This is an archived article that was published on sltrib.com in 2005, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.
In 2002, 22,052 cases were reported. In 2003, victims numbered 21,917. In 2004, the toll stood at 20,629 cases.
Utah's record-setting bankruptcy numbers read like a plague. With financial ruin so widespread, you might begin to wonder: Could I be next?
If you're struggling to pay the bills each month, there are ways to solve your debt problems without succumbing to bankruptcy. Options include credit counseling, a debt consolidation loan or negotiating directly with your creditors to reduce monthly payments, waive penalty fees and/or lower interest rates.
First things first: None of these solutions will provide a long-term fix if the fundamental problem is overspending. Re-evaluate your budget and stop buying on credit. Cut up your credit cards if necessary.
Try negotiating with your creditors. They may choose to work with you rather than risk getting nothing. You might be able to get penalty fees you owe reduced or secure a lower interest rate. Collections agencies, which buy debt for pennies on the dollar, are often willing to settle for much less than owed if you make them an offer.
If negotiating with your creditors is not an option, shop around for a debt consolidation loan or a credit counseling agency. Credit unions typically offer the best rates on loans, or check out interest rates at http://www.bankrate.com. The Web site also has a debt consolidation guide and debt payoff calculators.
Debt consolidation loans allow you to borrow a lump sum, pay off all your debts and then make one monthly payment to a bank or credit union. But these loans can end up costing more than just paying your debts, especially if you have poor credit and can only get a high interest loan. Calculate the cost of the loan versus the cost of paying your creditors to make sure a loan is the more affordable option.
Credit counseling agencies provide budget advice and can set up debt management plans. The agency negotiates with your creditors to reduce debts and interest rates, then pays your creditors each month from your monthly payment. To enroll in a plan you must have a source of income, close all your credit card accounts, pay a setup fee and agree to a monthly fee and payment plan.
"A debt management program is there for people who really need it," says Preston Cochrane, director of AAA Fair Credit Foundation. People who are current with their bills likely don't need a debt payment plan, he says, but "it may benefit them to sit down with a counselor and do a budget review or a budget assessment and figure out where their money is going."
In choosing a debt management program, be wary of large fees: setup should cost no more than $50 and the monthly fee should not exceed $20, according to the Consumer Federation of America. Find out if the counselors are certified by a third party and if the agency is affiliated with the National Federation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies, which require member organizations to adhere to some minimum standards.
Credit counseling has become a popular debt solution, but as the industry has grown, so has the potential for fraud. Some consumers have fallen victim to fly-by-night operations that promise a quick fix to debt woes but only worsen their finances.
Even once-reputable organizations, such as Consumer Credit Counseling Service of Utah, have been accused of mishandling client funds.
That agency, long considered the local safe haven for the financially distressed, allegedly lost $64,000 of money held for clients and effectively was closed down by the state.
"It's very important that you do your homework" when selecting a credit counseling agency, says Francine Giani, director of the Utah Division of Consumer Protection.
Credit counseling organizations are required to register with the Consumer Protection Division and post a $100,000 bond, which protects clients' money in the event that the agency folds. Giani says people in need of a credit service organization should choose from the division's list of registered and bonded companies, check to see if any public action has been taken against the company and contact the Better Business Bureau to see if the company has had any complaints.
The Division of Consumer Protection's directory of credit service organizations registered and bonded with the state includes 31 agencies nationwide. Organizations based in Utah are AAA Fair Credit Foundation, American Credit Foundation, Consumer Credit Advocates, Consumer Rights Advocates Inc., Credit Solution.com Inc., Debt Free Living LLC and Financial Freedom International.
Giani says none of the registered debt counseling agencies have been in trouble with the division. But that doesn't guarantee there won't be any problems with the credit service agency you choose, she adds. If you enroll in a debt management plan, make sure your creditors are being paid each month.
Lynn Bastian, a West Jordan computer programmer, recently completed a six-year debt management plan with AAA Fair Credit Foundation in Salt Lake City and gives debt counseling rave reviews. He enrolled in the plan at age 24 to get rid of his $5,500 debt, which he rapidly accrued setting up house as a young newlywed.
One of his bills had gone to a collection agency and two others had been unpaid for six months. "I couldn't afford to pay my debts anymore," he says.
Bastian chose a longer plan - usually plans are for two to four years - to have a low $70 to $85 monthly payment, which included about a $15 monthly fee. He made his last payment in November.
"It feels really good to think that money can now go to the rest of my life instead of paying for dumb mistakes I made when I was younger," he says.
Bastian now has one credit card with a $300 limit for emergencies only. Since beginning his debt management plan, his credit score has improved by about 200 points. Now he shares financial advice with younger friends and relatives.
"Credit can be a great tool, but it's like fire: If you don't keep it under control, it's going to burn you."
About the project
Key findings
l Seeking to learn why Utah has the highest rate in the nation for personal bankruptcy filings, The Salt Lake Tribune analyzed 1,053 randomly selected bankruptcy cases filed during the last six months of 2003 and first six months of 2004 in U.S. Bankruptcy Court for Utah. The sample was taken from a total of approximately 21,092 filings, giving The Tribune's findings a margin of error of plus or minus three percentage points.
Key findings
l Cultural factors unique to Utah contribute to the high bankruptcy rates: Utahns are, on average, more likely to start a family and seek home ownership when they are young. This brings on financial responsibilities when their earning power is at its lowest, and in turn, makes them more vulnerable to financial crises such as job loss, divorce, medical disaster or business failure.
l The vast majority of bankruptcy filers were employed when they went broke. Many held low-paying jobs and nearly half had experienced some decline in their income in the three years leading up to their filing.
l About 12 percent of filers reported making tithing payments to the LDS Church through their financial troubles.
l Filers paid an average of more than 45 percent of their income on housing, well above recommended standards.
l Filers often carried large credit card and medical-related debts.