Consumers who find themselves deeply in debt may feel that repaying the amount they owe is impossible--especially if interest charges and fees continue to accrue on the debt. Struggling to make minimum payments, while only making minimum progress on paying down the debt, isn't the only option consumers have to meet their obligations and regain their financial freedom.
Chapter 13 Bankruptcy
When an individual files for Chapter 13 bankruptcy, he must present a repayment plan to the court. His repayment plan must include a viable way for him to repay all of his creditors over a three to five year time frame. If the individual's debts are too high to manage comfortably within the allotted time frame, the court may reduce the balance of the debts or eliminate additional charges from creditors to allow the consumer to pay what he owes more easily.
Debt Settlement
Individuals have the option to contact their creditors and attempt to negotiate high balances, interest charges and fees in the hopes of obtaining a debt settlement. Through debt settlement, both the creditor and the debtor compromise on the amount owed. This not only allows the debtor to make payments that she can afford, it ensures that the creditor receives a partial payment on the debt--which is more than it would have received had the individual stopped paying altogether. Some creditors, however, will not accept debt settlement proposals from an individual until the debt is overdue and classified as delinquent. In addition, not all creditors will agree to a debt settlement.
Voluntary Wage Assignment
A debtor may opt to have a portion of his paycheck withdrawn by his employer and remitted to his creditor each pay period. This is known as a voluntary wage assignment. Unlike a wage garnishment, which is involuntary, a voluntary wage assignment reflects better on the debtor since it illustrates that he is repaying his debts without being forced to do so. Not all employers will agree to a voluntary wage assignment. Thus, it is important that a debtor discuss his intention with his employer before proposing a voluntary wage assignment to creditors.
Credit Counseling
For those who are struggling to repay debts, credit counseling may be a viable option. Through credit counseling, an individual submits payments to a credit counseling agency rather than her creditors. The credit counseling agency then allocates portions of each payment that the consumer makes to her creditors. Credit counseling agencies often negotiate with creditors to reduce balances in the process--leaving the debtor with less to repay. The Federal Trade Commission recommends credit counseling as an alternative to bankruptcy for those who wish to repay the debts that they owe.
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