The Federal Reserve noted that Americans carried $1.97 trillion in debt in 2003, including credit cards, mortgages and other lending tools. Americans have been mired in debt troubles since the 1990s, thanks to financial industry deregulation and the desire to keep up consumer demand for products by credit card companies. As couples and families look for debt relief, state and federal agencies may be able to help ease the load. While the federal government will not absolve debts or offer a silver-bullet solution, several solutions are available to slowly but surely cut down your debt.
Credit Counseling and Management
The Federal Citizens Info Center, a service of the U.S. General Services Administration, recommends credit counseling as a solution for Americans deep in debt. Credit counselors act as the filter between creditors and debtors, negotiating debt-repayment schedules that fit into a consumer's current financial means. The National Foundation for Credit Counseling is a nonprofit body with members that are commended for their pro-consumer approach to credit counseling.
Chapter 13 Bankruptcy
Bankruptcy should be seen by debt-addled consumers as a last resort because of the damage it does to credit scores. Some consumers must consider bankruptcy, however, to clear away tens of thousands of dollars in debt plus interest that cannot be repaid in the near future. Chapter 13 bankruptcy starts with a $274 registration fee paid by the debtor to a federal bankruptcy court. This version of bankruptcy allows professionals with reliable paychecks to keep some assets, like homes and cars, while repaying debt. Chapter 13 participants have to complete credit counseling to keep their assets while repaying their debts.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is the most basic form of bankruptcy and works more quickly to repay outstanding debt. After a debtor pays his $299 registration fee, he must finish a credit counseling course as well as a full evaluation of assets. Most assets are seized by federal bankruptcy courts to be sold at auction or sold directly to creditors to pay down debts. The liquidation process is designed to cut down consumer debt significantly and force debtors to pay their full share of the debt rather than hiding money and possessions. Consumers are discouraged from pursuing Chapter 7 bankruptcy by an eight-year mandatory gap between filings, a greater divided than the two-year gap offered under Chapter 13.
IRS Installment Agreements
The Internal Revenue Service (IRS) is a great source of financial trouble for taxpayers who cannot pay self-employment taxes, fees and penalties. The IRS offers installment agreements for individuals who cannot pay their full tax load for the last year by April 15th. This installment agreement is initiated with a $105 fee paid by the taxpayer to the IRS for administrative costs. The IRS applies interest to the remaining balance after each month's payment until the full balance is paid. Debtors should consider charging credit cards or seeking out private loans rather than relying on the IRS, because the federal government can place liens on properties and assets until back taxes are paid.
Checking for Legitimate Debt Counselors
The emphasis on debt relief by state and federal agencies does not mean that every credit counselor and debt consolidator is legitimate. Consumers have to be careful about which debt relief programs they use, holding back their Social Security numbers and credit information until they have done their due diligence. The Better Business Bureau (BBB) and the Federal Trade Commission (FTC) maintain databases of complaints from debtors that can be accessed upon request. Consumers also should look at their state's Departments of Justice and Commerce to learn about warnings against certain counselors and consolidators before seeking help.
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