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How To Know If You Should Declare Bankruptcy

smartphone anxietyMake no mistake about it. Bankruptcy will have a dramatic effect on your life. It will stay in your credit files for 10 years. Many employers now routinely do credit checks of prospective employees and a bankruptcy could dim your chances of getting a good, new job. Your insurance premiums will likely go up after your bankruptcy. And, of course, your credit score will take a very serious hit. How much of a hit it will take will depend on what your credit score was before your bankruptcy. But it could be as many as 200 points. In turn, this could drop you from having “good” credit to “poor” or even “bad” credit.

There are no concrete rules

Unfortunately, there are no concrete rules as to whether you are a good candidate for bankruptcy. Everyone’s different. Whether you decide to file or not will depend partially on facts, somewhat on emotion and to some degree your view of your future. One individual owing $40,000 in debt and can’t sleep at night because of it could see great future opportunities and decide to pay off the debt. But then someone else with the same amount of debt but feels that his or her future looks hopeless could decide to declare bankruptcy.

Understanding the consequences

A bankruptcy is sometimes called the nuclear option because of its consequences. It’s in an area where you should proceed with caution and a complete understanding of what it will mean to your future.

The financial aspects

Of the three elements discussed above – the facts, emotion and your view of the future – the easiest one to quantify is the financial facts. You should sit down, figure out how much you owe, your monthly payments, the percentage of your income that you could devote to your payments and whether you could free up money from your income to make higher payments.

couple going over billsThe emotional

This is much harder to quantify. Could you handle the burden of staying in debt much longer? Are you receiving calls from creditors that are getting to you? Are you having a problem sleeping at night? Are you and your partner or spouse constantly fighting over money? If you file for bankruptcy will you feel like a failure? These are all questions worth answering and if the answer is “yes” to most of them you might be a good candidate for bankruptcy.

Your future

Finally, the third element you need to consider before filing is how you see the future. What are your prospects and could you handle the consequences of a bankruptcy? Having a bankruptcy in your credit file can affect you in getting a promotion, a new job, renting an apartment and your ability to make major purchases. You absolutely need to consider your goals for the next 10 years.

Get counseling first

Credit counseling can be a good way to determine whether or not you’re a candidate for bankruptcy. There is probably a good, nonprofit consumer credit counseling agency in your area but if not there is numerous ones available on the Internet. Just make sure you choose one that either charges nothing or very little for its services – which is typically true of nonprofit credit counseling agencies.

Whether you go to a credit-counseling agency in person or via the Internet you’ll have a credit counselor that will thoroughly review your finances and then make recommendations based on your ability to pay and your goals. Following this meeting you should have a very good understanding of what would be your best course of action given your situation. If you are working with a non-profit counseling agency it’s likely that your counselor will ultimately suggest a debt management plan (DMP) as an alternative to bankruptcy. This is where the two of you develop a plan for paying off your creditors with payments you could afford. Following this, the counselor will likely contact your creditors and attempt to negotiate reductions in your interest rates. He or she will then present your DMP to them for their approval. Assuming that all or most all of them except your DMP you won’t have to pay them anymore. Instead, you will send the credit-counseling agency a check each month and it will take responsibility for paying your creditors. The credit-counseling agency will likely require you to give up all of the credit cards in your DMP and strongly advise you to not take on any new debt until you’ve completed your plan – which typically takes about five years.

If this interests you then here, courtesy of National Debt Relief, is a short video with some good tips for choosing a credit-counseling agency.

Explore options such as debt settlement

There are other alternatives to bankruptcy besides consumer credit counseling. One of the most popular of these is to use a debt settlement company. These companies are generally able to settle debts for about 50% of your balances. They do this by offering lump sum payments to settle your debts. This process can take several years during which time you will be paying the settlement company a set amount each month, which will be deposited into your escrow account. As funds accumulate in your account the debt settlement company will use them to pay for the settlements it’s able to negotiate on your behalf. The debt settlement company will assume full responsibility for interfacing with your lenders and any debt collection agencies, which will relieve you of this burden.

Of course, this will cost you something. Reputable debt settlement firms generally charge a flat fee that can be anywhere from 15% to 25% depending on the size of your debt. However, they should save you enough money to more than offset their fees. In addition, your debts will have been consolidated and that you will have just one payment to make a month to the debt settlement company, which should be considerably less than the sum of the payments you’ve been making to your lenders. While debt settlement will adversely affect your credit score it will not damage it as much as a bankruptcy. Plus, future lenders will see that you did what you could to pay off your debts instead of just walking away from them, as is the case in a bankruptcy.

Try debt negotiation

A third alternative to filing for bankruptcy is one that would have little or no effect on your credit score. It’s contacting your lenders and negotiating concessions that would make it easier for you to repay your debts. For example, you could negotiate a reduction in your interest rates or to have your payments waived for several months, which would give you time to get your debts organized and to begin catching up on your payments. Or you might be able to get your payments converted into a payment plan where you would have a fixed payment each month for a fixed period of time.

10 Tips For Getting Back In The Game After A Bankruptcy

woman smilingIf you fell into so much debt that your only option was a chapter 7 bankruptcy, we realize your pain. Declaring bankruptcy is just not an easy thing to do. There is a certain amount of shame involved in declaring bankruptcy, plus there is the stain it will leave in your credit file for 10 long years and in your personal file for the rest of your life. So if you were forced into bankruptcy what could you do to get back in the game? Here are 10 tips that should help.

1. Learn to love paying cash. What got you into trouble undoubtedly was the way you used credit cards and personal loans. Since you now won’t be able to get a new credit card for some time, look on this as an opportunity to learn to love paying cash. When you pay cash it totally eliminates the possibility that you will get into any new debt. Plus, you will learn to buy only what you need and should learn to save money.

2. Pay all your bills on time. While you will no longer be burdened by credit card bills, there are other bills such as your rent or mortgage payment, utilities or an auto loan that you will still be required to pay. Make sure you pay them on time including even the small ones. If you are incurring bank fees, have overdrafts or are bouncing checks they will show up on your credit reports and make it even more difficult for you to get new credit. But paying all those bills on time will help you create a new and better credit profile.

3. Create a budget. This may seem a bit harsh but you will need to track your spending for at least three months before you can create a realistic budget that will fit within your income. A realistic budget will help you set boundaries on your spending and that’s the first and best step towards learning to be a smart money manager.

If you would like more information about budgeting here’s a video fron Bank of America that lays out in six simple steps how to go about budgeting and the benefits you would enjoy.

4. Keep an eye on your credit reports. There are several different ways that you can get your credit reports free. There is the website and the three credit reporting bureaus – Experian, Equifax and TransUnion, all of which will provide your credit report free once a year. While filing for bankruptcy should mean that you now have a clean slate credit wise you want to make sure that this is reflected accurately in your credit reports. You will also want to monitor your credit reports regularly to make sure that they don’t contain any errors. This is an important step in taking control of your finances and being a better money manager. It also allows you to see how prospective lenders will view you.

credit cards5. Get a secured credit card. If you’re not familiar with this type of credit card it’s where you deposit a certain amount of money with a financial institution and then charge on it until your balance reaches zero. You should then deposit more money and continue using the card. It’s important that you make sure that how you’re using the card will be reported to the three credit bureaus so your credit reports will reflect the fact that you’re using it sensibly. In many cases after you’ve used the card for a year – again assuming that you’ve used it wisely – you may be offered a normal-type credit card. There is a certain amount of irony at work here. And that’s the fact that a credit card, which can do you the most damage, can also be of the most help.

6. Reestablish your credit with a line of credit . You may be able to get what’s called a second loan or line of credit through your bank that’s secured by a savings account. This would help you reestablish credit although the interest that you earn on the savings account will be more than trumped by the interest you will be required to pay on the line of credit.

7. Nurture long-term relationships. Time does heal all wounds including a bankruptcy. Since 15% of your credit score is based on your credt history it’s best to stay with the same bank or credit card as long as possible. You might even eventually be able to get a credit card from the same issuer you had before your bankruptcy. Of course, you will need to prove that you now know how to use it wisely.

8. Don’t buy a car unless it’s absolutely necessary. You should resist the impulse to buy a car for two years unless you really absolutely need to get one. You may find some used car dealers that will be able to arrange an auto loan before two years but if so it will have very harsh terms. You need to spend two years rebuilding your credit before applying for an auto loan to get favorable terms. And you just can’t wait two years while doing nothing. Just waiting two years will not improve your credit score. You need to use that time to reestablish a decent credit history. If you wait two years you could even apply for a new mortgage if you can show that you’ve rebuilt a good credit history during that time.

9. Steer clear of scams. Don’t fall for any company that promises it can quickly fix your credit after bankruptcy. It’s hard work to reestablish your credit. There are no shortcuts. The good news is that you can do it yourself and for free. Credit just can’t be repaired overnight though there are a lot of scamsters that will promise to do it for you – for a large fee. If the company requests a fee upfront you can just about bet it’s a scamster. Even if the company seems legitimate and doesn’t seem too good to be true don’t do anything until you’ve checked it through your local Better Business Bureau or your state’s regulatory agency.

10. Remember the human touch. If you find you just can’t get a lender willing to take a chance on you after your bankruptcy, try writing a letter explaining the circumstances of your situation. There are times when the lending business can be a very human one. If you can responsibly and maturely explain why this was a one time thing and that you have learned a lesson and have moved on this could help the lender decide in your favor as most loan officers understand that bad things can happen to even good people.

In summary

Don’t despair because you were forced to file for bankruptcy. It’s possible to get back in the game in just two years by following the tips you read in this article. It will take some work on your part but it’s more than possible that after just two years you will be able to get new credit at reasonable interest rates, including even a mortgage or auto loan. Just make sure you treat that new credit sensibly so that you don’t end up in the same black hole that forced you to declare bankruptcy.

Debt Relief Options For Different Financial Situations

Debt Relief Options For Different Financial SituationsThere are many debt relief options to help you get out of your current financial crisis. Of course, it all begins with you understanding what got you in this situation in the first place. This will help keep you out of debt and also allow you to achieve debt freedom a lot faster.

Once you have identified that, you may want to take a look at your finances and the type of debts that you owe. There is no shortage of debt solutions. However, you need to know the right program that will suit your problems best. There is no one formula and to maximize your limited resources, you need to base your debt relief program on how much you can afford to pay your debts.

There is a specific solution depending on your financial situation. Each of our status is unique but we usually fall under one of three categories when it comes to our debts.

Before you find the category and debt solution that suits you best, take a look at your budget first. Identify your income and expenses (excluding debts) and get the difference. Whatever is left will be the disposable income that you can allot for your debt payments.

Debt relief options for people with money for minimum payments

The first financial situation is having enough disposable income to cover your minimum payments. The extreme scenario is having a little deficit on your monthly bills – but nothing significant. If this is your financial standing, you can afford to use a debt consolidation loan to solve your problems. The benefits of this includes the following:

  • Lower monthly payment

  • Possible lower interest rate

  • Longer payment period

  • Single monthly payment

  • Does not affect your credit score.

What you have to know, which is important too, is that this option will not reduce your principal balance. The lower monthly payment is possible because your current balance is stretched over a longer term. The lower interest rate is also responsible for this. But in terms of reducing what you owe, there will be none of that. You will still end up paying for everything that you owe. This means a steady and stable income is needed. You should also boost your savings so that you can meet your debt payments without a problem. This program takes 5 years or more to complete so you need to be sure that your income can keep up with such a long payment period.

There are two popular ways to consolidate your debts.

Debt consolidation loans. This option involves getting a low interest loan that you will get to help you pay for your multiple debts. Once the loan is approved, you can simply go to your creditors, pay them all completely and just concentrate on the single payment that is required from this one loan. To maximize this option, you need to make sure you will get a low interest – which means you either have a good credit score or a collateral.

Debt management. In case you do not have the ideal credit score or collateral, you can use debt management instead of getting a loan. This option allows you to work with a credit counselor who will help you come up with a debt management plan that will contain your proposed lower payment terms. The counselor will present this to the creditor. When approved, you will send a single monthly payment to the counselor who will take charge of distributing the funds to your different creditors.

With the latter, you need to be careful about your choice of company. Make sure you brush up on your knowledge of the Telemarketing Sales Rule (TSR) to help you identify the legitimate companies from the not.

Best debt solution when you cannot make your minimum payments anymore

In case your financial situation cannot afford to meet your minimum payments, you obviously need a more drastic debt reduction plan. This is when debt settlement becomes the better option for debt relief. The whole idea of this program is to convince your creditor that you are in a financial crisis. You want them to allow you to pay only a portion of your debts and have the rest forgiven. This program will give you the following benefits:

  • Eliminate collection calls (if you work with a debt negotiator).

  • Reduce your current balance significantly.

  • Get you out of debt in 2-4 years.

  • Possible elimination of interest rate and other charges.

The catch here is that you need to default on your payments in order to convince your creditors that you are in a financial crisis. This would mean you have deal with a damaged credit score temporarily. Instead of paying your creditors, you will send your money in a secured account and grow it there until you and the creditor comes into an agreement.

While you can do this on your own, you will get a lot of benefits by getting a professional to work with you. The debt negotiator will bring their expertise into the whole process. You will also be left in peace because part of their service includes taking over communication calls. Just make sure that they are certified by authority training organizations like the IAPDA or International Association of Professional Debt Arbitrators.

Credit relief for people in severe financial conditions

In case your conditions are quite severe, your last resort option is to file for bankruptcy. This means your income is barely enough to pay for your basic necessities or you have very little income coming in (or none at all). Most financial advisers will tell you to exhaust other options first before opting for this one. This will have severe effects on your credit score and that will make it even more difficult to recover after getting debt freedom. Having bankruptcy on your credit report will make it hard for you to get financial assistance for a home or a business that you want to put up.

When you file your petition, the court will assign the type of bankruptcy that you qualify for. This involves the means test. If your income is lower than the state average, you can qualify for Chapter 7 wherein your assets will be liquidated and anything that does not get paid will be discharged. If your income is above the average, you qualify for Chapter 13. This means you will be subjected to a repayment plan. This type of bankruptcy is not so different from debt settlement.

The US Courts website hold a lot of information about bankruptcy that will help you understand the whole process. It is best to gather information first so you know your options very well. That will help you make smart choices about your debt solution.

Consult with a debt relief expert to discuss all your options

National Debt Relief, a BBB accredited business, has debt relief experts standing by during extended business hours to explain all your debt relief options and find a plan that is right for you and your specific financial situation. You get a free debt analysis with no obligation and no judgment. Click here to speak with a debt relief expert or call 888-703-4948 today.

Bankruptcy Versus Debt Settlement

seeking alternatives to bankruptcyThere are options available that can help if you are seriously in debt and cannot pay your creditors. Bankruptcy and debt settlement are two possible options that could get you out of debt. With debt settlement, you pay a lump sum to your creditor that is usually lower than what you owe and your debt is cleared. If you declare bankruptcy, your creditors will no longer be able to harass you. You could use one of these two options to get out of debt but the one you choose will depend on your financial situation. These tips can help you decide which method is good for you;

Check Your Credit Report

Your credit report will help you know the total amount of your debts so you can assess your financial status. Check if there are any mistakes on the credit report as you are not required to pay for costs you did not incur.

Calculate Your Total Debts

Use your credit report to calculate the total amount of what you owe. Remember to include your interest and any penalties on your various accounts.

Make Two Lists

Make a list of your total debts and beside each debt, indicate your monthly payment. You should also write down the total amount of your monthly income. If your monthly income is more than the total amount of your debts, debt settlement might be your best option. You will be required to pay a lump sum to the debt settlement company, which will then pay the creditors. Bankruptcy might be a better choice if your debts are more than your monthly income. There are two types of bankruptcies – a chapter 7 and a chapter 13. If you own valuable assets you want to keep, you might choose a chapter 13. However, with a chapter 13, you are required to pay off your creditors. In comparison, with a chapter 7, most of your unsecured debts are dismissed.

Understand How Your Credit Score Will Be Affected

It would be advisable to first understand the effect of debt settlement and bankruptcy on your credit report. By choosing to settle your debts, your credit score will be negatively affected, especially if you have not been making payments on your debts. Your credit score will be reduced more severely if you choose bankruptcy. The greatest disadvantage of a bankruptcy is that it shows on your credit report for a period of up to 10 years. You will have difficulty in getting loans in the future due to your poor credit history.

Debt settlement will not hurt your credit report and score as much as filing bankruptcy will.

You can quickly rebuild your credit score when you are out of debt with debt settlement.

Determine The Actual Costs Of Each Option

If you choose debt settlement, you will be required to make lump sum payments to settle your debts. If you choose bankruptcy, you will be required to pay court and filing fees before filing for bankruptcy. If you chose a chapter 13 bankruptcy, you will need to start making those payments you agreed to.

Make A Comparison Between Debt Settlement And Bankruptcy

Look at both short term and long term benefits of each method. While both methods allow you to clear your debt, there may be long term negative effects with one or the other that could make you regret your decision. If you are not sure which option would make the most sense, you might seek the help of a credit counselor. Your debts will be analyzed and the available options presented to you. It would be advisable if you took time to carefully research each option before you make a decision. You might also seek advice from other people who have gone through one of the two options.

Talk with a debt relief expert free –>

Talk with a debt relief expert who will evaluate your financial situation and explain all your debt relief options. There is no obligation and no high pressure. We want you to be informed about all your options and give you the time to make an informed decision. Call National Debt Relief at 888-703-4948 today.

Before Filing For Bankruptcy, Make Sure You Can Afford It!

bankruptcy definitionAlthough it is a legitimate debt solution, a lot of people agree that filing for bankruptcy is a very bad idea. There are so many negative effects like a significant decrease in your credit score, a tainted credit report for the next 10 years, inability to get a personal loan and having the public know about your bankruptcy filing.

A person files for bankruptcy typically because they can no longer pay for their debts. It does not only mean that they do not have a job. Sometimes, they still have a source of income but it is too small to barely cover their basic necessities, much less their debts. There are also cases wherein they have a high salary but a sudden boost of expense due to medical treatments can also make a person unable to pay for their credit obligations. People who are in a severe financial crisis are more likely to declare themselves bankrupt.

Since filing for bankruptcy is associated with a financial crisis, you can expect that the economy will have an effect on it too. An economic downturn could cause a lot of people to be bankrupt. If there is a good economy, then the filings will decrease. The latter seems to be the case of today because revealed that the bankruptcy filing in March 2014 went down by 11%. This is measuring all filings for the past 12 months ending in March 2014 (1,038,280) and comparing it with the statistics of the previous period of 12 months ending in March 2013 (1,170,324).

While there is a decline in the people filing for bankruptcy, that does not mean the economy is fully recovered. It is better but the number of people going bankrupt is still very big at more than a million.

When you find yourself in the position to file for bankruptcy, you need to ask yourself first if you can really afford it. After all, you are in a financial crisis. Do you know how much it cost to file for bankruptcy?

Costs involved in the bankruptcy process

An article published on revealed how the recent housing market crash may have been partly caused by the high bankruptcy fees. When people realized that they cannot have their debts discharged because they cannot afford the high fees of bankruptcy, they were forced to default on their mortgages.

While it may be an exaggeration to blame the housing crash on the high cost to file bankruptcy, there is some truth to the fact. It is quite costly. So if you are filing for bankruptcy to save on your debt payments, you have to be prepared to pay the price. Here are some of the costs that you need to prepare for.

  • Attorney fees. This is actually the biggest expense that you will make – between $600 to $5,000. But you should also know that there are lawyers who can help you out for free. You may want to look for pro bono bankruptcy lawyers. But if you are going to hire one that requires payment, the fee will vary depending on the type of case that you will file and where you intend to file your case. Sometimes there are base fees and then other charges are added as you go along. For those who will file Chapter 13 bankruptcy, some lawyers will take their fees from your Chapter 13 repayment plan.
  • Bankruptcy petition preparers. For those who wish to forego the expensive fees of an attorney, they can file their case on their own but they need the services of a bankruptcy petition preparer. This will cost you around $100 to $300 – depending on your case.
  • Credit counseling fees. Before you can file for bankruptcy, it is a must that you have gone through credit counseling with one of the accredited agencies by the US bankruptcy court. This is one of the prerequisites of filing for bankruptcy so you need to pay up for this counseling service. This will cost you around $50.
  • Court filing fees. Of course, you need to pay the court when you file your bankruptcy case. This administration cost will be between $280 to $310 as of May 2014. If your income is less than the 150% of the poverty line, it is possible for you to have this waived when you file for a Chapter 7 bankruptcy.
  • Trustee fee. When you opt for Chapter 13 bankruptcy, a trustee is involved to help distribute the payments you will make in your repayment plan. This involves a fee that is usually 9% of the payment. This is usually included in the payment plan and not considered a separate cost.

On an average, you will be spending around $3,000 or so in filing for bankruptcy. If you land a Chapter 13 filing, you need more because of the repayment plan.

There are hidden dangers when filing for bankruptcy and you may want to know about them before you proceed. This is your way of ensuring that this is the right debt solution for your unique financial situation.

What to do if declaring yourself bankrupt is too costly

In case the only way out for you is bankruptcy but you realize that you cannot afford the fees, there are ways that will help you get the funds that you need to finance this debt solution. Before you file for bankruptcy, you may want to secure your payment first so the proceedings will go smoothly.

Here are some sources that you can get funds from.

  • Borrow from family or friends. This is also tricky because a family loan does not just put the money on the line – it also puts the relationship in danger. If you have no choice, just make sure that you make it official by documenting the loan. Also, have a payment plan in place so you will not compromise your future payments.
  • Stop paying your credit cards. You will try to have them discharged anyway. Save the money for your bankruptcy fees. Just make sure that you have a high chance of qualifying for Chapter 7 bankruptcy. Otherwise, you might end up having your case dismissed and paying your balance plus interest and late payment charges.
  • Use any windfall money. These include bonuses, tax refunds and commissions. Put them aside so you have something to use then you are filing for bankruptcy.
  • Lower your expenses. This may be tough if you are in a financial crisis because you are probably living with only the bare basic necessities. But there might be something that you can cut back on further. Planning your meals well, carpooling to work and brown bagging your lunch – these are cut backs that you can afford to make for now.
  • Earn more money. Get rid of the things in your home that you do not need and sell them. Things that you think have no value may be something that someone is willing to pay a huge amount of money for.
  • Get from your existing assets. If you have your 401(k), you may be able to get money from this account. Just make sure that you can put it back.

Filing for bankruptcy is not something that you should take lightly. But if you have to go through with it, make sure that you will practice the right financial management habits to avoid committing the same mistakes again.

Among the things that you should work on immediately is to build up your emergency fund. According to an article published on, the main reason that people are filing for bankruptcy is because of medical bills. Since this is one cost that just keeps on rising, you need to be prepared for it.

How To Aim For Debt Settlement To Avoid Bankruptcy

US Bankruptcy CourtWhile there are some cases wherein bankruptcy is the only option, you have to realize that you need to exhaust all possible alternatives first. It is never a good idea to just plunge headlong into this debt solution – no matter how fast it gets you out of debt. You should realize that the repercussions and damages is too great to ignore. If you can make further sacrifices in order to afford one of the other debt relief options, that is something that you may have to face.

Even if bankruptcy can discharge your debts, that does not mean you will not spend anything. There are several costs to consider like the processing fee involved in filing your petition. Not only that, you have to pay for the professional fee of the lawyer who will help you out. If anything, the cost should be one more reason for you to avoid bankruptcy.

Why debt settlement is better than bankruptcy

Because of the many disadvantages and pitfalls of bankruptcy, you may want to consider the next best thing – debt settlement.

A consumer has two options when it comes to bankruptcy – Chapter 7 and Chapter 13. The first is the better option because most of your debts will be discharged – at least whatever is not paid after the liquidation of your assets. The latter, on the other hand, will subject you through a court-ordered repayment plan that will take months to a couple of years to complete. While Chapter 13 can protect your assets, you will still be paying a portion of your credit obligations. If that is the case, then you may want to just avoid bankruptcy and opt for debt settlement.

If you compare debt settlement with bankruptcy, you will realize that there are some advantages to be gained with the former. Here are some of the reasons why debt settlement should be chosen over bankruptcy.

  • Lesser damage on your credit score. One of the main reasons why you need to choose debt settlement is for the damages that bankruptcy can bring to your credit report. The effects of bankruptcy can be as high as a 200 point reduction on your current credit score. In debt settlement, the average reduction is only 50 points – which is not so difficult to regain once you get yourself out of debt.

  • Your financial difficulty will remain to be a private thing. Another reason why you want your debts to be solved by debt settlement is the fact that your problem will remain to be a private issue. Everyone who filed for bankruptcy will be placed in a public record. If you want to avoid bankruptcy and this embarrassment, just opt for settling your debts.

  • Protection of your personal assets. Another reason why you need to stick to debt settlement is the fact that you can protect your possessions from being liquidated. If you have some properties that you don’t mind selling, you can do that but it will be under your own terms – not the court.

How to stretch your finances to afford debt settlement

To be sure that you are doing the right thing, you may want to consider going through credit counseling to determine if your finances can really afford debt settlement. Anyway, bankruptcy will require you to go through this so it may be best to get a head start. You are not losing anything and you get professional confirmation as to whether you should avoid bankruptcy or not. You can look through the list of accredited credit counseling agencies on the US Department of Justice website to find the company that you can trust.

One of the reasons why a counselor will tell you to file for bankruptcy is when your finances cannot afford it. Most people, because of the possibility of a Chapter 7 bankruptcy believe that this is the more economical choice for the to get out of debt. While there may be some truth to that, you have to realize that there are ways for you to make debt settlement cheaper. For one, you can forego hiring a debt negotiator and just conduct your own settlement proceedings. That could save you some money.

Here are other tips to help you grow your finances and thus afford debt settlement.

  • Cut back on spending. You need to analyze carefully your monthly expenses so you can see where you can cut back on what you usually spend on. While this can grow your debt payment fund, it will be fairly limited but a small amount is better than nothing.

  • Earn more money. Of course, there is also the option to earn more money. You can opt to get a second job or build up an online career to help you get out of debt. That should help you get your hands on more money to help with debt payments.

  • Stop incurring debt. It is also a good idea to stop acquiring more debts. This will take a lot of your effort and self control but if you are successful, you can find yourself loving the debt free life.

  • Grow your savings. Lastly, try to grow your savings. This is very important because it will help you finance an emergency situation and thus keep you from the need to borrow money. You can simply use your savings to get out of your unexpected expense.

Here is a video that will help you decide if you should file for bankruptcy and the negative effects that it has on your financial future.

Is Bankruptcy A Good Option For Debt Relief?

Gavel, pen and document titled Petition To File For BankruptcyDid you know that you have a constitutional right to declare bankruptcy? It’s true. It’s right there in the Constitution. Our Founding Fathers clearly understood about debt and that people should have an option for dealing with it. After all, they came from a country, which at one time actually had debtors’ prisons.

Which type of bankruptcy?

There are a number of different kinds of bankruptcies but really only two that are available to  individuals that could help with debt.  They are a chapter 7 and a chapter 13 bankruptcy. The two are very different and it’s important to understand what they are.

A reorganization bankruptcy

A chapter 13 bankruptcy is called a reorganization bankruptcy because its purpose is to give you a timeout during which you would reorganize your finances and pay off your creditors. The short explanation of how a chapter 13 works is that you create a plan for paying your creditors, which you submit to the bankruptcy court. If your plan is accepted, you will be protected from garnishments, lawsuits and other actions by your creditors. You will be allowed to keep your assets but, unlike a Chapter 7, you will not have your debts immediately discharged. Instead, you must complete the payments required by your plan, at which time your remaining debts will be discharged.
Here’s a video that explains more about what to expect if you were to chose a chapter 13 bankruptcy.

A liquidation bankruptcy

A chapter 7 bankruptcy is usually called a liquidation bankruptcy for two reasons. First, it can be used to liquidate almost all of your unsecured debts. But second, it’s to liquidate your assets so that your creditors can be paid. This is where a court appointed trustee takes control of any of your assets that are not “exempt,” liquidates them (sells them off) and uses the proceeds to pay your creditors. While bankruptcy laws vary from state to state, exempt assets usually include most or all of the equity in your house, the equity in your vehicles, your personal possessions and furnishings and any tools that are required by your job. This means that in most chapter 7 bankruptcies there are no assets that can be liquidated. These are called “no asset” cases.

Why a chapter 7 bankruptcy might be a good solution for debt relief

Most people who file for bankruptcy choose a chapter 7 as a way to achieve debt relief. This is because it will get rid of almost all unsecured debts. What are unsecured debts? They are ones where you were not required to provide any collateral. This includes credit card debts, medical bills, personal lines of credit, repossessions and collections and personal loans. Since these are the types of debts that get most people into trouble chapter 7 bankruptcies have become the most popular way to get out from under debts.

Why a chapter 7 bankruptcy might not be a good option

There are reasons why filing for a chapter 7 bankruptcy might not be the best way to achieve debt relief. These include:

  • Your credit score could plummet
  • You will be forced to undergo consumer credit counseling
  • You could lose a valuable asset
  • It will not discharge all unsecured debts
  • You will lose your credit cards
  • You will be required to pay some of your debts
  • Your interest rates will increase
  • Your auto insurance premium will likely go up
  • The court could convert your bankruptcy into a chapter 13

The affect on your credit score and your creditMan climbing credi score numbers

Probably the biggest con of a chapter 7 bankruptcy is what it will do to your credit score. Most experts believe it will drop it by as much as 200 points. If you had a decent credit score of, say, 600 going in your score might be as low as 400 after your bankruptcy. This would make it very difficult for you to get any new credit for at least two to three years.

In addition, a chapter 7 bankruptcy will stay in your credit report for either seven or 10 years – depending on the credit-reporting bureau. And it will stay in your public record for the rest of your life.

The debts that won’t be discharged

A chapter 7 bankruptcy cannot discharge secured debts such as a mortgage or auto loan. It can also not discharge certain unsecured debts including child support and alimony, student loan debts and debts obtained through fraud.

The effect on your interest rates

A chapter 7 bankruptcy will definitely have a very negative effect on your interest rates. As an example of this, if you were to get a new mortgage it could have an interest rate of as much as two percentage points higher than if you had not declared bankruptcy. Those two points may not seem like much but can add up to thousands and thousands of dollars over the life of that mortgage.

Even your insurance premium

Most insurance companies now factor in your credit score when calculating your auto insurance premium. This means that if you have had a chapter 7 bankruptcy that has lowered your credit score appreciably, you can just count on paying higher auto insurance premiums.

You could be forced into a chapter 13

If you were to file for a chapter 7 bankruptcy and had a certain amount of disposable income, your case could be converted from a chapter 7 to a chapter 13. Instead of being free of most of your debts, you would then be required to repay most of them over the next three to five years. So instead of getting a fresh start, you would three to five tough years of living on a very restricted budget.

What To Do When Bankruptcy Is The Only Option

bankruptcy definitionIf you find yourself buckling under heavy loads of debt, you may want to think about bankruptcy as one of your options of solving it. A lot of financial experts will tell you to make this as your last option. The repercussions of bankruptcy on your credit history is just too monumental to ignore.

Your credit score will go down 200 points and your filing will be placed in public records. For the next 10 years, your credit report will show that you have filed for this. Every time anyone looks at that report, they will know that you have once been financially incapable of paying your dues. That will not bode well for future lenders, potential business partners, prospect employers and even landlords.

However, there are instances wherein this option is the only way out. Some people make the mistake of trying to consolidate or settle their debts when in reality, their finances just cannot afford it. There are situations wherein the consumer’s money is not even enough to afford the debt reduction the debt settlement can give. If that is the case, you may just have to face and accept that bankruptcy is your only way out.

Signs bankruptcy is the only debt relief option left

As scary as the situation may seem, there are people who have emerged victorious from bankruptcy. But at the same time, there are those who were left in a worse shape after. You want to the be like the former so make sure you have the following signs to prove that you do need to file your petition for bankruptcy.

  • You have an income but it is barely enough to pay for your basic needs, much alone your debts.

  • You’ve been using your credit cards to pay for basic needs and you have no idea how to pay it back.

  • You have been late on most, if not all of your credit payments.

  • You are buried under medical debt and you are still incurring more.

  • You do not think that your situation will improve in the next year or so.

If one or more of these describe your current financial situation, you may want to think about your bankruptcy options. A good way to confirm your decision is to get credit counseling. The credit counselor will take a look at your finances: from your income to your expenses to your credit obligations. They will tell you if you have other options aside from bankruptcy or if it is your only way out. This is a requirement anyway for anyone who wants to file. The judicial court dictates that you have to get credit counseling 6 months before filing. You will be required to submit a certificate from one of their accredited agencies on their list. You can get this list from the website of the US Department of Justice.

Know your bankruptcy options

There are two bankruptcy options that consumers can file. You will not be allowed to choose because it is the bankruptcy court who will decide for you. This will be done through a means test. This test will determine if you can file a Chapter 7 or Chapter 13.

Chapter 7. This bankruptcy option will get you out of debt very quickly – usually in a couple of months. This is for those who are really in severe financial crisis. However, it will take most of your possessions from you. All the assets of the consumer that can be liquidated will be sold and the profits will be distributed to the different creditors. Although, there are lists of exemptions in bankruptcy that indicates what cannot be liquidated. For instance, your 401(k) will not be taken from you during the liquidation process. Anything that is not paid through your liquidated assets will be discharged by the court.

Chapter 13. This is usually for people who file and have an income that is above the average median salary of the State. This option will subject the consumer under a repayment plan that the court will issue. You have to complete the payments on this plan and that could take a couple of years to complete – usually 3-5 years. Anything that is beyond this repayment plan will be discharged – but only after the consumer complete the payments. The great thing about this is none of your assets will be liquidated.

Important information when filing for bankruptcy

Most bankruptcy filers perform their own means test to determine if they will fall under Chapter 7 or Chapter 13. If they fall under the latter, some of them opt for debt settlement instead. Of course, the difference is they have to wait for the creditor to decide if they want to accept the settlement while in bankruptcy, the court will decide. There is nothing that the creditor can do about it once the judge makes a decision.

You should also consider the costs that bankruptcy will get you to pay. You have the lawyer fees and also the administrative costs of filing. In some cases, the costs will rise between $1,500 to $3,000. You can oversee your own bankruptcy proceeding but you could end up wasting your money if you make a mistake withe documents.

After bankruptcy, your credit score will be in a very bad shape but you need not lose hope. In some cases, the fast relief will give you a clean slate to work with. The great thing about this option is your creditors will no longer be able to come after you for the discharged debt. That can really help you put your debts behind you so you can start managing your finances correctly from now on.

How Each Debt Relief Program Affects Your Credit Score

man jumping with chart behindYour credit score has grown to be one of the most important figures that you will have to monitor in your financial life. Some people think that this is only for those who plan to take out a loan. It may be true that this will help paint you as a low risk borrower and will prompt the lender to give you a low interest on your loan. However, the effects will not stop there. It is also important because it will pave the way for you to enjoy various financial opportunities like better employment and even renting opportunities.

If you are in debt and you have been struggling with your payments, you can expect that your credit score have gone down. The extent of the damage will depend on your overall debt situation. While paying off your debt may be the priority right now, you need to think about fixing your credit ranking too.

This is why you need to make your debt relief choice depending on how much you can afford to sacrifice your score.

Debt consolidation has the least effect of credit reports

Among the debt relief options, debt consolidation has the least effect on your score. The options will also help you fix your score as you go through the whole process. The reason why this hardly has an effect is because you will still end up paying for all of your debts. That will not give the creditor any reason to put a negative entry in your credit report.

Here are the options that you have if you want to keep your credit score from being ruined.

  • Debt consolidation loan. This type of debt relief program involves getting out of debt through a loan that you will use to payoff your multiple debts. You will benefit from this because you will have a single and lower monthly payment. This happens because you will be getting a low interest on the loan that you will use to pay off your other debts. Not only that, loan terms are usually longer so your balance will be stretched over a longer payment period. This debt relief option may affect your score a little because the lender will have to get a copy of your credit report and that means an inquiry will reflect on your score. Not only that, your report will show a big debt amount – but this will only be for awhile. Once you get the loan, you will pay off the other debts completely and while that will not lower your score immediately, it will have a positive effect eventually. And since you only have a single and lower payment, the chances of you displaying good payment behavior is more likely to happen. That will boost your credit score slowly but surely. To maximize this option, you need that low interest and that requires a good credit score or a collateral. While there are loans for people with bad credit, this is not really advisable.

  • Debt management. In case you do not like using a loan, debt management is another option to consolidate debt. This involves a credit counselor who will help you by creating a debt management plan (DMP) for you. This plan contains your lower monthly payment proposal which is made possible not because you asked for a reduction, but because you stretched it over a longer payment period. This plan will be showed to your creditor and the counselor will also ask for a lower interest rate – but that is as far as their negotiations will go. Once the DMP is approved, you will send a single monthly payment to the counselor who will take charge of getting the respective payments to your creditors. This option will not have much effect on your score because there will be no inquiry on your report and your debt amount will remain the same. Not only that, the counselor will help make sure that you will not use your cards while in the program and that will keep you from incurring more debts.

Although these two can take care of your credit rating, you need to go through a longer payment period – around 5 years or less. Also, the lack of debt reduction may have kept your score intact but that also means you need a steady income to support your payments. If that is not possible, you may have to opt for other debt solutions.

Debt relief programs that can lower your credit score

In some cases, people really need a debt reduction simply because they do not have the money to pay all of their debts. It can be caused by job loss or an ongoing medical treatment. Anyway, there are debt relief programs that can arrange much lower payments but that could result in a negative entry in your credit report.

Here are your options.

  • Debt settlement. This debt reduction aims to convince the creditor that you are in a financial crisis so they will allow you to pay only a portion of your debts. Once you have paid that part off, the rest of your debts will be forgiven. You can probably understand how that will make your creditors hesitant to settle with you. The effect of this process on your credit score is when you default on your payments. To convince the creditor that you are in a financial crisis, you have to intentionally stop paying your monthly dues. Instead of paying your debt, you will put it aside, in a separate and secure account. You will grow that to be your settlement payment. This will lower your score because later payments affect 35% of your debt. And if you are dealing with credit cards, that would mean your debts will continue to increase as interest and late penalty charges will grow your balance. That affects your debt amount – which is 30% of your credit score. This is how your credit rating will be affected. If you will hire a professional to help with this program, you need to make sure it will be with a reliable company. To find legitimate debt settlement companies, you want to look for duly accredited ones and those who are members of reputable organizations like the AFCC or American Fair Credit Council.

  • Bankruptcy. The last option, and usually the last resort of people in debt is bankruptcy because it can lower your score for at least 200 points. This is because bankruptcy means you have put yourself in the lowest financial position that has no other way to recover except to have your debts discharged. When you go through this, future lenders and even potential employers and business partners may find you to be a risky investment. It signifies that you cannot be trusted with money. That is all reflected in your credit report. You need to think about all of this when you apply for bankruptcy.

While these credit score implications may be scary, remember that you can improve it. Bankruptcy filers may have a hard time in the next decade or so but if they really do not have a choice in terms of their financial capabilities, they need to face the facts. It may be difficult but there is a way to improve your credit score – even after bankruptcy.

Bankruptcy vs. Debt Relief – Which Should You Choose?

Woman holding bills in both hands and looking confusedFeel as if you were drowning in debt? For whatever it’s worth you’re part of a large group. Consumer debt is now higher than it ever has been before. We have seen reports that the average consumer owes more than $5000 just in credit card debt. When you add on mortgages, auto loans, personal loans, etc., this swells to an average of $15,325 per family. If you find yourself hopelessly in debt, you have two possible options – debt relief or declare bankruptcy. How can you know which might be best for you?

The option of last resort

Bankruptcy is usually considered to be a last resort. Why is this? It’s because of the long-term effect this will have on your credit worthiness. As reported in an article on the FTC website, information about your bankruptcy, including when you filed and when it was discharged, will stay in your credit report for 7 or 10 years. It will not only hurt your capacity for getting credit, it can hamper your chances of getting a job, auto insurance or even a place to rent. Plus, a bankruptcy will stay in your public record for your entire life.

Watch out for those bankruptcy ads

There must be a lot of people in trouble with debt as you can hardly turn on the TV or radio without seeing or hearing an ad that promises you can consolidate all of your bills into one monthly payment without borrowing any money or that you can stop creditor harassment, tax levies, foreclosures, garnishments and repossessions simply by filing for bankruptcy. While some of this is true, not all of it is.

What a bankruptcy can and can’t do

A chapter 7 bankruptcy, which is the most popular, can discharge or dismiss most of your unsecured debts. And it can stop creditor harassment. However, it can do nothing about past due taxes and foreclosures. A chapter 7 bankruptcy wills also not discharge student loan debts, child support and alimony or debts that were obtained through fraud. The reason why it can do nothing about a foreclosure is because that’s a secured loan and a Chapter 7 cannot discharge secured loans. This would also include auto loans.

You will need to go through credit counseling

Our Congress changed the bankruptcy laws a few years ago. One of these changes is that you must get credit counseling from a government-approved organization within six months before you file. You are also required to complete a debtor education course before your debts will be discharged.

Pre-bankruptcy counseling

The pre–bankruptcy counseling you will be required to complete will consist of a counseling session with an approved credit counseling organization. This typically includes an evaluation of your personal situation, a discussion of what alternatives you could take instead of declaring bankruptcy and a budget plan. One of these sessions typically lasts about 60 to 90 minutes. You can get this counseling in person, online or on the telephone. When you complete this counseling you must get a certificate proving that you completed it. You should make sure that the certificate you received is from a counseling organization that has been approved in the judicial district where you will file for bankruptcy.

Other options

Given the seriously adverse effect that a bankruptcy would have on your credit report and credit score, you should definitely investigate some other options before filing. Here are a few of them.

• Try credit counseling. Credit counseling organizations will work with you as well as your creditors to develop a debt management plan. Your plan will necessitate that you send money every month to the counseling service. It will then distribute the money to your creditors. Some of these agencies are nonprofit organizations and offer teir services free or for a very low cost.

• Talk with your creditors. Many of them may be willing to help you out with a modified payment plan.

• Consider all of your options before you take out a home equity line of credit (HELOC) or a second mortgage. While you could consolidate your debt
with one of these loans, they both require that you use your home as collateral.

If a debt consolidation loan interests you, watch this video to learn more about this works.

How to choose a credit counseling agency

credit counseling signIf you decide to opt for credit counseling here are some criteria to use in judging them before you sign up with one.

• Will they help your develop a plan to avoid future problems?
• What are your fees?
• Can you afford its fees?
• What are the different services you offer?
• What are the qualifications of your counselors? Are the accredited or certified by some outside organization? What is the training they receive?
• What if I can’t afford your fees?
• How do you keep my information secure?
• How are your employees compensated? Do they earn more if I sign-up for certain services or is it a flat fee?

Consider debt settlement

Debt settlement has become increasingly popular over the past few years because it represents the only way to get debts reduced, which can help a person become debt-free faster than the five years that are usually required to complete a debt management plan. Another advantage of debt settlement is that it doesn’t require you to borrow more money. As the old adage goes, “you can’t borrow your way out of debt.”

Debt settlement will have an impact on your credit score but not as harsh a one as a bankruptcy. For example, most financial experts believe that a bankruptcy will lower your credit score by approximately 200 points but debt settlement will reduce it by only about 80 points.

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