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DebtAre you up to your eyeballs in debt and out of options for solving it? Rest assured that you are not alone. I have been there myself. Two years ago, My wife and I were stressed out to the max. Our income had reduced considerably because we had lost multiple jobs due to downsizing companies and other circumstances.

After tapping almost all our savings we found ourselves falling deeper into debt. We were able to pay some of our bills but not all of them. Not only was my wife and I stressed about money, but it began to affect our daughter as well- she could see that we were struggling financially. I managed to keep up with my car payments and mortgage payments so that my family would not be without a home or car.

I knew that I would eventually have to pay these debts back as I weighed as many possibilities as I could. I looked into credit counseling, debt negotiation, and debt relief. I told my parents about the situation, and I was able to borrow some from them, although this is not usually advisable; borrowing money from family can become a disaster. After a lot of research and help from a bankruptcy lawyer, I decided to file for Chapter 7 Bankruptcy. I still had to pay my mortgage, but my credit card payments were renegotiated and I also got to keep my possessions.

A heavy burden has been lifted since I took action to manage my debt. I am happy that I made that decision.

What Should I Do?

Everyone's situation is different. I cannot tell you exactly what you need to do with your debt, but It may be helpful to hear about the actions I found out about.

Chapter 7 Bankruptcy

You have to pass a “means test” in order to qualify for Chapter 7. This test determines your disposable income, and if it's low enough you may qualify for Chapter 7. You may be able to have some of your debts discharged or deferred, including credit card debts. Even though I was able to keep my property, you may have to forfeit some of your assets. The downside is that you are now seen by banks as a huge risk, and borrowing money or financing any future purchase will be much harder.

Chapter 13 Bankruptcy

You may file for Chapter 13 if you do not pass the means test for Chapter 7. Chapter 13 allows you to make payments on your debts until they are paid off, which typically takes three to five years. Your credit rating will decrease drastically, but you do maintain some creditworthiness. Your debts aren’t normally discharged, but they may be consolidated or restructured.

Debt Negotiation/Debt Reduction

You can hire a professional, or you can take care of it yourself if you like the idea of negotiating with every one of your creditors to get lower payments. I was able to get one creditor to accept 15 percent of my payment, but many will not go that low. In some cases, your account can be settled after you make a few payments on your debt.

If you are behind on your payments to the extent that you qualify for debt negotiation or debt reduction, even though your credit rating will suffer, you will be able to improve your credit faster than you would if you were to go bankrupt. Be aware that private debt settlement companies make a lot of money from this service- usually off of you and your extended debt payments.

Debt Consolidation

Debt consolidation companies charge very high fees. In some cases, creditors will not work with debt consolidation companies because they can make your situation worse. And we’re talking about another loan here, so your debt is just rearranged and maybe your payments are stretched out for a longer time. Additionally, you could be sued by the company if you do not make regular payments.

Consumer Credit Counseling

A credit counseling plan allows you to make a fixed monthly payment on your debts. A good bankruptcy law firm can help you connect with these services and set you up with a plan that will fit your specific situation- often at a lower cost than if you tried to do it yourself. And cheer up! You can be debt-free with some work and commitment!