Escaping from a sea of debt

Island experts offer advice on getting finances under control

Monday, February 05, 2007

BARTON HOROWITZ ADVANCE STAFF WRITER

STATEN ISLAND, N.Y. -- Joe didn't expect to find himself buried in an avalanche of debt, but he did. And it ultimately cost him his livelihood, the lease on his car -- and his house.

Only three years earlier, the Staten Island resident was optimistic about his financial future, and upbeat about the opening of his new business. But when the fledgling enterprise needed an infusion of capital to help it survive, the husband, and father of two children, turned to convenient sources for much-needed cash.

"I ended up with a second mortgage, and ran up credit cards to pay bills and keep things going," said Joe, who asked that his real name not be used for this article.

"Little by little," he said, his family's overhead continued to increase as its financial fortitude "started going down and down and down."

Whether, as in Joe's case, spiraling debt is fueled by business problems, extraordinary medical expenses or, simply overspending, experts say the road to a cure begins with a realistic overview of one's finances.

"What they need to do is something most people have never done -- they need to sit down and write down everything they spend each month," said attorney Paul Hollender of Corash & Hollender, Bloomfield.

The bankruptcy expert suggested that some people create "a test period," during which time they keep an accurate record of all the money they spend.

"They should first write down how much they spend on a monthly basis -- and be as honest as possible -- and then figure out how much money they make each month," Hollender said. "Nine out of 10 times, you'll find that people spend more than they make -- and that's the first thing they'll have to deal with."

A key ingredient in lowering debt is to "get a handle on what your total debt is, and then get a budget in line so you don't accumulate more debt," said Robert P. Sisti, a certified financial planner and partner of West Brighton-based Forest Financial Group.

Once a budget is established, he said, the consumer should try to arrange payment plans with creditors, or, if possible, consolidate credit-card debts into a "nonrevolving" loan, such as a personal bank loan.

"If this is not an option," Sisti advised, "try to consolidate all the credit cards into one card with a fixed lower rate." And if this, too, is not an option, he said, chip away at the highest interest-rate card first, while paying the minimums on the other cards.

"Paying off the cards with an equity loan is not always a great idea, and should be looked at as a last resort," Sisti said, "because you're putting your house up as collateral -- and you're converting short-term debt into long-term debt."

When people find themselves struggling to make minimum payments on credit cards and frequently transferring balances, they're probably in trouble and may want to seek the advise of a credit counselor or bankruptcy attorney, Sisti added.

"Sometimes Chapter 7 (personal) bankruptcy works to get rid of old debt (without paying anyone back)," Hollender said. For some people, "another option is Chapter 13 bankruptcy, which is an interest-free repayment plan through the court."

After Joe's attempts to negotiate new payment arrangements with his creditors had failed, the growing debt and unrelenting pursuit by collection agencies encouraged him to seek Hollender's counsel. He and his wife eventually decided that a Chapter 7 bankruptcy was the most sensible solution.

"Before I went to Paul, I actually tried to work it out with all my creditors, but they were completely unreasonable, Joe said. "I actually sent a (mortgage) payment to the bank, and they sent it back to me. ... My wife and I didn't want to go bankrupt, but they literally forced us."

The bankruptcy process took about six months, said Joe, who, since losing his house, has relocated to a rental home in his former South Shore community.

"In December, we got the final papers that everything was discharged," he said. "... We're on the right road. It's a long process. It takes time, and little by little, with enough confidence, we'll get to where we want to be."

Reprinted from the Staten Island Advance February 5, 2007

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