One option you may want to consider before filing bankruptcy in Texas is consumer credit counseling. Under a consumer credit counseling plan your creditors may be willing to lower your interest rates and accept reduced payments if you enter a debt repayment plan. Generally, in these plans, you deposit money each month with the credit counseling service. Your deposits are used to pay your creditors according to a payment schedule developed by the counselor. As part of the repayment plan, you may have to agree not to apply for or use any additional credit while you’re participating in the program.
A successful repayment plan requires you to make regular, timely payments, and could take 48 months or longer to complete. Ask the Texas credit counseling service for an estimate of the time it will take to complete the plan. Some credit counseling services charge little or nothing for managing the plan; others charge a monthly fee that could add up to a significant charge over time. Some credit counseling services are funded, in part, by contributions from creditors.
While a debt repayment plan can eliminate much of the stress that comes from dealing with creditors and overdue bills, it does not mean you can forget about your debts. It will not erase all of your debt and provide a complete fresh start as Chapter 7 bankruptcy might. (see Texas Exemptions) You still are responsible for paying any creditors whose debts are not included in the plan. You are responsible for reviewing monthly statements from your creditors to make sure your payments have been received. If your repayment plan depends on your creditors agreeing to lower or eliminate interest and finance charges, or waive late fees, you are responsible for making sure these concessions are reflected on your statements.
A debt repayment plan does not erase your credit history. Under the Fair Credit Reporting Act, accurate information about your accounts can stay on your credit report for up to seven years whereas a bankruptcy will stay on your record for 10 years. In addition, your creditors will continue to report information about accounts that are handled through a debt repayment plan. For example, creditors may report that an account is in financial counseling, that payments may have been late or missed altogether, or that there are write-offs or other concessions.
Another option that may provide an alternative to filing bankruptcy is debt consolidation. Please see our Texas Debt Consolidation page for more information.