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If you don’t pay on your debt for 180 days, your creditor
will write your debt off as a loss; your credit score will
take a big hit, and you still will owe the debt. Creditors
often are willing to negotiate with you even after they
write your debt off as a loss. For information, read How
Credit Scores Affect the Price of Credit and Insurance at
www.consumer.ftc.gov.
Bankruptcy. Declaring bankruptcy has serious
consequences, including lowering your credit score, but
credit counselors and other experts say that in some cases,
it may make the most sense. Filing for bankruptcy under
Chapter 13 allows people with a steady income to keep
property, like a mortgaged house or a car, that they might
otherwise lose through the Chapter 7 bankruptcy process.
In Chapter 13, the court approves a repayment plan that
allows you to pay off your debts over a three to five year
period, without surrendering any property. After you
have made all the payments under the plan, your debts are
discharged. As part of the Chapter 13 process, you will
have to pay a lawyer, and you must get credit counseling
from a government-approved organization within six
months before you file for any bankruptcy relief. For
more information, read Filing for Bankruptcy: What to
Know at www.consumer.ftc.gov.
You can find a state-by-state list of government-
approved organizations at the U.S. Trustee Program
(www.justice.gov/ust), the organization within the U.S.
Department of Justice that supervises bankruptcy cases
and trustees. Also, before you file a Chapter 7 bankruptcy
case, you must satisfy a “means test.” This test requires
you to confirm that your income does not exceed a certain
amount. The amount varies by state and is publicized by
the U.S. Trustee Program.