Last year over a million U.S. consumers filed for personal bankruptcy protection. While some of these could be attributed to failed businesses or unemployment, most is tied directly to their overspending. Our current immediate-gratification culture and means of utilizing a good or service before actually paying for it has driven personal debt (not including auto/home/boat loans) over $500 billion annually. Also consider that the average U.S. consumer has over $8,000 in revolving credit card debt.

How can you determine when you are under financial stress? It stands to reason that if bill collectors are calling, you are most likely in financial trouble. But what if you are simply having difficulty stretching your paycheck to pay monthly bills? Answering yes to any one of the following questions could indicate financial stress:

• 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?

Fixing the Current Situation
To fix your current situation, you either have to make more money or cut expenses. Because making more money is not an option for most people, you must reduce your current expenses. Consider these steps:

• Reduce expenses. Eliminate any unnecessary spending, such as eating out and purchasing expensive entertainment. Above all, stop incurring new debt.



• Consolidate debt. A popular method for getting finances in order is to consolidate debt through a home equity loan, mortgage refinancing, or short-term bank loans. Many consumers consolidate all of their short-term debts (credit cards, personal loans, automobile loans) into one loan. The advantages are that you have only one loan to repay and the finance charges are specific (except for home equity lines of credit) and will not change (as do the revolving finance charges normally associated with credit cards). In addition, the rate will most likely be substantially lower than credit card interest rates, making monthly payments lower.
  
  The main problem with consolidating debt into one loan is that many consumers feel free to incur more debt on their credit cards. This defeats the purpose of controlling their credit with one loan. Consumers need a clear understanding of the implications of consolidating debt, especially when using their homes as collateral.



• Seek information. Obtain additional resources from government and private sources. While most active service members will not qualify for public assistance, in certain situations they may receive unemployment compensation, Medicaid, Social Security, food stamps, and low-income energy assistance. Other sources may be churches or community groups.

If you are in serious financial trouble involving creditors who are contacting you for payment, there are ways to deal with them. Contact your creditors to let them know you're having difficulty making your payments. Tell them why you're having trouble—perhaps it's because you recently lost your job or have unexpected medical bills. Try to work out an acceptable payment schedule with your creditors. Most are willing to work with you and will appreciate your honesty and forthrightness.

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

Remember that if you are an active-duty service member, the interest rates of any pre-service debt cannot be more than 6 percent, according to the Service Members Civil Relief Act.

What Is Bankruptcy?
Read more about the specifics of bankruptcy.

Bankruptcy in the United States seeks to benefit both debtors and creditors by seeing that debtors get relief from debts they can't pay, and that creditors get paid from whatever assets the debtor can give up and still survive. Bankruptcy is governed by the federal law found in Title 11 of the United States Bankruptcy Code.

Declaring bankruptcy allows debtors who are unable to pay their creditors to resolve their debts by dividing their assets among their creditors. The bankruptcy court also allows the interests of creditors within various classes to be treated with some measure of equality. After their assets are distributed, debtors are usually freed from some of the financial obligations they have accumulated, even if their debts have not been paid in full.

Personal Bankruptcy Options
The goal of most personal bankruptcy is to cancel your existing debts and allow you a fresh start on your finances. In other words, if you are granted bankruptcy, you no longer must repay the unsecured debts that were incurred before you filed your bankruptcy.

You should consider bankruptcy ONLY as a last resort.