If you are overwhelmed by debt, there are a number of solutions. The most drastic of these is filing bankruptcy. I want to encourage you to make sure that you have examined all of the available options, including credit card debt couseling, debt settlement and negotiation before you go down this road. In recent years, the stigma surrounding filing bankruptcy has lessened somewhat. However the effects are financially devastating, and longranging.
Bankruptcy is a court action in which debts are either discharged completely as in a Chapter 7 bankruptcy, or restructured to allow for payment as with a Chapter 13 bankruptcy. unlike credit card debt counseling, Chapter 13 does not eliminate any part of the debt. It only restructures it for payment. These payments are administered by the court.
There are different rules concerning each of these. You should know the rules, and the consequences.
At one time, you basically had your choice. Chapter 13 or Chapter 7. In those days, I would have recommended a Chapter 7. On your credit file, a bankruptcy is a bankruptcy. One doesn't look any better than the other. That being the case, why would you pay back the debt if you can just get rid of it.
It is best to make sure that if you are filing a Chapter 7, you have no assets of value that can be liquidated by the court to settle the debt. Many states allow you to keep assets necessary for survival such as your car and your house. The court will decide on the amount to be repaid.
I know I keep pounding on the credit card debt counseling concept, but the fact is that the consequences are far less extreme. Credit card debt counseling allows your to begin recovering from debt and credit problems almost immediately. In many cases, you are able to make improvements to your credit file as a part of the settlement.
It's not as easy as it was to file a Chapter 7 bankruptcy. You may not have the choice. If your income is greater than 25% of the population, the court will force you into a chapter 13. There are special circumstance where this will not apply. In either case you may be required to have undergone credit card debt counseling, and diligently tried to settle the debt prior to filing for the bankruptcy. One such special circumstance for filing a chapter 7 is if you were a victim of hurricane Katrina.
In a chapter 13, you will repay your debts. The court just creates a structured payment, your payments are made to the court appointee. This keeps your assets from being sold, and the court works with you to make sure you can make the payment. The formula for you new and imposed budged is decided by an IRS formula which takes into account ALL your bills. Things like your mortgage and utilities, gas, etc., are all included to make up your budget.
In the event of a Chapter 7, the court may order the seizure of any assets purchased close to the filing date to make sure you are not attempting to stash money away by making purchases that you intended to file bankruptcy on.
One must not confuse credit counseling with credit restoration since both are different. While the former helps you in eliminating erroneous information from your credit report so as to increase your credit score; the latter will let you know about the ways on securing a good credit score by making wise decisions about your purchasing habits.
Apart from other things, you also need to learn the art of using a budget intelligibly. The only difference is that some people are better at following a budget while others are not and thus are able to secure a good credit score.
Simply by managing your debts right, you can have an excellent credit score. But if you are unable to do this, the result will be opposite and you will notice a drop in your credit score and will need some credit restoration or file for bankruptcy.
One way to succeed with credit restoration is to keep moving slowly towards rebuilding your credit score back to its previous level. However, you will need the help of a financial expert to achieve this objective and here is were credit counseling comes in.
More often than not, credit counseling is done by legitimate non-profit agencies. Here is a word of caution for you: Do not confuse credit counseling agencies with credit restoration agencies. The major difference between credit counseling agencies and credit restoration companies is that while the credit counselors will provide you with information and knowledge regarding a DIY (do-it-yourself) credit fix; the credit restoration companies will perform most of your work on your behalf and unlike non-profit credit counseling, you need to pay for these services.
So, if you opt for a credit restoration company, then make sure that you choose a reputable one that has good experience in this field and also has a record of customers to verify the record. Additionally, make sure that the company that is wiling to work for you is making a serious effort to eliminate erroneous items on your credit report.
Do not try to adopt any shortcut here. If they suggested any kind of illegitimate process such as getting a new credit file and making a new credit rating; simply turn down the proposal as the company you are seeking help from may be a scam!
On the other hand, if you seek credit counseling, here you will be advised on how to fix your credit report on your own. The biggest advantage of taking help from a credit counselor is that since you will make an attempt to restore your credit report on your own; you will learn lots of things regarding financial responsibilities as well as finances in general.
So, by choosing credit counseling over a credit restoration company, you would gain a number of benefits that otherwise you wouldn't. On the other hand, credit restoration is a long term process; so it is probable that you will not find yourself in financial trouble caused by reckless spending again in future.
Both Ted Batron & Jay Delgado are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Ted Batron has sinced written about articles on various topics from Anger Control, Debt Management Counseling and Finances. Ted Batron is a financial expert who specializes in debt counseling and custom debt elimination plans. He has developed a short eCourse that's a great primer for those who are want to learn how to negotiate, eliminate and settle credit card debt at a 30-7. Ted Batron's top article generates over 27100 views. to your Favourites.