County Credit

Bankruptcy may be Best Option

Wed, 30 Nov -0001

Q. I was laid off in 2009 and without a job for two years. During those two years, I accumulated $21,000 in credit card debt. I'm now supposed to pay $700 per month for the credit card debt on top of my $900 mortgage payment. I am behind on both: one month with the mortgage and one month with the credit cards. The good news is I have a full-time job now that pays $1,600 net a month with a possible part-time job in the future.

I contacted a debt-relief company, and they told me to stop using credit cards and to stop sending payments. We made a contract. I will send the debt-relief company $395 a month, and it will settle my credit card debt.

Creditors are still calling me, though, and money is still tight. It all goes to the mortgage and utilities and this debt-relief account. I don't know what else to do. Should I stay with the debt-relief company or cancel and file bankruptcy?

A. You are wise to keep paying your mortgage. One month past due is not horrible, but you don't want to get any further behind than that. Once you get to three months past due, you will likely face foreclosure.

So, if staying in your home is important to you, keep making those mortgage payments first and deal with your other obligations after that.

It's especially important now to send that mortgage payment on time. What many people don't understand is that once they are late on their mortgage, the grace period goes away. Most mortgages are due on the first of the month, but you usually have until the 15th to pay before you are considered late. This is the grace period. As soon as you became late, you owed the next payment on the first, not the 15th, so you may be at least two months late and not know it.

Now let's discuss the debt settlement option you have chosen. You mention that your creditors are still calling you. That's right. They will continue to call, and they could eventually file a lawsuit against you. Typically, debt relief/settlement companies will hold on to your monthly deposits for many months until you accumulate enough money to make a settlement offer on one of your accounts. While the money is accumulating, no payments are going to your creditors. Believe me: They are not happy about this.

I think you could benefit from an unbiased third-party review of your situation. Find a nonprofit counseling agency and ask for a pre-bankruptcy counseling session. You can find an approved credit counseling agency for your state and judicial district at the Department of Justice's website, Your credit counselor will provide a thorough review of your finances. That will help you decide if bankruptcy is the best option.

While talking with your credit counselor, you may find you have enough income to pay off your credit card debt on a debt-management plan, or DMP. On a DMP, you would pay off your $21,000 debt in five years or so. Bankruptcy may be a better way to go, though it will negatively affect your credit. So will a debt settlement.

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