Bankruptcy seems to be the first thing some people consider when they find they are unable to pay the payments that are due on loans and credit cards, but this should be the last thing that is considered. Not only is it a permanent solution to a temporary problem, it will ruin your chances of buying anything else for ten years instead of the customary seven.

What are the other options? The first thing you should do when you find yourself unable to pay the payments on your loans or credit cards is to contact the creditor directly and see if a payment plan can be developed. In the case of credit cards, this involves the creditor reducing the interest rate for a certain period, anywhere from three months to one year, which in turn reduces the amount of your minimum payment. Though this keeps your credit in tact, at least once you have brought the payments up to date, the creditor will still close your account. If your account is extremely past due, many creditors will reage the account after you have set up a payment plan and have paid the first three payments on time.

If you have been unable to work anything out with the creditor, or if the plan that you worked out failed, you can consider a consolidation loan with one a debt consolidation company. Be careful with these, though, that you don’t sign with one of the ones who will hold onto your money, and therefore force your creditor to accept a settlement without your permission. A settlement not only goes on your credit report as a bankruptcy, it also leaves you with a tax liability for the amount of the loan that you did not have to pay back. On the other hand, a good debt consolidation program can help you get your debt to a manageable level and help save your credit rating as well. Of course, if your debts are in serious condition, this may not work for you, but it’s certainly something that should be considered before bankruptcy.

A third alternative is to file for a Chapter 13. Although this still falls under the bankruptcy law, it allows you to repay your debt with the assistance of a trustee who will distribute the funds for you. In addition, this will only stay on your credit for seven years instead of ten like a bankruptcy liquidation (Chapter 7). Depending on your assets, you may not have to pay all of your creditors in full, but after the period expires, any unpaid bills are “forgiven.” Like bankruptcy, a Chapter 13 prevents any creditor from calling you, attaching your wages, or seizing any property you have. For those who have a job and have failed at all other attempts to pay their debt, this may be the only workable solution. The problem is, unlike the other two alternatives, it’s not cheap. Depending on the lawyer, and you will need a lawyer, it can cost several hundred dollars. If, however, you’re about to lose your house or your car, it’s a reasonable alternative.

Technorati Tags: bankruptcy, debt consolidation, debt consolidation company

Piling up a huge amount of debt to force you into bankruptcy is no big deal today. A lot of professional working people–additionally people who’s profession is in some sort of business or from any other field–is piling up themselves with a heavy amount of debt.

Debts involving other miscellaneous expenses, credit card bills, and miniature loans can make a person so vulnerable that she or he is eventually left with no other choice than to file for bankruptcy.

Filing for bankruptcy isn’t a ideal solution to your debt management problems. A bankruptcy, when rated on the credit score of the person, stays there for the next ten years; and up till then she or he isn’t qualified for any kind of loan or financial help.

Debt consolidation is an extremely suitable and effective strategy for getting out of debt in a short period of time and to avoild filing bankruptcy.

Can A Debt Consolidation Program Really Help Me?

A lot of organizations nowadays recommend debt consolidation programs for people struggling to improve there current situation from debt mismanagement. These debt consolidation companies will consolidate all debts of the individual and assist them in gaining control of their original financial position in a short time.

The exact process for being a part of these debt consolidation programs is extremely simple. You basically get in touch with a debt consolidation consultant who already has a noteworthy amount of knowledge; and the debt consolidation consultant will counsel you on how to properly complete the debt consolidation form. The consultant will look over your debt consolidation program and clarify how debt consolidation works.

After looking over whether you’re eligible for the debt consolidation program, the debt consultant will estimate the monthly budget you will need to put to the side to meet the debt consolidation payments. Later, the consultant will get in contact with your creditors that he/she represents you. From there, you’ll simply work through that sole representative, rather than through all of those creditors.

Technorati Tags: debt consolidation program, debt management, avoid filing bankruptcy, debt consolidation companies, debt consolidation, bankruptcy

Although bankruptcy is one option to deal with financial problems, it’s generally considered the option of last resort because of its long-term negative impact on your creditworthiness. And the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, designed to curb abusive consumer bankruptcy filings, affects anyone who files for bankruptcy. The law is designed to prevent debtors from abusing the bankruptcy laws – using them to clear debts that they can afford to pay.

Under provisions of the new law, you must meet a pre-approved credit counsellor in your judicial district six months prior of applying bankruptcy. Debtors have to provide evidence to make the case look like theirs are special circumstances, with a crisis beyond control, which has forced you to bankruptcy filing. Moreover, you will be required to attend money management classes at your expense before your debts are discharged.

There are two kinds of personal bankruptcy: Chapter 13 and Chapter 7.

Chapter 13 – reorganization – allows you to keep property, such as a mortgaged house or car, that you otherwise might lose. It allows you to pay off a default in a 3-5 year period rather than surrendering any property.

The court will apply living standards derived by the IRS. You cannot subtract what you actually spend for things like transportation, food, clothing, and so on; instead, you have to use the limits the IRS imposes, which may be lower than the cost of living in your area. The new law is also more stringent about the homestead exemption.

Chapter 7 - straight bankruptcy - involves liquidating all assets that are not exempt in your state. Exempt property may include work-related tools and basic household furnishings. This is frequently the option for people who have few or no assets, often little or no income, and a lot of debt.
What you will be allowed to keep will depend largely on your state laws. Some states allow you to keep all of the equity in your home, while others exempt a certain amount. In some places, individuals may keep their household goods.

While you may able to keep some assets, you also keep some debt. Certain debts, no matter what state you live in, cannot be discharged. It will be now harder to get out from under car loans, overdue taxes, student loans and credit card debt.

The new bankruptcy law restricts the ability of debtors to wipe out their debts under Chapter 7, to file repeated bankruptcy petitions and to select a more favorable jurisdiction for bankruptcy filings. Debtors also need to pass the means test, i.e. when they file, their income must be less than the median income in their state.

The silver lining in the gloom of stringent rules is that retirement and college savings gain protection. If a consumer entering bankruptcy has funds in a retirement plan or an IRA, those funds aren’t included as asset available to creditors. College savings accounts for children are exempt, and debtors are allowed to continue to fund retirement plans, if possible.

Technorati Tags: new bankruptcy law, bankruptcy, personal bankruptcy, bankruptcy law

Debt consolidation is a process which many people in debt turn to as a last resort. Here a debt counseling company is approached, where their professionals will help you merge all your loans into a single debt consolidation loan. In fact, these experts will be behind all negotiations with the creditors, and can also reduce the rates of interest of your previous loans. They can sometimes even lower the amount due to the creditors. When you opt for debt consolidation, it is the debt consolidation company that makes further payments to all your creditors. You only have to pay the debt consolidation company one single payment every month.

There are basically two types of debt consolidation loans; secured and unsecured. In a secured loan, your personal assets are pledged as collateral for the loan. So in such cases, if you do not repay your debt consolidation loan on time, the debt consolidation has the authority to recover whatever asset you place as collateral.

However, in an unsecured debt consolidation loan, there is no need of pledging any asset as collateral. So in case you do not repay your loan on time, there is no fear of your asset being taken over by the company. Instead, you get time and an opportunity to re-negotiate the terms of your repayment. However, though there is the benefit of taking a loan without any collateral, this loan serves a higher rate of interest. This loan is beneficial to those who have no assets to place as collateral for the loan.

Another advantage of an unsecured debt consolidation loan is that there is no time wasted in sanctioning the loan as there is no property valuation involved here. This saving in time means a saving on the accumulation of interest on your previous debts. The longer the time taken to approve the loan, the more interest your debts accumulate.

One of the drawbacks of an unsecured debt consolidation loan is that the borrower has to have a clean credit history. This is because a clean credit history determines the credibility of the borrower. Lenders tend to fear offering loans to borrowers with a bad credit history, especially when no collateral is pledged. This does not mean that all borrowers with a bad credit history will be denied a loan. There are quite a few lenders who are ready to take the risk of lending money to those with a moderate risk. They now realize that a bad credit is not an accurate indicator of credibility. There are many people with a good credit who default on loans and debts too! However, it should be noted that unsecured loans for those with a bad credit are costlier than regular loans.

Unsecured debt consolidation loans also do not allow the borrower to borrow as large an amount as possible through secured debt consolidation loans. This is one of the ways the lender can cover his risk. However, if the lender has faith in the borrower, there is nothing preventing him from lending more money!

Technorati Tags: unsecured debt consolidation loan, debt consolidation loan, debt consolidation company, secured loan, debt consoloidation, debt consolidation blog