Ask Dr. Debt


I have a home that is now worth less than I owe. I don't think I qualify for any of the "bailout" programs. I don't think I'll live long enough for the market to go back up so that I could break even, much less fund my retirement. What are my options? Should cut my losses and find something new in today's environment?


Obviously I do not know all the facts regarding your situation, but in general terms, so long as you can afford the monthly payments I would sit tight and do nothing for at least one year. Most economists are projecting an upturn in the economy sometime in early 2010. While no one can accurately predict the future in any context much less with regard to the real estate market, I believe exercising patience is in your best interest. I am aware of some pockets in the country such as Detroit and San Diego for example where the upturn may come much slower and if you live in one of these areas you may actually have little choice but to abandon your asset and allow it to go through foreclosure. This would have grave implications on your credit rating and your future of obtaining credit in the future. As a practical matter, I do know many people are actually rethinking the definition of family household and you may have to consider the reasonableness of renting a portion of your house to raise enough income to handle your payments


I had to close my business down this year because of the economy and now I'm extremely in debt like never before. What are my options?


The first piece of advice she should receive is to talk to a reputable attorney who can discuss her options with her. Those options include a settlement with her creditors, or possibly considering the filing of bankruptcy. Because her debts are not that old yet (as she closed within the last year), I am assuming that they have not filed any lawsuits. It usually takes awhile for that to happen, but that depends upon the creditor. So...she may have more time than she thinks. There is a good possibility that by being frank with her creditors or their agents, disclosing the amount of her debt, her asset situation, perhaps her age even...that her creditors will want to settle with her now. It is a good time in the industry to negotiate, or at least to attempt that process. By all means, she should speak with an attorney, someone who can go over the options of bankruptcy, but also provide some debt counseling.


I am in $60,000 debt. what is the difference between debt settlement and chapter 13 bankruptcy? I have a good income and secure employment. What route do you recommend for me?


Ann asks about the differences between debt settlement and Chapter 13 bankruptcy. She has a good income with secure employment. You should know that I have a natural hesitancy about some, but not all, debt settlement companies. Many of them will take your money, and do little or nothing for the consumer. The FTC has investigated many of them, and shut down some. However, there are some that do good work. The consumer needs to do a ton of investigation of the particular debt settlement company, before she gives them any money. I would do a Google search, BBB search, etc. Chapter 13 bankruptcy still works fairly well, but she will need some counseling from an attorney on that issue. She can pay her debts over a 5 year period, and does not have to pay 100% of her unsecured debt. Most of the secured debt does get paid back in Chapter 13. An attorney would be able to advise her, based upon her specific income amount, her expenses, and the amount of her debt, if she is a good candidate for Chapter 13.