If bill collectors are calling you, you know you're in financial trouble.  But what if you're just having difficulty stretching your paycheck to pay monthly bills?  If you answer yes to any one of the following questions, you should act:

• Do you routinely spend more than you earn?
• Are you forced to make day-to-day purchases on credit?
• Are you able to make only the minimum payments on monthly credit card debts?
• If you lost your job, would you have difficulty paying next month's bills?

The Fair Debt Collection Practices Law prohibits a debt collector from showing what you owe to anyone but your attorney, harassing or threatening you, using false statements, giving false information about you to anyone, or misrepresenting the legal status of your debts.  Remember that under other federal laws to collect debts, creditors cannot seize most government assistance and can only garnish a portion of wages to collect debts.

What can you do?

If you are concerned about debt, now's the time to take action:

• Examine your current finances and review your spending patterns
• Set financial priorities and differentiate between what you need and what you want
• Cut spending wherever possible
• Talk to your creditors—Let them know if you won't be able to meet a required payment date or ask about other payment options such as extending your repayment period
• Attempt to set up a monthly budget to manage your cash flow.

Wondering if you are incurring too much debt?  Figure out if you've exceeded the target 20% of net income borrowing limit.  If so, this might be a sign to contact a professional financial counselor.

What can others do for you?

If you are unable to make satisfactory arrangements with your creditors, there are organizations that can help.  The Consumer Credit Counseling Service (CCCS) agency is an example of a local, nonprofit organization affiliated with the National Foundation for Consumer Credit (NFCC) to provide education and counseling to families and individuals.

• CCCS counselors with professional backgrounds in money management and counseling work with you to develop a budget that maintains your basic living expenses and outlines options for addressing your financial situation.
• CCCS counselors may also negotiate with creditors to repay your debts through a financial management plan.  Under this plan, creditors often agree to reduce payments, lower or drop interest and finance charges, and waive late fees and over-the-limit fees.

Alternately, bankruptcy is a legal procedure that should be used only as a last resort for solving financial problems and after you have explored other options such as credit counseling.  A decision to file for bankruptcy is a serious step, and in many cases, it doesn't wipe your credit slate clean or give you a fresh start.  And it stays on your credit report for up to 10 years possibly affecting your ability to buy or rent a home or even obtain car insurance.  It usually does not wipe out child support, alimony, fines, taxes, and some student loan obligations.  Also bankruptcy usually does not permit you to keep property when the creditor has an unpaid mortgage or lien on it.

There are two types of bankruptcy.  Chapter 13 (or reorganization) allows debtors to keep property which they might otherwise lose, such as a mortgaged house or car.  Reorganization may allow a person filing for Chapter 13 to pay off a default over a period of three to five years, rather than surrender property (in many cases your home).  Chapter 7 (straight bankruptcy) involves liquidation of all assets that are not exempt in your state.  The exempt property may include items such as work-related tools and basic household furnishings, among others.  Some of the your property may be sold by a court-appointed official or turned over to your creditors.  You can file for Chapter 7 only once every six years.

If bankruptcy is your only way out, be aware that some of the bankruptcy lawyers make easy money by handling hundreds of bankruptcy cases without adequately considering individual needs.  Recommendations from those you know and trust, and from employee assistance programs, are most useful.  Some public-funded legal services programs handle bankruptcy cases without charging attorney fees.  These programs may also provide referrals to private bankruptcy lawyers.  Keep in mind that the fees of these attorneys may vary widely.

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