Fortunately, not all-financial difficulties result in bankruptcies. Financial problems are typically created when expenses and obligations consistently exceed income and the ability to make payments. Individuals can avoid a lot of grief by knowing some basic facts about the alternatives available to a person with serious financial difficulties.

The first step to repair your financial house is to make a simple statement showing the money that can be spared for loan payments and the total monthly payments that must be made. This statement will clearly reveal where you stand with respect to outstanding debts.

If normal debt service payments can no longer be made, an informal arrangement should be made with the creditor that can be settled out of court. Creditors may be willing to defer payments or refinance debt to reduce the size of monthly payments. If informal arrangements fail to resolve the overextended debt problem, it may be possible to find a lending agency that could arrange for lower monthly payments over a longer period of time.

The last step before filing for bankruptcy is the wage-earner plan, a form of debt consolidation allowed under Chapter XIII of the Federal Bankruptcy Act. Under this plan, with the guidance and protection of the Bankruptcy Court, and the assistance of an attorney, the debtor draws up a budget for paying all the debts along with meeting the normal living expenses for a period of three years. If this plan meets the approval of the court and creditors, interest and late charges on the debts are suspended. Each month the debtor turns over to a court trustee the predetermined installment payments for distribution to the creditor. The important feature of this plan is that the consumer does not give up any assets and a bankruptcy is not declared.

If you are having difficulty meeting your debt service payments or feel uncomfortable with your current level of debt, credit counseling may be in order. Such a service provides expert, confidential guidance for little or no charge. These services can be located through the National Foundation for Consumer Credit at http://www.nfcc.org, 801 Roeder Road, Suite 900, Silver Spring, MD 20910.