There’s no easy way to escape from your college loans, but for most people, options such as repayment and forgiveness plans do exist. The point is to avoid defaulting.

Here are two things you need to know about student loan debt:

1. There’s no magic wand that makes it easily disappear.

2. The more desperate you are, the fewer options you may have for relief.

The rising default rate on federal student loans reflects these realities. The U.S. Department of Education in September said 8.8% of borrowers had defaulted in their first two years of repayment, up from 7% the previous year.

That’s just the tip of the iceberg. When the window is expanded beyond the first few years of repayment, the default rate soars. One in five federal student loans that entered repayment in 1995 has gone into default, according to a review by the Chronicle of Higher Education.

Still, most people have better options to deal with their education debt than to simply stop paying it. A smart repayment approach can get you out of debt faster or at least make your loans more manageable as you build the rest of your financial life.

Here’s what you need to know to start planning your escape from student loan debt:

Understand the trade-offs

Federal student loans offer a variety of repayment options. If the payments on the standard 10-year repayment schedule are too high, you may be able to get extended plans that lower payments by stretching your loan term out to as many as 30 years. Or you can ask for graduated payments that start smaller and get bigger over time. Or you can take advantage of repayment plans based on your income.

The longer you take to pay back the loan, the more interest you’ll pay. Switching from a 10-year to a 20-year plan, for example, will cut your monthly payment by about one-third but will more than double the total interest you’ll pay, said financial aid expert Mark Kantrowitz, the publisher of FinAid and Fastweb.

If you have a manageable amount of federal student loan debt and can afford to make the bigger payments, you should do so. But consider opting for lower payments, even though you may pay more interest, if:

• You really can’t afford a larger payment right now.
• You otherwise couldn’t save for retirement.
• You have private student loan debt in addition to federal loans.

Focus on your private student loans first

Unlike federal student loans, private student loans have variable rates. Even if the rates are low now, they likely won’t stay that way for long, Kantrowitz said.

Private student loans also have fewer consumer protections and repayment options than federal loans, plus no forgiveness options — more reasons to dispatch this debt as fast as you can. Consider paying the minimum possible on your federal loans so you can throw more money at your private loans. Your lenders can help you compare your repayment options; if you’re not sure who holds your loans, start your search here.

Consider income-based repayment plans

Federal student loans offer three repayment options that are tied to your earnings: income-contingent, income-sensitive and income-based. The income-based plan is the most generous and can even get your payments down to zero if you’re poor. The plan caps payments at 15% of your so-called discretionary income, which is the difference between your adjusted gross income and 150% of the federal poverty line.

This cap will fall to 10% in 2014. (The cap will fall this year for certain borrowers, who will be notified this month by mail if they’re eligible for lower payments. To qualify, the borrowers can’t have taken out any loans before 2008 and must have taken out one new loan in 2012.)

Explore your forgiveness options

The balance of your federal loans can be forgiven after 25 years of on-time payments if you’re in the income-based repayment plan. That term will drop to 20 years starting in 2014 and will drop this year for a select group of borrowers — who, again, will be notified by mail if they qualify. The clock generally starts when you enter the income-based repayment program.

You can get your balance erased in just 10 years if you’re in the income-based repayment plan and work in certain public service jobs, including teaching, health, military and public safety jobs. (See a complete list here.)

You also can get some or all of your federal loans forgiven through volunteer work, military service or working in certain high-need areas. Service in AmeriCorps or Vista, for example, can earn you a $4,725 stipend toward paying off your loans. Participating in the Army National Guard can earn you up to $10,000 for loan repayment. Doctors and nurses can get loan forgiveness through the National Health Service Corps or the Nursing Education Loan Repayment Program if they work for a few years in areas that lack adequate medical care. Teachers have a number of options for forgiveness if they work in disadvantaged areas or with special-needs children. For more, visit FinAid’s page on loan forgiveness.

Don’t ignore your debt

Defaulting will trash your credit, which will make it harder for you to get other loans and may impair your ability to get a job. You could be sued and have your wages garnisheed. Your income tax refunds could be withheld, and you might not be able to get or renew professional licenses.

If you really can’t pay your federal loans, even under an income-based repayment plan, consider applying for a deferral or forbearance — which will allow you to suspend payments for a time without penalty, although interest will still accrue — rather than simply ignoring your debt. You must apply for deferrals or forbearance before your loans go into default. (Default is defined as being more than 270 days overdue on your federal student loans or 120 days overdue on your private loans.)

Private student loans have fewer options when you can’t pay, but a one-year forbearance may be available, or you may be able to get extended-payment plans.

If you’ve exhausted all your repayment and forgiveness options and still can’t pay, you should:

Understand your worst-case options

Student loans are different from most other debts. Education debts typically can’t be erased in bankruptcy court, and there’s no statute of limitations on how long a lender can pursue you for what you owe. Age or disability won’t protect you: The U.S. Supreme Court ruled against a 67-year-old disabled man who lived in public housing, deciding that he had to give up 15% of his $874 Social Security check to pay back defaulted student loans.

Because they have such powers to pursue you, student lenders aren’t going to settle your debt for a fraction of what you owe, as a credit card lender or collection agency might. But Kantrowitz said that people who have lump sums to offer may be able to negotiate small discounts on what they owe, such as 10% off the total amount or forgiveness of half the interest accrued since defaulting. Again, this assumes you have a lump sum, such as an inheritance or a loan from your parents. If you have to make payments, you’ll be stuck paying off the full amount you owe.

• Connect with Liz Weston on Facebook

Bankruptcy almost certainly won’t help you get rid of your student loans. Of 72,000 filers who asked for discharge of their student loans in 2008, only 29 were granted any relief, according to student loan guarantor Educational Credit Management, the U.S. Department of Education’s designated provider for student loan bankruptcy services. Borrowers essentially have to prove not only that their financial situation is dire but that it’s unlikely to ever improve — which is a harsh standard to try to meet, Kantrowitz noted. If you’re permanently and totally disabled, you may have a shot; otherwise, fuhgeddaboudit.

Bankruptcy may, however, wipe out enough other debt to give you the ability to start repaying your student loans. Credit card and medical bills are among the debts that can be erased in a bankruptcy filing.

• Calculator: When will your credit cards be paid off?

If you’re really up against a wall, consider talking to a bankruptcy attorney about your options. You can get referrals from the National Association of Consumer Bankruptcy Attorneys.

Liz Weston is the Web’s most-read personal-finance writer. She is the author of several books, most recently “The 10 Commandments of Money: Survive and Thrive in the New Economy.” Weston’s award-winning columns appear every Monday and Thursday, exclusively on MSN Money. Click here to find Weston’s most recent articles.

Are you an honest individual who is overwhelmed by debt,
facing a foreclosure or considering bankruptcy?

In times of financial trouble, everyone needs solid legal advice, practical wisdom and common sense. Our law firm provides legal services to Massachusetts families and individuals in need of experienced legal counsel and possibly Bankruptcy protection. This is what we do. We have built our reputation on assisting honest people burdened with overwhelming debt obtain what the United States Federal Bankruptcy Courts refers to as a “fresh start” or what we call “regaining your financial control”.

I am proud to have helped thousands of individuals and families in the course of my practice. My office has provided guidance to our clients to work their way from unmanageable debt to regaining financial control. My office is not a “bankruptcy factory,” where clients are processed without regard to their individual needs. Rather, I build relationships and represent people not only in their bankruptcies, but with their other legal needs. In fact, knowing my clients and their families is the only way I can understand their individual goals and aspirations. I understand that nobody wants to talk about bankruptcy with a lawyer. I have learned over the years that clients filing for bankruptcy are not trying to avoid their responsibilities, but are looking to alleviate a difficult situation. You owe it to yourself to consider all of your options. I look forward to meeting you, answering your questions and helping you and your family.

- Michael T. Eramo

In times of financial trouble, everyone needs solid legal advice, practical wisdom and common sense. Our firm provides legal services to individuals and small businesses in need of experienced legal counsel and possibly bankruptcy protection. This is what we do. We have built our reputation on assisting honest people faced with overwhelming debt obtain what the United States Federal Courts refer to as a “fresh start,” or what our office commonly refers to as regaining financial control.

Our firm was established with the very purpose of assisting Massachusetts families and individuals who face overwhelming debt.

At the Law offices of Michael T. Eramo and Associates, we understand that honest people sometimes find themselves overburdened with debt they cannot pay. Over the years, we have had the opportunity to talk to and provide legal counsel to thousands of clients throughout Massachusetts. From the initial consultation until the discharge of debt has been granted, our legal team is exceptionally well educated, trained and committed to serving the needs of all our clients.

Whether a client needs to file a chapter 7 petition, a chapter 13 petition, or is facing foreclosure, tax issues, wage garnishment or a pending lawsuit, we may be able to help. If you are honest, overwhelmed with debt, and looking for a fresh start, call us and begin the process of regaining your financial control.

Frequently Asked Bankruptcy Questions

I understand the Federal Bankruptcy Laws dramatically changed October 17th, 2005. How does the law change affect me?

It is important to speak with a qualified bankruptcy lawyer. The new laws are complex and knowledge of the new rules is required. Bankruptcy is still an available option for most, if not all, honest individuals facing overwhelming debt or foreclosure.

What is bankruptcy?

Bankruptcy is a legal proceeding under Federal law where a person is released from paying debts by declaring bankruptcy and turning all non-exempt property over to the court’s Trustee.

Who can file bankruptcy?

Any person who resides in, does business in, or has property in this country can file bankruptcy.

Should I stop paying creditors once I decide to file for bankruptcy?

Yes. Debts that can be discharged in bankruptcy such as credit card and medical obligations, should not be paid once an informed decision is made to file a Chapter 7 petition. Monthly bills such as rent, mortgage payments, telephone, and utilities, however, still must be paid.

Will filing for bankruptcy stop harassing phone calls from bill collectors?

When you file either kind of bankruptcy, something called an “automatic stay” goes into effect. The automatic stay prohibits virtually all creditors from taking any action to collect the debts you owe them unless the bankruptcy court lifts the stay and lets the creditor proceed with collections.

How long does a bankruptcy remain on my credit report?

The fact that an individual filed a bankruptcy can remain on the credit report no longer than 10 years under provisions of the Fair Credit Reporting Act.

How much does it cost to file?

In Massachusetts, the filing fee is $299.00 for individual, joint and business petitions under Chapter 7, or $274.00 for Chapter 13.

What is the difference between Chapter 7 and Chapter 13?

In Chapter 13, the debtor pays a portion of non-secured debt and all of the secured and priority debt over a period of 3 to 5 years. The debtor is allowed to keep both exempt and non-exempt property. In Chapter 7, the debtor is not required to pay any dischargeable, debt and is not allowed to keep any non-exempt property. Whether to file under Chapter 7 or Chapter 13 should be discussed with an attorney.

Where is a bankruptcy filed?

A bankruptcy petition is filed in the United States District Court in the district where the debtor lives or does business.

How long does it take?

Chapter 7′s are generally very fast. The court will schedule a creditor’s meeting in approximately 30 days after the bankruptcy petition has been filed. At the meeting, the trustee will ask you about the information contained in your bankruptcy schedules. The meeting may last only a few minutes, and is generally the only “court” appearance you will have to make. In approximately 120 days you will receive your discharge and the final decree will follow a few weeks later. Chapter 13′s and 11′s take longer. Your attorney can give you a rough estimate of the time involved.

What do I need for the initial meeting with my attorney?

Clients should bring in these four things: 1) a list of assets and liabilities, 2) a list of creditors showing the amount due to each creditor, 3) a list of income and expenses, and 4) last two years tax returns. We will discuss your financial situation and determine if bankruptcy is appropriate. If it looks like bankruptcy is appropriate, I will provide you with forms to fill out. When this is complete, the petition and schedules will be prepared and filed. 5) Evidence of last 6 months of income.

I am in debt because I’ve been irresponsible in using credit. Will I be denied a debt discharge because I don’t have a good excuse for my behavior?

No. The bankruptcy system does not ask whether your debt is due to unforeseen circumstances that were no fault of your own, or whether you were living “over your head.”

What does the term “fresh start” mean in association with bankruptcy?

By discharging your debts in a Chapter 7 bankruptcy you can receive a “fresh start”, and move on to rebuild your financial and personal life, without the worry of being overwhelmed by an unbearable load of debt.

Is my primary residence protected?

In Massachusetts, if you own your own home and it serves as your principle residence, you may be able to protect it against the claims of creditors and/or a forced sale by filing a Declaration of Homestead . Speak with a qualified bankruptcy attorney to determine the status of your Homestead Exemption should you file bancruptcy.

Will I lose my job?

No. Bankruptcy laws prohibit discrimination based upon a debtor filing for protection under the bankruptcy laws.

Can I go to jail if I file bankruptcy?

No. There are no debtor’s prisons in the United States.

Will bankruptcy stop a wage attachment?

Yes.

Will bankruptcy stop a judgment?

Possibly. Most civil judgments are stopped by bankruptcy.

Will bankruptcy wipe out all my debts?

Yes, with some exceptions. Bankruptcy will not normally wipe out: (1) money owed for child support or alimony, fines, and some taxes; (2) debts not listed on your bankruptcy petition; (3) loans you received by knowingly providing false information to a creditor who reasonably relied on it in making you the loan; (4) debts resulting from “willful and malicious” harm; (5) student loans owed to a school or government body, except if: the loan first became due more than 7 years before the bankruptcy was filed or; the court decides that payment would be an undue hardship; (6) mortgages and other liens which are not paid in the bankruptcy case (but bankruptcy will wipe out your obligation to pay any additional money if the property is sold by the creditor).

Will I have to appear in Court?

In most bankruptcy cases, you only have to go to a proceeding called the “Meeting of Creditors” to meet with a bankruptcy trustee and any creditor who chooses to come. This meeting is usually a short and simple procedure where you are asked a few questions about your bankruptcy forms and your financial situation. Upon the filing of a Chapter 7 petition, a Meeting of Creditors is scheduled by the Court, which takes place one to two months after the petition is filed. If the petitioner is represented by counsel, the attorney will sit with the petitioner and provide assistance when needed. The trustee will tape record this meeting as he/she swears in the debtor. He/she will ask if the debtor read the petition before signing it, and if the signature on the petition belongs to the debtor. Additional questions such as the following may be asked: 1) How did you get into financial trouble? 2) During what period of time were your debts accrued? 3) How did you value your house (if applicable)? 4) Do you have the right to sue anybody? 5) Does anyone owe you money? 6) Do you expect to receive any moneys in the near future from tax returns, inheritance, or any other source? 7) Have you transferred any real or personal property to others within the last year? These questions are designed to help the trustee determine if the debtor possesses assets that can be distributed to creditors, and if the debtor is honest in filing the petition in good faith. Creditors may also appear at the meeting to ask questions, but this rarely happens. The Meeting of Creditors usually takes no more than five minutes to complete.

What happens after the Meeting of Creditors?

In “no asset” cases (the usual Chapter 7 where all assets are exempt), a few months after the Meeting of Creditors, the Court will grant a discharge. At this point the case ends with the debtor free and clear of dischargeable obligations listed in the petition.

Can I use bankruptcy to stop a foreclosure?

Yes, but there are limitations to this strategy. A chapter 7 will only delay a foreclosure for a short while until the creditor is able to file a motion for relief from the bankruptcy stay. Unless you are able to cure the default within a month or so of the bankruptcy, filing a chapter 7 probably won’t do you much good. A chapter 13 will allow you to pay the past due mortgage payments over a period of 3 years but you must still be able to make the regular monthly payments. If you can’t do this, a chapter 13 probably won’t work.

Can I discharge my student loans?

Until recently, student loans were dischargeable for undue hardship or if payments were due for at least 7 years. A late 1998 amendment to the bankruptcy code has eliminated the 7 year discharge provision entirely. Now student loans are not dischargeable except for undue hardship. If you can convince a judge that having to pay the student loan would impose an undue hardship on your ability to get a fresh start, the judge can order that the student loan debt be discharged. This is not an easy thing to do since most people can pay their student loans once their credit card debt, medical bills, etc. are discharged.

Can I discharge child support?

No.

What is a reaffirmation agreement?

A reaffirmation agreement is simply an agreement to pay a debt that existed at the time you filed bankruptcy. Usually debtors are willing to enter into reaffirmation agreements on secured debts such as homes and automobiles. Most credit cards, medical bills and other debts are “unsecured” and debtors generally don’t enter into reaffirmation agreements on those kinds of debts. Typically, the creditor provides your bankruptcy attorney with a reaffirmation agreement for your review and signature. The one big downside to reaffirmation agreements is that you remain personally liable for the debt. If you later default on your payments you could lose the property and become personally liable for any deficiency. Obviously, you will need to give careful consideration to your ability to make the payments and the potential consequences of a default. The bottom line: If you don’t need the property and can’t make the payments don’t enter into a reaffirmation agreement.

What are the federal exemptions?

The federal exemptions can be found at 11 U.S.C. ß 522. There are numerous exemptions, but the most important and widely used ones are as follows: (Note: The federal exemption amounts listed below were adjusted on April 1, 2001 pursuant to 11 U.S.C. ß104. You will need to double these amounts for married couples filing jointly). (d)(1) Homestead – $18,450.00 (d)(2) Motor vehicle – $2,950.00 (d)(3) Household goods – $9,850.00 (d)(4) Jewelry – $1,225.00 (d)(5) Wildcard (unused homestead) – $9,250.00 (d)(6) Tools of the trade – $1,850.00 (d)(8) Loan value of any life insurance – $9,850.00 (11)(D) Personal injury award – $18,450.00 There are other exemption for retirement accounts, health aids, etc., but these are the most commonly used exemptions with values that most people need to be concerned about. The selection of exemptions can be very tricky and your attorney will help you decide whether you should select the state exemptions or the federal exemptions for your particular bankruptcy.

What can be done about judgment liens?

A judgment lien is a lien obtained as a result of a money judgment and recorded against property such as a house or a car. If the lien applies to exempt property, it may be eliminated. To avoid a judgment lien, a motion must be filed in addition to the Chapter 7 petition. Liens related to child and spousal support judgments may not be avoided.

What do we do if someone in bankruptcy owes us money?

In a chapter 7 no-asset case do not file a claim unless requested to do so by the court. In a chapter 7 asset case you will receive a claim form, and a notice, setting a date to file the claim. In a chapter 13 case, a proof of claim must be filed within 90 days of the 341 meeting date.

By John W. Schoen, Senior Producer

When David Martin and his wife bought their north Seattle condo five years ago, they figured they had plenty of time to downsize if they needed to before they retired.

Now, with the property worth roughly $60,000 less than the balance of their mortgage, Martin, 68, has been giving serious thought to just walking away, a process lenders call “strategic default.”

“Guilt and morality are one side, and objective financial analysis are on the other side,” Martin said. “They’re coming to two opposite conclusions. I wonder how many other people are struggling with the same question.”

Strategic defaults like the one contemplated by Martin are on the rise. A survey last year by two Chicago-area finance professors, Paola Sapienza at Northwestern University and Luigi Zingales at the University of Chicago, found that roughly three out of 10  mortgage defaults in 2010 were by homeowners who could afford to make their payments, up from 22 percent in 2009.

“It’s a looming problem that’s in the shadows,” said Jason Kopcak, a mortgage trader at Cantor Fitzgerald who advises lenders on how to value the loans on their books. “It’s very worrisome to mortgage lenders.”

Researchers point to a number of forces that are driving borrowers to walk away from their mortgages. At the top of the list is the estimated 12 million homes that are underwater, meaning the owners owe more than they are worth.

Until recently, borrowers like Martin and many industry analysts held out hope that a housing recovery would reverse the rising tide of “negative equity.” But after stabilizing this summer, home prices began falling again, dropping 7.5 percent in the third quarter alone and leaving more homeowners underwater.

Even if prices stabilize this year, millions of underwater borrowers face a long wait before they can sell their homes without having to write a big check to their lender to cover the shortfall. Economists at Goldman Sachs recently forecast that after bottoming in 2013 house prices won’t recover their 2006 peak until 2023. (No, that’s not a typo.)

Many homeowners simply can’t wait that long.

In the early stages of the housing bust, the main causes of defaults included unemployment or other financial setbacks and adjustable mortgages that reset to unaffordable levels, according to researchers. Now, five years into the housing recession, strategic defaults are growing as financially healthy borrowers learn of friends or family who have decided to walk away.

A recent study commissioned by the Mortgage Bankers Association likens the rise in the rate of strategic defaults to the spread of a disease. The longer the crisis drags on, the more homeowners will be exposed to someone who has successfully walked away, making the decision easier, the study suggested. “As fundamentally social animals, humans consciously (and subconsciously) look to their peers when forming opinions, habits and behaviors,” the report said.

“Most people who own a home know of someone — a friend, a colleague a family member — who has defaulted, especially in housing markets that have taken a big hit,” said Chad Ruyle, co-founder of youwalkaway.com, a service that advises homeowners on walking away from their mortgage. “They realize these are not bad people. They’re not deadbeats. They’re just like them.”

Researchers say strategic default is also more common among borrowers who feel no personal connection to the party on the other end of the transaction. Gone are the days when you walked into a bank and met with a lender who shepherded your application and congratulated you when the loan was approved, said Michael Seiler, a finance professor at Old Dominion University and a co-author of the MBA study.

“If you defaulted, it was like you were defaulting on your friend,” he said. “Your kids might go to the same school. You all might go to the same church. And you’re constantly reminded of who you’re defaulting on.”

That scenario is a far cry from the modern system of mortgage finance, where loans are sold over the phone or online, chopped up into pieces and then sold to multiple, anonymous investors. Many underwater homeowners who try to negotiate with their lender can’t even find out who owns their loan.

“We’re finding that people are much more willing to walk away when the other party is unknown or what you might call a ‘bad bank,’” said Seiler. “Those are the ones that received a lot of bailout funds or were active in the subprime market, giving loans to people who couldn’t afford them and they knew that.”

The mortgage lending industry’s widespread reluctance to modify loan terms has also changed homeowner attitudes about walking away, according to Ruyle.

“They feel much better about doing it if they’ve tried to contact the lender and the lender won’t budge,” he said. “They feel justified about it because they’ve tried to do their best to work it out.”

Shifting attitudes about the causes of the housing bust are also playing a role, say researchers. In their surveys, Sapienza and Zingales found that 48 percent of Americans said they would be more likely to default if their bank was accused of predatory lending, even if they are morally opposed to strategic default. Some 11 percent said they’d be less likely to pay their mortgage, and more likely to walk away from their loan, if their lender was cited for using false foreclosure documentation.

The government’s ineffective response to the housing crisis, even as it went to extraordinary lengths to backstop banks, has also propelled walkaways, say researchers. Since the housing bubble burst in 2006, some $7 trillion in home equity has evaporated, according to Federal Reserve data. Now, as home prices resume their fall, some homeowners believe lenders should bear at least a portion of the losses inflicted by a housing bust the industry helped create.

“The money didn’t disappear,” said Martin. “We still owe it to the bank, so the bank will end up getting all of its money back on a loan that no longer has its original value. They’re taking no part in the loss.”

Widespread reports of lenders’ bad behavior, from filing defective paperwork to selling investors bad loans, have begun to erode one of the strongest deterrents to walking away: the sense that skipping out on a debt is morally wrong. University of Arizona finance professor Brent White interviewed hundreds of homeowners for his research on strategic default. He found that, in the eyes of many homeowners, mortgage bankers have lost the moral high ground.

“The reality is: for the bank it is simply an economic transaction,” he said. “They have no moral qualm about taking your house, and they feel no moral obligation to modify your mortgage even if you’re in a difficult financial situation.”

Still, there are much more serious consequences to strategic default than pangs of guilt. Any loan default will damage a borrower’s credit score. But some strategic defaulters are finding that the impact isn’t as long-lasting as widely believed, according to Ruyle.

“You don’t destroy your credit, you wound your credit,” he said. “Just like a wound, it heals over time.”

Ruyle said surveys of the roughly 8,000 customers who have signed up for his service in the last four years found that some strategic defaulters are able to restore their credit in as little as a year and a half.

The bigger risk for walkaway borrowers is that their lender will pursue them in court and win a so-called “deficiency judgment,” a court-ordered, full repayment of the mortgage balance. That process is governed by state laws; some so-called “non-recourse” states bar lenders from pursuing such judgments.

But the force of that deterrent is also weakening, according to Sapienza.

“(There’s an) increasing perception that lenders are not going after borrowers who walk away,” he said.

That perception may be dangerously misplaced, as many lenders continue to aggressively pursue judgments against homeowners who strategically default. That’s why there’s widespread agreement that homeowners considering it need to get solid legal advice from an experienced real estate attorney in their state.

“There’s a process to strategic default and a lot of people don’t know how to do it,” said Kopcak. “They don’t really know what their options are. People really need to talk to a lawyer who knows the process.”

For now, Martin is electing to stay in his home and continue paying the mortgage.

“We intend to continue as we are on the basis that we gain nothing from acting at this point,” he said in a note. ”We think that the real estate market in Seattle will rise by 2013 enough to offer better alternatives. There is a small chance that the federal government will act to offer more rational choices. The real possibility is that the debt might be refinanced in 2013 at a level that might offer enough reduction in payments to allow us to hang on long enough to shore up our financial position.”

In short, giving up at this point may be worst of all alternatives. Giving up seems to run counter to our value system, no matter how financially wise experts seem to believe it may be.”

Published November 04, 2011

| Bankrate.com

Dear Debt Adviser,

I have several items on my credit report that list a date to be removed. I thought after seven years negative items — except for government items such as student loans — are gone and no longer haunting. I spoke to someone at the law firm that received my debt. He said he couldn’t explain it to me but that even after seven years, while the debt might not be on my report, the company can still come after me for the debt through courts and garnishments. How does this work really? This one in particular is scheduled to expire this year, and I don’t want to struggle finding the money for it if it’ll be gone after that date. Any help would be greatly appreciated or at least point me in a direction where I can get the information. Thank you very much.

- Christine

Dear Christine,

I can understand why you are confused. Believe me, you are not alone. What is going on here are three different threads all attached to the same debt. First, there is the reporting of the debt by the credit bureaus. Second, there is the debt itself you owe. And third, there is the statute of limitations in your state that limits the collection options a collector can use in pursuing you for the debt you owe. Here’s how it all works:

Garden-variety debts such as credit cards, mortgages or loans stay on your credit report for seven years, depending on the state. Debts to or guaranteed by the government, child support and bankruptcies stay on for 10 years to life. Many people mistakenly believe once a debt no longer appears on their credit reports, it is no longer owed. The truth is the debt is owed as long as it is unpaid or otherwise settled.

However, state laws prevent a collector from using the courts (to seek a judgment that can be used to garnish wages or bank accounts, or place liens on real property) if the debt has passed the statute of limitations time frame set by the state. The clock starts on the statute of limitations from the date of the last payment made on the account. You can determine the statute in your state by visiting the website of Nolo, a legal information company.

An important element to keep in mind with statute of limitations laws is that, in most states, any payment on a debt restarts the clock. For example, let’s say the statute of limitations in your state is four years, and you have not made a payment on your debt for five years. But, in a moment of weakness, after being harassed by a collector, you sent in a payment. In most circumstances, the statute of limitations clock is restarted by your payment, and the collector would be within their legal rights to use the courts to collect.

So, the bottom line is you may still receive calls and/or letters from collectors attempting to collect your old debts, even those that can no longer be reported to the credit bureaus and appear on your credit report. The only sure way to make old debts go away (those that you are certain you owe) is to pay them, settle them or have them dismissed in a bankruptcy.

In your case, I suggest you answer any correspondence from any collectors. Tell them the debt is past the statute of limitations in your state, and you don’t intend to pay anything. A collector who has been notified that a debt is unenforceable can be sued if they pursue it in court.

Good luck!

Bankrate’s content, including the guidance of its advice-and-expert columns and this website, is intended only to assist you with financial decisions. The content is broad in scope and does not consider your personal financial situation. Bankrate recommends that you seek the advice of advisers who are fully aware of your individual circumstances before making any final decisions or implementing any financial strategy. Please remember that your use of this website is governed by Bankrate’s Terms of Use.

By JENNIFER WATERS

Reloadable prepaid cards are magic bullets to help overspenders and those who steer clear of banks. But they won’t build your credit and can cost you plenty in fees if you’re not careful.

“If you know what questions to ask and you spend some time shopping, prepaid cards can be a positive tool for managing money and can even be a substitute for a traditional checking account,” says Jennifer Tescher, chief executive of the Center for Financial Services Innovation, a consultant specializing in serving the unbanked.

Network-branded prepaid cards are peddled primarily to the roughly nine million so-called unbanked U.S. households, those, according to a 2009 Federal Reserve survey, without any checking or savings account. Another 21 million households are underbanked. Taken together, that accounts for some 60 million adults, or one-quarter of U.S. households.

Christoph Hitz

Of those households, only 28% have used a prepaid card, meaning there’s plenty of untapped opportunity. Most credit-card experts expect prepaid-card use to explode beyond the 20%-plus annual growth of the past five years as banks pile on charges for debit cards and checking accounts and impose hefty minimum balances on checking accounts to waive fees.

“Prepaid cards offer a compelling value because they fill a growing void created by increasing fees for checking accounts,” says Michael Flores, chief executive of Bretton Woods, an economic research firm.

They also are gaining traction with high-school and college students whose parents fund the cards. And they have been used by the government for unemployment benefits and disaster-relief aid. Many employers also issue prepaid health cards tied to flexible health-care spending accounts, eliminating the wait and paperwork for refunds. Others deposit pay directly onto prepaid cards.

For people with bad credit or spending problems, prepaid cards allow them to operate in a plastic-ready world by using the cards to pay for airline tickets, online purchases, hotel stays and car rentals—all of which require a credit or debit card.

But don’t be fooled by promotions that offer no credit checks and promises to notify credit bureaus of your positive financial behavior. These aren’t lines of credit, so there’s no need for a credit check, and credit-rating companies don’t care how you use them, just like they don’t care how you spend cash.

Though they can be cheaper than holding a checking account or having a credit card, prepaid cards are far from free. Many are loaded with fees for gaffes like inactivity or cancellations and will charge you for balance inquiries and bill paying.

“You have to be a fine-print warrior,” says Beverly Harzog, Credit.com’s credit-card expert. “Every card is different. Some cards are more transparent about their fees while with others you have to look all over the fine print to determine all the fees.”

Plan on a start-up fee of sorts to activate and load the card. Most cards have monthly fees that can be as high as $9.95. Some will charge to transfer money from one card to another or to write checks.

Among the cheapest cards, Wal-Mart MoneyCard MasterCard, which is issued through GreenDot.com, has a $3 monthly charge. American Express’s new prepaid card doesn’t charge one at all. But you must reload the American Express card from a bank account, which makes it useless for the unbanked who will need a GreenDot MoneyPak. The MoneyPak is a means of loading cash onto the cards, much like buying an airtime card for a prepaid cellphone. Each card costs $4.95 and cannot hold more than $500, which means you have to buy a new one once the money’s gone.

American Express cards do charge you to withdraw money from an ATM, $2 after the first withdrawal each month. Wal-Mart charges $3 to reload and $2 for a cash withdrawal from an ATM and $1 for a balance inquiry. Those ATM charges are on top of the fee the owner of the ATM is charging.

Other popular prepaid cards include NetSpend, Western Union and BillMyParents. You can compare prepaid cards at websites like Credit.com and CreditCards.com.

Here are some tips for finding the prepaid card that works for you:

• Like everything you financially bind yourself to, read the fine print. For some of these cards, reading what’s on the website might not be enough, so read the literature that accompanies the card before you purchase it.

• Look for cards with low or zero monthly fees. There aren’t many of them, so you have to look hard.

• Get reloadable cards so you’re not paying an activation or fulfillment fee for a new card.

• Look for cards that don’t charge transaction fees or inactivity fees.

• Opt for direct deposit to fund prepaid cards. It will save you load fees and in many cases, monthly fees, not to mention a trip to a retailer.

• Don’t count on prepaid cards to help you build credit. Like checking accounts, major credit agencies don’t look at them to chart your financial behavior.

• Some cards provide overdraft coverage, similar to a checking account. But plan to pay hefty charges for it.

• Most cards will give you one to two free ATM withdrawals a month but then charge for extras.

• Many cards will allow you to get cash back from the cashier at the point of sale, which will help avert ATM fees.

• Not all cards are protected if lost or stolen, so guard them as you would cash and be wary of who you give the card number to.

Write to Jennifer Waters at jennifer.waters@dowjones.com

—Jennifer Waters is a columnist for MarketWatch in Chicago.

Building better credit takes patience, discipline and a clear understanding of the strategies that really make a difference. Start by knowing the financial moves that don’t work.

Like child rearing and curing ailments, credit building is chock-full of old wives’ tales. Smart financial moves such as closing accounts or paying off loans early may not be the credit boosters you think they are.

Sadly, there are no real quick fixes despite what some commercials or online credit-repair ads might proclaim. The key to increasing your credit score is good payment behavior along with time and a healthy mix of credit types.

To help you sort the facts from the fiction, Bankrate tackles some long-held but bogus beliefs that won’t help you build better credit.

1. Opting out of credit card offers will help

Many consumers assume if they opt out of credit card offers, there will be fewer credit inquiries on their credit reports, says John Ulzheimer, the president of consumer education at Smart Credit. However, those inquiries are considered “soft” inquiries and don’t affect your credit score, Ulzheimer says. You can keep the offers coming if you’d like, but doing so won’t help you build better credit.

If you want to opt out of offers to reduce your junk mail, call toll-free (888) 5-OPT-OUT/(888) 567-8688, or visit OptOutPrescreen.com to remove your name from the credit-reporting agency lists for unsolicited credit and insurance offers. That will remove your name for five years.

To keep your name off the list, mail in the permanent opt-out election form available on the website. Consumers can also opt in on the website if they’ve already opted out.

2. You can bump hard inquiries off your credit report

A “hard” inquiry is generated when creditors pull your report or score after you apply for a loan or line of credit. Your score falls because it shows you’re interested in taking on more credit and, therefore, more risk. Other inquiries are considered “soft,” such as those triggered by you, your employer or companies sending credit card offers in the mail.

Some consumers believe if they pull their credit report every day to load up on “soft” inquiries, they will bump off the hard ones that weigh on their credit score.

“It’s speculative. There’s no indication there’s a finite amount of space for inquiries,” says Ulzheimer. And it’s only a small part of the score. “There’s better bang for your buck if you do more legitimate things.”

3. Closing old accounts will boost your score

This is a hard-to-kill-off myth. Closing accounts typically won’t help your score and could possibly dent it, says Trey Loughran, the president of personal information solutions at Equifax. The results can shorten your credit history eventually and leave you with a smaller amount of available credit, both of which can harm your efforts to build better credit.

The length of credit history shows how seasoned a borrower you are, so the more positive experience you have, the better. Having more available credit helps to keep your utilization rate low. The utilization rate is how much available credit a borrower uses; the lower the percentage, the better.

“Say you have $100 in debt with $1,000 in allowable credit across multiple accounts and you close a credit card with a limit of $500. Then you doubled your utilization rate from 10% to 20%,” Loughran says.

4. Opening many accounts will improve my credit score

Some consumers with credit problems believe opening many accounts will be proof that they can handle credit. Actually, it has the opposite effect.

“That makes lenders scratch their heads and wonder why you need all that credit,” says Rod Griffin, director of public education at Experian. “It’s a sign of risk.” Your credit score can suffer as a result.

What lenders will see is a boatload of new, hard inquiries on your credit report. Those inquiries will deduct from your credit score, while lenders will worry that you’re in dire financial straits and desperately need access to credit to make ends meet.

• 7
• You recommend this37%You don’t recommend this63%
• Shared 369 times

5. Paying off delinquencies will restore your credit score

Nope. It will help, but don’t expect a supersized boost, says Ulzheimer. That’s because the delinquency will stay on your report, even if it has a zero balance.

6. Paying off loans early is better than making payments

“It’s a Catch-22,” says Sarah Davies, the senior vice president of analytics, product management and research for VantageScore Solutions, because while it may be good for your personal finances to pay off a loan, it doesn’t do much for your credit score.

Moody’s: Student loan debt tops credit card debt

View more MSN videosGo to msnbc

Indeed, a closed, paid-off account adds to your score, but an open credit account in good standing boosts it more.

That’s because an open account shows you’re consistently handling credit wisely. A closed account only shows good payment behavior in the past and becomes less and less predictive of future habits.

7. Paying before the due date helps your credit score

Your credit score takes into account how much available credit you’re using. Paying a credit card balance in full 10 days or one day ahead of the due date won’t help your utilization ratio and thereby improve your score. That strategy doesn’t work because the balance of the account has already been reported to the credit agency, says Ulzheimer.

However, if you pay the balance in full before the statement closing date, which appears on your statement, your report will post a zero balance for that account. That will help your utilization rate, or how much credit you are using, along with your credit score, says Ulzheimer.

To get started, you will have to pay one credit card bill earlier than usual and then consider your statement date as your due date, says Ulzheimer. Also, you will need to check your balance online or over the phone to make sure you pay the correct amount.

8. All delinquencies are created equal

If you’re in the unenviable position of having to miss a payment, choose carefully. Missing a mortgage or auto loan payment will ding your credit more than skipping a credit card payment will. “Those are more substantive debts, so they carry more weight in the credit score,” Davies says.

Of course, missing a payment is a last resort. Pay the minimum payment to keep accounts current. To head off a catastrophe, contact a nonprofit credit-counseling service that can help you work with your lenders to come up with a more affordable, temporary payment plan or another solution.

9. I can’t have any negatives on my report

“I’m here to tell you that you can have anything from a 30-day missed payment to a bankruptcy on your report and still have a really good score,” says Barry Paperno, the consumer operations manager at MyFICO.com.

The most recent information on credit reports is weighted more heavily than older data, Paperno says. So if you have a bankruptcy from five years ago but have had good credit performance since, it’s possible to have a 700 FICO score.

To build better credit, Paperno preaches consistent good payment behavior instead of a quick fix. The advice is simple: Pay the minimum payment every month at least, if not the full balance. Diversify your account types, and keep balances low. The result will be a higher credi

Although bankruptcy is often a solution to a debtor’s problems, bankruptcy is not always  the best solution. Although bankruptcy is almost always available, it may not  always be needed.

Disputed debts
One alternative is to fight disputed debts. If a creditor sues you for a  payment on a debt you don’t believe is justified, you may be able to defend  against the creditor’s action.

There may sometimes be a real dispute about whether a debt is owed. For  example, a home improvement contractor may arrange a mortgage loan to pay for  the job but then do shoddy work or not complete the job. Similarly, there may  be misrepresentations in a transaction to buy a car or to finance some other  major purchase.

In such cases, the solution may be to fight the debt in court. Of course,  unless free legal counsel is available, the costs of such a lawsuit may be  considerable. If the debt is large enough, though, it may be worth the  investment to obtain a fair settlement. In many cases where a consumer  protection statute is violated, the creditor may be required to pay the  debtor’s attorney if the debtor ultimately wins the case or obtains a favorable  settlement.

Nondisputed debts
If a debt is not disputed, some of the other alternatives to bankruptcy  include:

• Working out informal payment agreements with creditors. If your debts are relatively small, you may be able to enter into agreements  with your creditors and avoid a bankruptcy proceeding. Nonprofit credit  counseling agencies can usually assist in working out such arrangements.
• Refinancing debts. A debtor may be able to arrange a debt consolidation loan that will allow him  or her to pay bills as they fall due. Although a debt consolidation loan does  not eliminate any of your debt, the new loan may have a longer maturity and be  at a lower interest rate than the individual debts. However, debtors should be  very wary of consolidating unsecured debts such as credit card debts into a  mortgage loan, because in doing so they will usually transform debts that can  be eliminated in bankruptcy into debts that cannot be eliminated.
• Financial assistance under state law. Often states have programs that will help you with utility or mortgage bills.  Before filing for bankruptcy, you should investigate these programs.

Eramo Law & Associates

You are visiting our website because you likely overwhelmed by debt or have received a Legal Notice from your mortgage company attorney informing you of their intent to foreclose on your home.  DON’T PANIC.  My office helps people who face this problem every day.  This is what we do.

What Options do I have?  Will I benefit by filing for Bankruptcy?  What is Bankruptcy?

Bankruptcy is not a “bad” word.  It is a Federal Law that protects…”Honest people” “Overwhelmed by debt” seeking “help” or commonly referred to as a “Fresh Start”….It is our Government’s way of protecting good” people, like yourself, to regain control of their financial and in many cases their personal lives.  There are many reasons why people find themselves facing a foreclosure or overwhelming debt.  Divorce, loss of a job, addiction, illness, and so on,,,,,If you are honest, and just overwhelmed financially,,,,,you need to call and speak with a qualified bankruptcy attorney.  You have options.

You may learn that filing for a Bankruptcy is the right decision.   People usually file for a chapter 7 or chapter 13.  A chapter 7 liquidates your debts if you qualify.  A chapter 13 may allow you 36-60 to pay back your arrears on your mortgage while you stay in the home.  It may allow you time to market and sell your property without the bank foreclosing.  It may allow you time to refinance yourself out of bankruptcy.  Every situation is different.  A qualified bankruptcy attorney can guide you through the options and strategies available.

My Office can help you make Informed Decisions. My office staff is exceptionally well trained to guide people through this very difficult time with compassion and a high degree of skill and commitment.  The Federal Bankruptcy laws recently were changed by sweeping reforms.  My office knows the laws and how to best protect your interest.

. How good is the lawyer’s reputation

The Law Offices of Michael Eramo & Associates file chapter 7 and chapter 13 personal bankruptcy petitions for clients in

• Amesbury,
• Andover,
• Arlington,
• Bedford,
• Beverly,
• Billerica,
• Boston,
• Braintree,
• Brockton,
• Brookline,
• Burlington,
• Byfield,
• Cambridge,
• Cape Cod,
• Chelsea,
• Chelmsford,
• Chestnut Hill,
• Concord,
• Danvers,
• Dedham,
• Dracut
• East Boston
• Everett,
• Fall River,
• Fitchburg,
• Foxboro,
• Framingham,
• Georgetown,
• Groveland,
• Gloucester,
• Hanover,
• Haverhill,
• Ipswich,
• Lawrence,
• Leominster,
• Lexington,
• Lowell,
• Lynn,
• Lynnfield,
• Manchester,
• Marblehead,
• Marshfield,
• Malden,
• Medford,
• Melrose,
• Methuen,
• Natick,
• Needham,
• New Bedford,
• Newburyport,
• Newton,
• North Andover,
• Norwell,
• Norwood,
• Peabody,
• Plymouth,
• Quincy,
• Randolph,
• Revere,
• Rockland,
• Rowley,
• Salem,
• Saugus,
• Somerville,
• South Boston,
• Springfield,
• Stoneham,
• Swampscott,
• Tewksbury,
• Topsfield,
• Taunton,
• Wakefield,
• Waltham,
• Watertown,
• Wenham,
• Weymouth,
• Winchester,
• Winthrop,
• Woburn,
• Worcester,
• North Shore,
• South Shore,
• Barnstable County,
• Berkshire County,
• Bristol County,
• Dukes County,
• Essex County,
• Franklin County,
• Hampden County,
• Middlesex County,
• Plymouth County,
• Worcester County,
• Norfolk County.

The Law Offices of Michael Eramo and Associates has offices in Offices in Danvers, Chelmsford,
Gloucester, Lowell, Salem, and Wakefield, Massachusetts.  We counsel client file chapter 7 and chapter 13 bankruptcy.  Our website is www.EramoLaw.com

Are you an honest individual who is overwhelmed by debt,
facing a foreclosure or considering bankruptcy?

In times of financial trouble, everyone needs solid legal advice, practical wisdom and common sense. Our law firm provides legal services to Massachusetts families and individuals in need of experienced legal counsel and possibly Bankruptcy protection. This is what we do. We have built our reputation on assisting honest people burdened with overwhelming debt obtain what the United States Federal Bankruptcy Courts refers to as a “fresh start” or what we call “regaining your financial control”.

The fact is that “NOT ALL BANKRUPTCY ATTORNEYS ARE CREATED EQUAL”. The truth is that there are some terrible bankruptcy attorneys…even some of the ones who supposedly do nothing but bankruptcy.

What’s hard is that…to the public…we bankruptcy attorneys sort of all look the same. And to make things worse, the cost of the attorney is not necessarily a good indicator of who’s good and who’s not. A cheap bankruptcy attorney could be someone who’s not going to give you good service and an expensive bankruptcy attorney could be someone who needs to charge more because he or she is not organized enough to provide you services in an efficient manner.

Filing bankruptcy will have a significant impact on your life for years to come…..and to makes things much worse, bankruptcy law is very complex, with many twists and turns, and traps for the unwary. In fact, it’s so complex and complicated that non-bankruptcy attorneys tend to avoid it like the plague.

The really sad truth is that the results to be achieved under the bankruptcy laws can vary tremendously depending upon whether you fall into the hands of a good versus bad bankruptcy attorney. I see the harm brought to good people brought about by bad attorneys every day.  Don’t let it happen to you.

If you need to file bankruptcy…choosing the right lawyer is critical.

In many cases, the simple truth is that the more experienced attorney will do a better job, which means getting you the most benefit from filing and avoiding the mistakes that someone less experienced is bound to make. And…the more experience…the better.

An attorney who is just starting out in the practice of bankruptcy law, for example, is doing just that, “practicing”. Guaranteed, you do not want that attorney practicing on you. So…

Don’t take chances. Here are some of the questions to ask in order to find the best available bankruptcy lawyer: