Closer Look at Bankruptcy
By Gina James
Do you have a hard time paying your credit card bills? Starting to get notices from waiting creditors to pay? Worried that you might lose your properties like your house because of credit debt? Chin up: Dealing with credit card debt is not as hard as you may think.
More and more consumers today find themselves in the uncomfortable situation of only being able to afford the minimum payments on their credit cards. Or, even worse, not being able to afford even the minimum payments. In today's world, it is often easy to get in over your head and find yourself spending more than you make. It seems that everything is going up but wages, and it is all too easy to fall behind.
Learn more ways to reduce debts today.
There are numerous types of debt, including basic loans, syndicated loans, bonds, and promissory notes. Debt, especially large sums of debt, can also be secured through a mortgage or other security interest over some of the debtor's property, in which case the creditor will have some rights over that property in the event that the debtor becomes unable to repay the debt and defaults on the loan.
Debt consolidation allows a consumer to present their financial case to a lender who may be willing to take on the burden of paying off debts in exchange for one monthly payment made to the lender.
A Closer Look at Bankruptcy
Bankruptcy is a process of the federal court that is aimed at helping both businesses and individuals in clearing up their debts and repaying under the protection given by the bankruptcy court. There are basically two types: liquidation and reorganization.
Liquidation bankruptcy, under Chapter 7 of the bankruptcy code, occurs when you plead the court to have your debts discharged. Some of your properties will then be liquidated or sold by the bankruptcy court, returns of which shall be divided among your creditors. This type of bankruptcy proceeding lasts for four to six months which is quite fast and only one appearance at the courthouse is necessary. It is very convenient and doesn't require payments stretched over time.
Chapter 7 bankruptcy isn't available to everyone, though. You may won't benefit from it if in the past six to eight years, you have benefited from a bankruptcy discharge. Likewise, if after examination of your income, expenses, and overall debt, it was found out that the other type of bankruptcy proceeding is more appropriate, then you can't insist on pursuing this kind. Veterans who are now disabled and who incurred their debt at the time of their active duty are almost automatically allowed to file. In addition, those people whose debts are caused by running a business are qualified as well. For those people not belonging to any of these categories, certain criteria must be met.
The criteria has been affected by the new rules imposed on bankruptcy. One of the considerations is your current monthly income which in turn will be compared against the median income for a family of similar size in your state. This isn't your income at the time of your filing. Instead, it is your average income for the past six months before filing. Social Security benefits like retirement and disability benefits aren't included in the computation. If your income appears to be enough to support the other type of bankruptcy proceeding in spite of permitted expenses and payments for child support, tax debts, and others, liquidation bankruptcy is unfortunately not allowed.
A home equity loan literally allows an individual to borrow from a lender based on the amount of value they have earned on their home.
If you use credit cards, owe money on a personal loan, or are paying on a home mortgage, you are a "debtor." If you fall behind in repaying your creditors, or an error is made on your accounts, you may be contacted by a "debt collector."
Having trouble paying your bills? Getting dunning notices from creditors? Are your accounts being turned over to debt collectors? Are you worried about losing your home or your car?
The Consumer Credit Counselling Service (CCCS) reports that calls from people worried about debt have been increased by 50% compared with last year.
After you have contacted each creditor, you can start setting up a budget plan that will help guide you through the process of eliminating your debts. Start with a weekly budget plan and then work your way toward a monthly plan.
You should know that in either situation, the Fair Debt Collection Practices Act requires that debt collectors treat you fairly and prohibits certain methods of debt collection. Of course, the law does not erase any legitimate debt you owe.
Many people, if given a choice, would prefer this type since repayment of a portion of the debt is unnecessary. You may lose some of your properties but some courts permit some sort of a leeway that doesn't take all to give you something to start with afterwards.
On the other hand, reorganization bankruptcy, usually under Chapter 13, happens when you file to a bankruptcy court a plan on how you intend to settle your debts. You indicate how much each of your creditors will get, depending on your finances. There will be a three- or five-year repayment plan, only after which can you be discharged of your debts, if any still remains. At times, however, due to obvious financial difficulties, the court itself decides to give a discharge earlier than planned and this is what usually happens.
An additional requirement for both types of bankruptcy is completion of credit counselling conducted by an agency recognized and approved by the United States Trustee's office. This helps you look closely at the situation at hand and identify if bankruptcy is really essential. This allows you to see several possibilities of informal repayment which you may have overlooked in the past. Even if such is obviously impossible, counselling remains a major requirement. Furthermore, completion of post-counselling is required after the proceedings. This aims to teach you financial management to avoid encountering the same situation in the future. The bankruptcy discharge will not be released unless this is fulfilled.
Bankruptcy may be beneficial for both the debtor and creditor. This is a way of recognizing one's responsibilities and mistakes that led to the financial difficulty. The entire process takes into consideration both parties' interests and leads to the development of an action plan that fulfils them. As such, this law shouldn't be abused by any debtor thinking that a court is there to intervene.
Bankruptcy, although generally advantageous, must be considered as a last resort. You should, in all circumstances, work hard to be in full control of your finances to avoid being estranged in difficulties. Discipline is indeed a very crucial trait that must be maintained at all times.
Having said that, many borrowers can benefit from consolidating their debts on better interest rate terms. Some credit cards cost up to 17.9 % (e.g. MBNA) and store cards can cost more. Consolidating your debt could cut interest payments by up to two thirds.
If you've got a number of credit cards and insurmountable credit card debt, then perhaps it's time to consider a debt consolidation loan. A consolidation loan is a loan that you can use to pay off all your debts, meaning that you can pay them off for less money without having to worry about lots of different bills.
Secured loans make your creditors feel more secure about loaning you money. When someone takes out a secured loan, that simply means there is collateral to back up the money they borrowed.
Debt is a hard thing to live with, but we all have it and deal with it everyday. Sometimes it is manageable, sometimes you feel like you can barely keep your head above water and unfortunately many times you feel like you are drowning in it!
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