Word: debtors
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...better alternative is to turn to one of the 170-odd nonprofit community credit counseling services. The services make the debtor sign an agreement to take on no more credit and to hand over all his charge cards. Often a counselor will scissor the cards to pieces before the debtor's eyes. The service then negotiates extended repayment of the loans and collects a fixed monthly payment from the debtor that it parcels out among the creditors...
Bankruptcy Pain. Though such services do enable debtors to clear up their bills, the process is very far from painless. Delinquent debtors suffer a sharp reduction in their standard of living and a shame so severe that many do not want their names used. An example is an Atlanta father of four who is struggling to pay off a debt of $23,700, most of which he charged while he had a $20,000-a-year job in the marketing division of Lockheed. Laid off in 1972, he now earns $12,000 annually in the management training division of Georgia...
Bankruptcy comes in two varieties. The milder is a proceeding under Chapter 13 of the federal Bankruptcy Act in which a federal district court acts rather like a consumer counseling service. It fixes a monthly amount that the debtor can pay, collects that sum and parcels it out among creditors according to an extended repayment plan. Straight bankruptcy is a more drastic proceeding: a court-appointed trustee takes charge of the debtor's assets, subject to certain exemptions, sells them and distributes the money among creditors...
...advantage for the bankrupt: any debts that cannot be paid are simply wiped out. It also has a huge drawback: states set the rules governing how much property a bankrupt can hold on to, and they vary wildly. California allows a bankrupt to keep a house in which the debtor has an equity of $30,000 or less. Thus, a bankrupt could keep an $80,000 house on which he had a $50,000 mortgage (though he would have to keep up the payments). Texas with rare exceptions permits a bankrupt to hold on to a car and house...
...Once a debtor has declared bankruptcy, he cannot do so again for six years. So lenders frequently offer new credit to a bankrupt, knowing that their bills cannot be canceled again soon. Last December David and Sally Resnick of Des Plaines, Ill., filed for a straight bankruptcy; before their case could even be heard, a department store to which they owed several hundred dollars that will never be paid sent them a shiny new charge card...