A New Way To Avoid Bankruptcy

CBS Evening News: One Man's Idea Helping Debtors In 25 States

(CBS)  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.

[bobertbobert]

And who is picking up the forgiven debt, the taxpayers, of course.

[caeric]

Actually, that''s not true, as none of the debt involved the government. It involved credit card companies and a bank. Much of a person''s debt to a credit card company, especially after a few missed payments, can be due to outrageous APR''s and added fees, so a large portion of credit card debt, especially over a long period of time, is created by the credit card company itself rather than the individual. Removing even that portion can significantly reduce overall debt to those companies and the individual can repay actual rather than inflated debt.

Many of the current problems with mortgages stem from artificially inflated property values, and that bubble is bursting. When things are reconsidered in terms of real value, the bank will at least recover a portion, often as much if not more than it would recover in foreclosure of the property.

[caeric]

Oh, and the main instance in which the government would become involved (and thereby the taxpayers) is if the bank ''goes under'' and has to be rescued by the federal government. Unfortunately, that may become more common until property values return to real value rather than inflated value. Still, it''s not going to happen often enough to be alarmist about it.

[daisyjingles]

If medical bills pile up people charge other things so they can afford to get medicine and health care for their kids and themselves. Some people charge their heat bills so they do not freeze to death. It takes a two income family now where only one parent worked in the fifties. If you look at the life style of most credit card debtors, you do not see a fancy house, a new or newer car and they are not telling you about the cruise they just took.

Many, many people in the United States are suffering.

[lovegetpeace]

The current Financial Credit Crisis is nothing folks.

Soon, all Americans will MAX out their available credit on their credit cards. $12,000.00 is the Average consumer credit debt. The Average MAX available credit is $18,000.00.

However, I do not think the Government will have the money, given that its $11 Trillion in debt, to bailout all the American Consumers. Therefore, we will have the 4th Great Depression around the year 2017 to fix all of our debt problems.

[arthurcl1]

YES I HAVE SAID THIS SINCE LAST JULY! THANKS PELOSI FOR SPEAKING OUT! BUSH IS A TOTAL FAILURE AND WORST PRESIDENT LIAR TO THE AMERICAN PEOPLE GOING OVER U.N. TO INVADE IRAQ WITH NO WEAPONS OF MASS DESTRUCTION FOUND! HE NEEDS TO GET OUT NOW SINCE OUR COUNTRY IS IN HIS RUINS! OUT! OUT! OUT! 2 MONTHS LEFT! OR HE WILL INVADE IRAN NEXT and BANKRUPT THIS COUNTRY WORSE!
"You know, God bless him, bless his heart, president of the United States, a total failure, losing all credibility with the American people on the economy, on the war, on energy, you name the subject," Pelosi replied. She then tsk-tsked Bush for "challenging Congress when we are trying to sweep up after his mess over and over and over again."

[oldpoet-2009]

Posted by Bobertbobert:
And who is picking up the forgiven debt, the taxpayers, of course.
-----------

WRONG! Did you even bother to read the story?
It has nothing to do with taxpayer bailouts. It has mostly to do with greedy credit card companies. The only "forgiven debt" is the credit card debit, which, as Caeric points out, is mostly inflated penalties and outrageous interest rates.

[wardoglrs]

Time to get a Rope

[hissteps4u]

Posted by poopnuts1111 your Name ought to read
S-H-I-T 4 Brains 11111 could you be any more dense or down right ignorant. The retortic needs to cease. It is folks like you who dredge up garbage and toss it out there hopeing that it somehow sticks....

Get over yourself and your outdated ideals Obama won and McCain Lost get a grip and Move on with your dead end life for you obviously do not have anything worthwhile to contribute to the discussion except garbage and trash talking..

The article is a good one and has absolutly nothing to do with Obama who did not do anything to contribute to the mess we are all in in the US and around the world I might mention...

The Bush Admin brought alot of this garbage to our door steps with their outmoded ways and policies and it is time to sweep the garbage out and clean washington up forf a change..

I am a rfepublican and I can see the truth whats your problem besides a poor education and a lack of ability to look yourself in the Mirror and see the one person responciable for your own actions rather than Lie to yourself and blame others...

Grow up dweeb...

[k19karen56]

First time to comment I want to start with this, I am glad this is available. Even if my words do not make a difference in todays world, it sure feels better to have someone to share them with.
I am a single middle aged woman in America with a mortgage. Never in my life have I been so poor!!!
Still fortunate enough to have a 40 hour a week job(for now) and poor!!! Will the government help me? Ramen noodles for supper 4 times a week is getting old not to mention not very healthy.

[nwihoosier]

Peace and Love
hissteps4u Wonderful comments! Thank you.
Peace and Love

[evian_ycnan]

The Cain couple are just missing a Mc.

[tmittelstaed]

If your having credit problems and you can take advantage of either of these programs then DO SO IMMEDIATELY! The ONLY reason the lenders are willing to participate in them is because if they foreclose they know they won''t be able to sell your house. But in a few years when the housing market starts to recover, the lenders won''t bother with these programs, they will simply foreclose and take your house. So, do it right now!

[twistedsister1959]

As an American who has lost a home to foreclosure and has had to declare bankrupcy in the past due to medical reasons, I would like to remind those out there who are still able to work that the upper crust would do well to remember that it is the crumbs that hold the pie together. CBS Fan hit the nail on the head. We alone have the power to stop this foolishness if we could all put politics aside for one day and say enough is enough and show what the American people can still accomplish through it''s sheer will.

[tincup356]

when the people re elected those who voted for the sellout, they gave congress the right to steal everything we have and give it all away to the banks and mortgage companies and not to mention the Insurance companies, who just not too long ago were sticking their noses up and making excuses why they shouldn''t have to pay claims on the damage from hurricanes.In more than a few cases they just flat screwed the people and now after mismanaging those companies they expect us to pick up the tab for their high rolling...totally insane ,I say let them go under. they didn''t care about people that paid high premiums and then were refused on claims from storms.

[r9119111]

poopnuts1111: Where do you get such rot? Stop your fear mongering and divisive dialogue right now for the good of the American people. The election is over. Give us a break.

[tincup356]

maybe if we have a country left next election, we can vote out all the democrats in congress...while we are at it we can vote out whats left of the republicans too, that will create about 650 new jobs that ordinary citizens could have and probably do a much better job than any of the greedy corrupt people doing them now.

[r9119111]

tincup356: A lot of people are hurting and don''t need the BS. The election is over and we will all need to work together to repair the damage.

[gop_will_win]

I got a way of avoiding bankruptcy. How about paying your bills and not buying things you cant afford.

[pepper416]

Many of you are missing the point here. Lost Jobs = Credit Problems. People arent abusing their credit cards, they are trying to stay afloat. We lost our small business due to this economic crisis, dumped everything we had into it, just trying to keep it. Now, guess what- we have creditors at our door, threatening legal action and liens against our already mortgaged property because we used it as collateral. There was nothing we did WRONG. Now we are being forced into Bankruptcy just to keep our home. People need to stop casting judgement and worry about their own credit.

[triplet-man]

There is one word for what the Federal Govt. is doing RIGHT NOW. IT''''s called Socialism - look up the definition.
Taking "ownership" of the banks, loans, credit lines, Automakers. What is next?
Someone else in South America did this. Hugo Chavez - The only difference is, he just said it outright. I''''m "nationalizing" all of this. It''''s MINE now. The Feds are using FEAR tactics to take over this nation.
We the people..... are falling for it.
WAKE UP AMERICA!

[homespunlady]

Is our NEW NATIONAL ANTHEM "I owe my soul to the COMPANY Store"?

[homespunlady]

Did you see that while everyone was focused on the $700 billion Bailout the Treasury Dept. dropped Section 382 of the IRS code and now banks are out of paying about $140 billion in taxes...

Posted by IOWEIGN at 10:06 AM : Nov 12, 2008

Like probably 99 percent of the US - I missed that little giveaway tidbit but that''s the point of Smoke and mirrors. It apparently worked very well for this TAX GIVEAWAY to the profiteers.

Wasn''t it an ELITE European Banking Baron that said something like "give me control over a nation''s money and I care NOT who or what rules that nation"?

We really stepped in the feces when we handed over final and complete control of our economy to the foxes that have been raiding the hen house.

Now, it will be near impossible to take back that control - IF there''s anyone with enough brains left in this country to REALIZE and SEE the DANGER that is right in front of our faces.

[jackp32]

How about spending less than you make as a way to avoid debt and bankruptcy. Now that''s a novel idea whose time has come. That ought to be worth some kind of Nobel Prize. This applies to those in business and those spend happy consumers who love to impress their neighbors and friends with all that nice stuff they have.

[cbscrash072]

I already spend less than I make. Its just that the government thinks its entitled to a portion of my pay. I can''t afford the government. Paying my own way is not the problem paying for the rest of you is.

[eggy1620]

There was nothing we did WRONG - Posted by pepper416

Yes there was, you got into the WRONG small business.

[rocknroll33s]

It wasn%u2019t until I received a phone call saying my CHASE credit card payment was delinquent. I knew I had got it mailed off so why went back and my checked records and found that I had made a mistake in writing out the checked I had spelled out Two Hundred dollars and missed spelling out the Seventy. I did get the $270.00 amount in rite. if they would have called me right away when they receive the payment I would have had enough time to correct my mistake before the due date. But they waited to a until after the due date to contact me, Putting my account default.
I call them right away and explained to them about my brother -in-law passing away. and that It I had made a honest mistake in writing out the check and that I would pay the $70.00 by phone right then. CHASE told me Regardless to of the situation that I did not of to get my minimum payment in time and my account is in default my interest of from 13.65% to 28.99% It didn%u2019t matter that I had never been late on a payment before.

[mollydtt]

The main difference between the depression of the 30''s and now is the existence of credit. Back then, when you didn''t have the money to pay for something, you didn''t buy it. Now, you can charge it and hope that the usury rates charged by the credit card companies will somehow not be applied. But, the credit card companies know they will tack on every surcharge and penalty that they can (legally! yes!)
Trying to stay out of trouble requires practically a law degree these days (or winning the lottery). There are tough times ahead, and I''m sure most people have just stopped buying anything but food and medicine. Maybe even not that, but still, food and medicine can be charged on credit cards and those companies will be hounding you for your payment. That is the difference between the 30''s and today.

[aldee41]

Ain''t nobody as broke as Uncle Sam. Two wars and a "good buddy" bailout leaves Obama with an empty treasury and an economic mess.
Individuals that wish to break even any time soon should bankrupt before the rush and start over.