RENO, Nev. When personal debt becomes too much to bear, sometimes the only way out is to declare bankruptcy. Experts say if you find yourself in a financial bind, seek help before making any drastic decisions.
At the Reno Problem Gambling Center, Mark Johnson recalls the time his gambling addiction destroy his finances.
"I had so many credit cards in my name only that my wife didn't know about that were quite extensive; in the hundreds of thousands of dollars," he said.
Johnson is not alone. Millions of Americans are still struggling with debt they incurred during the Great Recession.
Harold Comanse, a bankruptcy lawyer in Reno says, the most common mistake people make is trying to solve their financial problems on their own.
"I think people try do the right thing but seek the wrong sources," he said. "They're first reaction is not to seek a bankruptcy lawyer and try to file bankruptcy, they try to find a way to make it work. Hence short term loans."
He says people can take out short term loans, if they pay them back in a timely manner.
"The problem is people get stuck in a vicious cycle." he said. "You can't use them to meet your daily obligations."
Elizabeth Estes, a manager at the Consumer Credit Counseling Service of Northern Nevada says debt from pay day loans is a problem she sees far too often.
Currently, there is a limit to how much money you can borrow at one time, but there is now limit to how many loans you can take out at one business, and there's no limit to how many place you can go for a loan.
"In my opinion there is never a good time to get a pay day loan," she said. "We see people who have 2 or 3 loans from one place, and the interest rates- I've seen them as high as 900%."
Trying to get out from under those loans can be difficult, but you don't have to navigate it alone.
"According to Nevada state law, if you cannot afford to pay that loan back on the originally agreed upon terms, by law they have to reduce the interest rate to something reasonable."
Estes says all you have to do is ask the company from whom you borrowed the short term loan to lower the interest rate.
"Usually they are pretty good about it, but if you have difficulty, you can come to us and we will help get the interest rates down.
Comanse says before taking out a short term loan, seek professional advice.
"In my opinion, they should seek the advice of a bankruptcy lawyer," he said. "Sometimes bankruptcy is an option, and if it's not or it's not the best option, they will be able to advise you as such."
Comanse also sends out a warning about companies that offer quick fixes.
"People will be up late at night and see infomercials for a debt consolidation company," he said. "Often times those companies are located in a different state not regulated by Nevada law. In my opinion, they're not going to have your best interests in mind."
If you are struggling to pay back bills, a bankruptcy lawyer will help you decide if you qualify for Chapter 7, which requires a debtor to surrender all of their non-exempt property to a trustee for liquidation, or Chapter 13.
"Chapter 13 is a repayment plan," Comanse said. "If you're above the median income, you have disposable income, you can pay your creditors something, you file a Chapter 13."
According to Nevada bankruptcy law, a Chapter 13 bankruptcy is the only choice if you are behind on your mortgage or business payments and you want to keep your property, at the end of the bankruptcy process.
Then of course, there are student loans.
With the cost of college ever increasing, many Americans are finding themselves burdened with student loan debt. A recent estimate shows roughly 40 million Americans hold over $1.2 trillion in educational debt, and many are struggling to pay.
Estes says stay in contact with your lender, and know what options are out there.
If you hold a federal student loan, you can look into deferring payments. Other options include Income-Based Repayment and Pay As You Earn which cap your monthly payments at a reasonable percentage of your income each year, and forgive any debt remaining after no more than 25 years (depending on the plan) of affordable payments.
Forgiveness may be available after just 10 years of these payments for borrowers in the public and nonprofit sectors
Private loans are not eligible for IBR or the other federal loan payment plans, deferments, forbearances, or forgiveness programs.
Estes says, while we hear a lot about student loan forgiveness, it's not always as easy as it sounds, and says it's not wise to sit back and ignore your debt. Unpaid student loans can affect your Social Security down the road.
"Social Security is considered judgment proof income, meaning creditors cannot come after your Social Security income and take it from you- unless you owe back taxes, child support or student loans," she said. "They don't care. It may take them a long time, they may wait 50 years, but they're going to get the money for the student loans."
Some experts will say you can't discharge student loan debt in bankruptcy. Comanse says it's possible, but extremely difficult.
"You'd have to prove to the courts that continuing to pay your loans would be an undue hardship," he said "But generally speaking, that's a difficult threshold to meet."