When credit opportunities turn into debt problems, things often seem hopeless. With the downturn that the economy has taken over the past few years, many well-intentioned borrowers have found that there is no way out. Creditors calling all day long and into the evening, foreclosure letters and threats of repossession, descending credit scores and raised interest rates on existing accounts to leave debtors feeling hopeless. When debt problems begin to spiral out of control, many seek bankruptcy for a solution. Bankruptcy may be the right answer, but before filing, be sure to consider all the options.
Avoiding Bankruptcy Budgeting, consumer credit counseling, and good financial planning is all methods of avoiding bankruptcy. Certain situations may merit bankruptcy, but these options should be considered with an open mind first. Before making a budget, find out where every last dollar goes between paychecks.
Often bankruptcy can be avoided by correcting bad habits. If the debt is unrealistic or the debtor has reached a point where it is not feasible to make current payments, then consumer credit counseling may be a good option. This option helps with a credit card and consumer debt and works as a go-between to help lower interest rates to pay off balances. The consumer credit counseling business is not always reputable, so one must be wary of companies that have complaints with the better business bureau.
Different Types of Bankruptcy There are two main types of bankruptcy that individuals can file. Chapter 7 is the type of bankruptcy that wipes away most debts, excluding child and spousal support, student loans, taxes, and DUI fees. Chapter 13 is the option that takes all debt payments and lowers them for 3-5 years, after which consumer debt is wiped away, but other payments go back to the original amounts. In order to file chapter 7 bankruptcy, the debtor must pass a means test and have an income below a certain amount.
Navigating the Bankruptcy Process, the first thing to do is to have one or more consultations with bankruptcy attorneys. A list of all debts and payments, bank statements, assets, and proof of income are usually required for the initial consultation. The attorney will provide good advice on whether or not bankruptcy would be a good solution. Before the actual file date, debtors must have completed an initial credit counseling course and have the completion certificate in hand. After the initial filing, there will be a meeting with the trustee, and then the decision will be made about discharge or payment amounts. Usually, the property must be surrendered during this process, especially with chapter 7. Individuals filing for bankruptcy are allowed to retain certain amounts of personal property but this varies by state.
What Happens After Bankruptcy Often, relocation is a part of the recovery from bankruptcy when a residence is surrendered. This process is not easy because going from home ownership into a rental or lease arrangement has consequences for pets, children, and general quality of life. Deposits are often higher for people with bad credit, so extra expenses should be expected with relocation.
Rebuilding credit is important after bankruptcy, but be wary of deals that prey on people with fewer options. After just two years with improved credit, many financial institutions are willing to make home loans again, so there can be hope, new life, and fulfilled dreams after bankruptcy.
This article was written by Richard Craft, an MBA student who looks forward to helping you and your finances. He recommends considering Weintraub & Seth when looking for a lawyer to help you find Bankruptcy Alternatives.
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