Ask the Dollar Diva By Dorothy Rosen • Bankrate.com

Dodging the collectors?

Dear Dollar Diva,
I would like to know the difference between going into bankruptcy and going to a credit-counseling agency. I've gone back to school, and between the tuition costs and my decreased income, I'm having a problem paying my bills. I cannot seem to keep current, and now the collection letters are starting to come in.

Can the Consumer Credit Counseling Service help me re-establish my credit?

Bankruptcy laws and the Advisers at CCCS have a common function -- to help people deal with their creditors. They just go about it very differently.

• Bankruptcy: Since you're cracking the books at school, you might want to study up on Chapter 7. It's a legal proceeding that can permanently wipe out your unsecured debt, such as credit cards, doctor bills and unsecured loans, so you can get a fresh start. It involves selling any items that can be sold, excluding homes with homestead exemptions and other exempt items. The proceeds are used to pay off your creditors. When the money runs out, the rest of the debt is discharged, and you start with a clean slate. Generally, you only do this when no other option is available.

• For secured debt, that is to say money that has been borrowed by providing collateral, there is Chapter 13, which will help you to keep your assets by reorganizing your debts so you can afford to pay them out of your future income. Unsecured debts are usually reduced in Chapter 13 proceedings. This is the option just before Chapter 7.

• Consumer Credit Counseling Service: This nonprofit organization serves as an intermediary between you and your creditors to help get the debts paid. They will negotiate with your creditors to get your monthly payments reduced and your finance charges lowered or waived. They will help you set up a budget and a payment schedule you can afford with your future income. There may be a small fee for their services. Generally, this is the option just before Chapter 13.

The agency is an avenue to getting creditors off your back, paying off current debts and getting back on track. It's a good option if you've tried dealing directly with your creditors and haven't been able to get them to work with you.

Once you get your current debt under control come back, and the Dollar Diva will guide you through re-establishing your credit.

DOROTHY ROSEN has a master's degree in finance, with a specialization in accounting, from the Kellogg Graduate School at Northwestern University in Evanston, Ill. Rosen has more than 15 years of experience in the financial arena, serving in Illinois and Florida as a certified public accountant, financial consultant, expert witness and educator. She is owner of Dorothy Rosen, CPA, a public accounting firm that serves individuals and small businesses.