Dealing with Debt

Learn about common debt problems, including filing for bankruptcy.

Credit Counseling Services

Credit counseling services provide various resources to help solve your money problems. From starting a budget to educational programs on money management, counselors discuss your entire financial situation and help you develop a personalized plan.

Credit Counseling Service Locations

You can find free or low-cost credit counseling options at:

  • credit unions
  • extension offices
  • religious organizations
  • non-profit agencies

Make sure the credit counseling service you're using is accredited with either of these organizations:

Military Servicemembers

Under the provisions of the Servicemembers Civil Relief Act (SCRA), you may qualify for a reduced interest rate on mortgage payments or credit card debt, protection from eviction, or a delay of all civil court actions, such as bankruptcy, foreclosure, or divorce proceedings. To find out if you qualify, contact your local Armed Forces Legal Assistance office.

File a Complaint

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If you're unable to pay your creditors, filing for bankruptcy can help you get a fresh start by liquidating your assets to pay off your debts or create a payment plan. But it's considered the debt management option of last resort because the results are far-reaching and long-lasting. Bankruptcy information stays on a credit report for 10 years and can make it difficult to get credit, buy a home, get life insurance, or sometimes get a job.

Types of Bankruptcy

As federal courts have exclusive jurisdiction over bankruptcy laws, cases must be filed in federal bankruptcy court. There are two main types of personal bankruptcy:

  • Chapter 13 allows people with a steady income to keep property, like a mortgaged house or a car, that they might otherwise lose in the bankruptcy process.
  • Chapter 7 is known as straight bankruptcy; it involves liquidating all assets that are not exempt.   

Steps to File for Bankruptcy

The Bankruptcy Abuse and Prevention Act of 2005 established more stringent rules for consumers and attorneys. In the bankruptcy filing process, there may be multiple steps:   

  • Debtors must file documents, including itemized statements of monthly net income, proof of income (pay stubs) for the last 60 days, and tax returns for the preceding year (four years for Chapter 13 bankruptcies).
  • Debtors must take a pre-filing credit counseling and post-filing education course to have debts discharged. To find an approved credit counseling provider, consult the U.S. Trustee Program.
  • Debtors face increased filing fees, plus fees for credit counseling/education.
  • The bankruptcy and petition process is complicated, so it is difficult to file without an attorney. Attorney fees are extra and vary.

Report Bankruptcy Fraud or Abuse

You can file a report with the U.S. Trustee Program at the United States Department of Justice (DOJ). 

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Debt Collection

A debt collector generally is a person or company that regularly collects debts owed to others, usually when those debts are past-due. This includes collection agencies, lawyers who collect debts as part of their business, and companies that buy delinquent debts and then try to collect them. The Fair Debt Collection Practices Act (FDCPA) prohibits debt collectors from using abusive, unfair, or deceptive practices to collect from you.

What Types of Debts Are Covered?

The Act covers personal, family, and household debts. This includes money owed on personal credit card accounts, auto loans, medical bills, and mortgages. The FDCPA does not cover debts incurred in running a business.

What Happens After a Debt Collector Contacts You?

Within five days after a debt collector first contacts you, the collector must send you a written notice that tells you the name of the creditor, how much you owe, and what action to take if you believe you do not owe the money. If you owe the money or part of it, contact the creditor to arrange for payment. If you believe you do not owe the money, contact the creditor in writing and send a copy to the collection agency informing them with a letter not to contact you.

What Practices Are Off Limits for Debt Collectors?

A debt collector may not:

  • Contact you at inconvenient times, for example, before 8 AM or after 9 PM, unless you agree to it.
  • Communicate with you at work if you tell the debt collector your employer disapproves.
  • Contact you after you send a letter to the collector telling them to stop, except to notify you if the creditor or collector plans to take a specific action.
  • Communicate with your friends, relatives, employer, or others except to find out where you live or work.
  • Harass you with repeated phone calls, profane language, or threats to harm you.
  • Make any false claim or statement that you will be arrested.
  • Threaten to have money deducted from your paycheck or to sue you, unless the collection agency or creditor intends to do so and it is legal.

File a Complaint About a Debt Collector

Report any problems you have with a debt collection company to your State Attorney General's Office, the Federal Trade Commission (FTC), and the Consumer Financial Protection Bureau (CFPB). Many states have their own debt collection laws that are different from the federal Fair Debt Collection Practices Act. Your state Attorney General’s office can help you find out your rights under your state’s law.

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Debt Consolidation

Consolidation means that your various debts, whether they are credit card bills or loan payments, are rolled into one monthly payment. If you have multiple credit card accounts or loans, debt consolidation through a credit counseling service may be a way to simplify or lower your payments. But you should first consult a qualified credit counselor.

Debt Consolidation Options

You may be able to lower your cost of credit by consolidating your debt through a home equity loan or home equity line of credit. With a home equity loan, the lender advances you the total loan amount upfront, while a home equity credit line provides a source of funds that you can draw on as needed. But keep in mind, these are secured loans that require you to put up your home as collateral. If you are unable to make payments on time, you could lose your home.  

To decide if debt consolidation is right for you, contact a credit counseling service accredited with either of these organizations:

File a Complaint

If you have a problem with a lender concerning debt consolidation, you should contact the lender first. If you are unable to resolve the problem, you can submit a complaint to the Consumer Financial Protection Bureau (CFPB).

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