- The Washington Times - Tuesday, September 27, 2005

Dear Debt Adviser: My family is swimming in debt from two cards that have gone out of control. We were going to be late in January of this year due to a natural disaster, so we wrote a letter to each company. They didn’t work with us, and our interest rates rose from 8.99 percent to 32 percent on one and 26 percent on the other. We cannot even make the minimums. We have tried to apply for other cards, but no luck. Is bankruptcy our only option? Many thanks. Paul

Dear Paul:

Well, you did the right thing by contacting your creditors to let them know of your situation because of the natural disaster. Unfortunately, your creditors did less than the right thing by not helping you in your time of need.

Not only are you paying steep interest rates on your cards, but if you are unable to make the minimum payment, you also are getting hit with late fees that can be as high as $39 per month.

The most important thing is to stop the hemorrhaging as soon as you can.

Since you already have contacted your creditors and failed to work out a solution, I suggest that you talk to a reputable credit-counseling agency. They will be able to give you specific advice on your options, including bankruptcy, and they will work out a livable budget for you and your family.

I would do this quickly; the bankruptcy rules involving individuals will be tightening up for anyone filing after Oct. 17.

In a nutshell, if your income is over the median for your state (according to the “State Median Family Income” report from the U.S. Census Bureau) it will be very difficult to file for a Chapter 7 bankruptcy. This is the one that can get rid of many, but not all, of your debts. More than likely, your credit card debts are ones that will go away.

Or, you may want to consider a debt management plan from a credit-counseling agency or a Chapter 13 bankruptcy, as well.

I like the debt management plan better for a number of reasons, including the greater damage to your credit score that occurs from a Chapter 13.

Keep trying to switch balances to a lower interest-rate card.

The reason is that by the end of the year the federal government is requiring that all card issuers raise their minimum payments.

The feds have stepped in with guidelines for credit issuers that allow consumers to pay back balances quicker and spend less in interest payments as a result. Though this is a good thing for consumers in the long run, it will hurt people like you in the short run.

The bottom line is to get specific information as soon as you can and get help.

Good luck.

• Steve Bucci is president of CCCS Credit Advisors. Visit www.creditcounseling.org or call 877-311-2227 for additional debt advice.


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