If you are dealing with growing debt, you may be considering bankruptcy. However, for some consumers, debt negotiation is a better, less expensive option. How do you decide which is best for you? Evaluating the costs of each method is a good first step. Follow these steps to determine which way to go.

Can you pay your bills? If you're in a situation where you can't cover any of your bills due to a job loss, illness, or some other life change, then you should consider bankruptcy. That is the best option to help you keep a roof over your head. Which bills do you owe the most on? If you can't pay your mortgage because of rising payments, you should contact your lender to work out an arrangement or loan modification. Effective October 1, 2008, your mortgage company may be able to rewrite the terms of your mortgage and possibly lower the principal on your loan. However, if your highest bills are credit cards or other consumer debt, then you need to determine the cost of negotiating the debt versus filing bankruptcy. Can you pay the out-of-pocket costs for either option? The filing fee for a bankruptcy runs between $270 and $300, although this is subject to change by the court. Amending your filing usually costs $26. A credit check costs $30. Credit counseling, which is now mandatory, is typically $50 and can be done online. Debtor education courses can be $75 to $100 and are also mandatory. Therefore total out-of-pocket costs can reach $450 to $500, although local charges may differ. For a debt negotiation, the out-of-pocket costs, if you hire an attorney, include the attorney's costs for copies, faxing, long-distance calls, etc. Some attorneys, however, only charge for major copying that needs to be outsourced. Thus, the out-of-pocket costs on a debt negotiation are substantially lower. What are the attorney fees? Attorney fees on bankruptcy filings run the gamut, though most attorneys charge a flat rate. A Chapter 7 filing usually costs between $1,500 and $2,500, while a Chapter 13 filing usually is between $3,000 and $4,000. Keep in mind, however, some attorneys charge less and others significantly more. With debt negotiation, an attorney usually charges on an hourly basis. The rate typically runs from $200 to $400 or more per hour. Some attorneys will handle these on a flat-rate basis if there are only a few creditors. What other costs are involved? The most overlooked cost is the cost to your credit rating. A bankruptcy, as well as a debt negotiation, will affect that rating. The change to your rating depends on the overall circumstances. The good news is that a credit rating usually bounces back in 12 to 24 months.

Additional Resources:

Avvo's Bankruptcy Resource Center

National Association of Consumer Advocates

Federal Trade Commission: Credit Repair: Self-Help May Be Best

U.S. Department of Housing and Urban Development: Tips for Avoiding Foreclosure

California Debt Blog

Related Legal Guides:

Declaring Bankruptcy

Debt Negotiation

Fair Debt Collection

Debt Settlement Tips