Taking Responsibility for Debt While Avoiding Bankruptcy

Sometimes, even if you have a steady paycheck, a good income, and a well-organized life, you can still get into financial difficulties with too much debt. If your credit card debt has reached an unmanageable level, don’t blame yourself, and don’t feel bad. Just look at your options for debt relief. 

There are several ways to get debt relief while avoiding bankruptcy. Here’s the true story of an actual Freedom Debt Relief customer who used our debt settlement program to get rid of debt while avoiding bankruptcy, and was able to move on with her life.  

Melissa N. was a homeowner and a mother with what she calls a great job that paid very well. The now-retired Fayetteville, North Carolina, resident explains that she got into bad spending habits with an "I want it now" mentality, instead of "Do I need it now?" For many years, she turned to credit cards to purchase items she wanted, without considering the consequences. "It wasn't something that happened overnight," she says of her mounting debt. "It was progressive."

She tried to remedy the situation on her own by making bigger monthly payments, taking out a home equity loan, and doing balance transfers. "I thought, being an educated woman with a bachelor's degree in engineering, that I should be able to get out of this." But none of the steps she took changed her spending habits.

When she made the first call to Freedom Debt Relief, she talked with a representative who was "someone like me," says Melissa. 

"I felt stupid because of the situation I had gotten myself into." However, the Freedom Debt Relief representative "made me feel very comfortable," Melissa says.

The representative explained the debt settlement program to her in detail. Melissa says she felt very “confident that the program was what I needed,” Melissa says. In looking at alternatives and understanding her choices for avoiding bankruptcy, Melissa says she was embarrassed to go through bankruptcy, and "did not want to have a bad credit rating haunting me for years." She also felt responsible for her debt, and wanted an option that helped her repay her creditors.

"You feel like you're drowning," says Melissa of her spiraling debt. "Freedom Debt Relief was that life jacket."

"It was the best decision I ever made," she adds. Her only regret? “I didn't do it sooner."

Let’s look at why you, like Melissa, might want to choose forms of debt relief that help with avoiding bankruptcy—and how debt settlement could fit into the big picture for your personal finances. 

Bankruptcy 

One debt solution that's available to all Americans is filing for bankruptcy protection. You have the right to declare bankruptcy if your debts are unmanageable. Most individuals file Chapter 7 or Chapter 13 bankruptcy.

If you qualify for Chapter 7, you could walk away from your unsecured debts in a few months. If you earn too much to qualify for Chapter 7, you could choose Chapter 13. In that case, you’ll likely be on a five-year payment plan (three years if your income is lower).

Bankruptcy could be the right choice if you: 

• Have debts that are unmanageable, that would cause you severe financial hardship, and that you have no reasonable hope of being able to repay 

• Want to stop debt collectors from attempting to collect on your debts

• Want to pay less than the total amount of debt that you owe.

But there are a few good reasons for avoiding bankruptcy:  

• Bankruptcy stays on your credit report for seven to 10 years. 

• In a Chapter 7 bankruptcy, you could be forced to sell some of the things you own. 

• In a Chapter 13 bankruptcy, you’ll have to pay all of your disposable income against your debts for several years. Many people don't complete this plan. 

• Bankruptcy is a public record. 

• You don’t get any say in how your debts are handled. The bankruptcy court makes the decisions.

Other debt relief options are available if bankruptcy isn’t the right fit. 

Debt Management Plans (DMPs)

A debt management plan can be done through a credit counseling agency. Credit counseling agencies, also known as consumer credit counseling, are nonprofit groups that offer money management services. A DMP could help you deal with overdue credit card debt and other unsecured debts. 

If you sign up for credit counseling and a DMP, you’ll make a monthly payment to the agency, which will then distribute the money to your creditors. Your counselor will help you design a budget. They’ll also ask your creditors to lower your interest rate and waive some fees. 

Debt management plans are for people who have a good income but need help getting their finances under control. The plan is designed to fully pay off your unsecured debt within three to five years. If you’ve been making minimum payments toward your credit cards, you might experience payment shock. 

You’ll be asked to close your credit card accounts. Doing that will have a negative impact on your credit standing. Your score could improve over time if you make your payments on time and avoid new credit card debt. 

Not everyone completes their debt management plans. If debt collectors are already calling, or if you have had a serious financial setback like loss of job or income, a debt management program might not help you.

Debt Settlement Programs 

Debt settlement is when your credit agrees to accept less than the amount you owe, and forgive the rest. You can settle debts on your own by negotiating with your creditors. The process can be stressful. If you don’t want to negotiate your own debts, you can work with a professional debt settlement company like Freedom Debt Relief. 

Just like Melissa, when you contact Freedom Debt Relief, you get a free debt evaluation from experienced Debt Consultants. They can help you understand whether you’re a good candidate for debt settlement or possibly another debt solution.

Here’s how debt settlement works when you enroll in a program: 

1. Unsecured debts, such as credit cards, personal loans, and private student loans, are candidates for debt settlement.

2. Any debt you include in your program becomes an enrolled debt.

3. Debt experts help you look at your budget and make a plan for how much you can contribute toward your debts each month.

4. You’ll make a monthly deposit into a dedicated account. It’s an FDIC-insured account at a bank. You always own and control the money in the account. Over time, the money builds up in your account. 

5. Once you have enough in your account, Freedom Debt Relief negotiates settlement offers with your creditors. Freedom Debt Relief asks your creditors to accept less than the amount you owe. 

6. You can choose to approve (or not) the settlement offers from each creditor. Freedom Debt Relief handles the negotiations with creditors, but it’s ultimately up to you to decide. 

7. If you approve of the agreement, Freedom Debt Relief pays your creditor from your dedicated account. 

8. The debt settlement fee is also paid from your dedicated account. A debt settlement company can’t charge you a fee until it successfully negotiates a settlement, you approve it, and at least one payment is made toward it.

Most people can complete a debt settlement program in about two to four years. This can be faster than a debt management plan or a Chapter 13 bankruptcy.

If you feel like you’re drowning in debt, you’re not alone. Many Americans have fallen behind on debts or taken on more credit card debt than they can comfortably afford. If that’s you, you can do what Melissa did, and reach for a life raft. There are several good ways to get debt relief while avoiding bankruptcy. Talk to Freedom Debt Relief to learn more.