Think Debt Can't Bury You? Think Again

Just a few years ago when Melody Brooke applied for credit in anticipation of co-signing a loan for one of her adult children, she was told she had such good credit that she could buy a jet.

Today, she couldn't buy a toy truck. The combination of a weak economy, which forced her to close her private counseling practice and caused her husband to lose a lucrative contract, has taken her family from a six-figure income to barely any income at all. To add to the constant barrage of debt collectors calling them, her husband hasn't been able to obtain a job. "He's only gotten two interviews and one offer," says Brooke, who lives in the Dallas area with her husband. "But when they ran our credit, they told him they couldn't hire him."

The current financial crisis has brought about many economic anomalies, including throwing a whole new subset of the population on the radar of debt collectors – upper-middle class and affluent consumers like Brooke.

No more easy street

"We are seeing people who've never been down this road before" says Phill Hudson, a partner for the law firm of Arnstein & Lehr, with offices in Chicago, Ill., Milwaukee, WI., and throughout Florida. "Most people in this situation haven't focused on what they're facing, and the first thing we tell them is don't ignore it and don't become paralyzed."

"Most people are in shock and they're entering a world they've never dreamt of," says Robert Markoff, president of the National Association of Retail Collection Attorneys, based in Washington, D.C. "The first thing consumers must do is talk to whoever is calling you." Financial experts agree that speaking to debt collectors, especially in the early stages of delinquency, can go a long way in assisting a consumer's cause.

According to Cena Valladolid, chief operating officer with Consumer Credit Counseling of Southern Nevada (CCCS), a non-profit organization that offers budget education, debt counseling, and elimination programs to consumers, talking to creditors can afford you an opportunity to become educated on special programs and repayment terms.

Part of honestly assessing your situation is looking at your assets that possibly can be sold such as a vacation home, timeshares, recreational vehicle, or non-essential vehicle. Also examine your savings, says Brooke. While she didn't have anything with equity to sell, she used what small savings she had to settle three loans with a bank willing to work with what she could offer.