A New Way To Avoid Bankruptcy

Janine Cain prides herself on a tidy home.

Her finances, however, are in a state of disrepair, ever since her husband lost his full-time job and their mortgage payments rose, CBS News correspondent Priya David reports.

Now they're working four jobs between the two of them - but it's not enough to pay off their credit card bills.

"It wasn't any extravagant items that we went out, or jewelry, or TVs or anything like that," Cain said. "It was basically stuff to live with."

How high is their credit card debt?

"It's around $23,000 total for both of us," Cain said.

The Cains are part of a growing group economists call the "near-bankrupt."

On Main Streets across America, as jobs dry up and adjustable-rate mortgages increase, consumers are taking on more credit-card debt to try and bridge those gaps.

"The average American household has assumed unprecedented levels of debt. And they can't afford to repay all of their debt, but they could pay a portion of it," said consumer finance expert Robert Manning, author of "Credit Card Nation."

Most debt-management companies require people to repay all of their debt - or declare bankruptcy. But Manning, who works at the Center for Consumer Financial Services, says he's got a better way.

It's a formula that determines how much a borrower can actually repay, based on income, local cost of living and local taxes. The consumer avoids bankruptcy, and the lenders get some of their money back.

His innovative program is administered by two credit counseling agencies, InCharge Debt Solutions and Hope Financial. So far it's available in 25 states.

Manning's program helped save Phyllis and Barnett Hoffman's Lakeport, Calif., home.

"I was afraid, yeah we're gonna lose our place because we got three notices of foreclosure," Phyllis said.

Unable to pay their ballooning mortgage, they had racked up $50,000 in credit-card loans and owed $350,000 on the house.

"I've been through some tough times, but I never thought I'd have to go bankrupt," Barnett Hoffman said.

Using Manning's formula, the Hoffman's credit card lenders agreed to clear the couple after they repay 37 percent of what they owe. And counselors got the Hoffmans' mortgage payments of $3,000 cut almost in half, to $1,700.

"It's very important for everyone to take a realistic approach and the realistic approach is 'let's reach a compromise,'" said Adam Levin, chairman and co-founder of Credit.com.

Compromise, with this approach, means lenders recoup at least some of their losses - and borrowers get a chance to wipe their debts clean.