March 12, 2006 Writer/source: Michael Rupured (706) 583-0054 (mrupured@uga.edu) Become debt free in 2006 Last year, more than a million families in the United States filed for bankruptcy, and in 2002 Georgia topped the nation in Chapter 13 bankruptcy claims. That year, one out of every 45.7 households filed for bankruptcy. Bankruptcy may be a solution in a worse-case scenario, but for most in-debt Georgians, it’s not the best answer. Even if the bills are piling increasingly higher and creditors have your number on speed dial, there is hope. “If you think you have more debt than you can handle, the first step is to assess your situation,” said Michael Rupured, a UGA Cooperative Extension family financial management specialist with the College of Family and Consumer Sciences. “Start with your credit report.” According to Rupured, a new federal law entitles all consumers to one free credit report each year, and Georgia residents are entitled to one additional credit report each year – from each of the three credit reporting agencies. “I recommend that folks spread these out, obtaining one from each credit reporting agency every other month, the first three under federal law, the final three under Georgia law,” he said. “In this way, they can monitor their credit reports on a regular basis for any signs of unusual activity that might suggest identify theft.” A credit report is a record of repayment history over a seven-year period. When a person applies for new credit, the lender uses this information to determine how creditworthy he or she is. When a credit report comes back, verify your information is accurate and complete. If not, follow the directions provided to inform the reporting agency of any errors. Secondly, examine any negative information found on your report. If all of your payments have been current for the last six to 12 months and you have no other negative information on your credit report, it is in your best interest to dig your way out of debt on your own. Your local family and consumer sciences Extension agent has information to help you get out of debt. “However, if you are adding new negative information to your credit report each month with late or missing payments, you need help,” Rupured said. Face-to-face credit counseling is available in many communities, and you can get help online or by telephone throughout the U.S. Credit counselors can usually negotiate better
terms with your creditors and reduce the total amount you owe. They can set up a debt management plan and will report to the credit reporting agencies you are participating in. Although participation in a debt management plan is usually considered negative information, it is not as negative as continuing to miss or be late with payments. If you choose to work with a credit counselor, you need to know some important facts. Some agencies may take the first month’s payment as a fee, which means your creditors do not receive a payment that month. This arrangement damages your credit report even further and adds additional finance charges. Many counseling agencies offer their services for free or have very low fees. If you make one monthly payment to the counseling agency for your debts, make sure you know which of your debts that payment covers. Certain types of debt, such as automobile loans, home mortgages and other secured debts are generally not included. You also want to know how often payments are sent to your creditors, and you should receive a regular statement showing how your payments were disbursed. Beware of counselors who attempt to steer you into consolidation loans. If debt is your problem, more borrowing is not the answer. Some people have so much debt that even credit counselors cannot help them. These individuals may have no choice except bankruptcy. With bankruptcy, individuals who owe more than they can repay go through the court system for debt relief. Chapter 7 filers are allowed to keep certain assets while the rest are liquidated and proceeds used to repay their debts. Chapter 13 filers work with their attorney to develop a budget and make monthly payments of 100 percent of their disposable income to the courts for a period of three to five years. These payments are then distributed among creditors.