you. Getting a little over the long haul, rather than getting nothing. The fact you are still making some payment is a sign of good faith. You are still racking up interest for them, so they should be happy you are still willing to give it a go.
Avoid debt consolidators, most are scams and wreck your credit and end up costing you more. Talk to your creditors, tell them your problems and ask them to help by lowering the % rates or reducing the minimum payments. I got CapitalOne to drop my CC % rate by 3 points just by asking them.
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Another thing to keep in mind when dealing with your card companies or credit counseling services to reduce payments/APR due to financial hardship is that there is the possibility that your account will be closed. This is not necessarily a bad thing, but something for which you should be prepared.
Regardless of whether your accounts need to be closed or not, I would also strongly recommend destroying your credit cards, especially if they are a source of increasing debt. If the account is closed, no worries, but if the account remains open, best to remove the potential for getting deeper in debt than you are.
As to debt consolidation, be wary of any company or organization that says they can get your debt reduced by x% or have your debt paid off "in months instead of years". These are almost always a scam in some form or another. Credit counseling tends to be more legit, but always be wary.
Just remember, your debt built up over time and it will take time to pay it off. It very well may take years to accomplish and it will not be an easy thing, but you can accomplish it. Create a budget and stick to it, clip coupons, don't eat out when you can cook at home, remove any unnecessary expenses (cable, etc) and be sure to put even a few bucks aside every month to start building up a buffer if you need it (even $25/month will add up over time).
And as to the hit your credit rating will take if you go the debt consolidation or credit counseling route, bankruptcy is a bigger hit.
you simply raise your hands in the air and scream "I DECLARE BANKRUPTCY"
Avoid debt consolidators, most are scams and wreck your credit and end up costing you more. Talk to your creditors, tell them your problems and ask them to help by lowering the % rates or reducing the minimum payments. I got CapitalOne to drop my CC % rate by 3 points just by asking them.
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Thanks for the advice. I have destroyed all of my credit cards except for the one where I work (its too easy to look it up if I'm tempted to use it anyway), and my American Express, and the debit card tied to my checking account. (I have thought of destroying that one too, to save money to pay off bills, but decided not to in the end.)
between the attorney's fees and the manditory court fees for filing bankruptcy it can become quite costly.
I can't give you legal advice
That's about the most I can tell you. Good luck. Also, there are bankruptcy attorneys that take on cases "pro bono"--they'll take your case free of charge. Another possible option.