You know you're in bad financial shape when you hear on a TV commercial that you can settle your credit card debts for pennies on the dollar and you believe it. This makes you pose the question, if I can avoid filing bankruptcy and make all of my debts disappear, why shouldn't I? If something sounds too good to be true, most likely it is. Many of these debt consolidation companies make claims that are pretty impossible. All you need to do is read the fine print and see the disclaimer when you sign up that releases them from showing those promises. If you decide that you want to hire a financial consultant that will help you draft a budget and negotiate a repayment plan with your creditors, they probably should come from a referral of someone who has used the service in your local area. When you think about it, it's frightening to send your only money away to a debt consolidation company that has promised to pay your creditors.
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Looking for alternatives to bankruptcy is not a bad thing, but sometimes it might be the only realistic way out. Many people feel guilty about wiping out all their debt with bankruptcy. For those that let their conscious weigh on them, filing Chapter 13 bankruptcy might give them relief. Filing Chapter 13 bankruptcy allows debtors to negotiate a payment plan and repay their debts over a 3 to 5 year period. It is also the best chapter to use when an individual is trying to protect the family home. A Chapter 13 will many times allow the debtor to strip off the second and third trust deeds to make the payment more manageable, allowing the individual to catch up in a timely manner. When a Chapter 13 bankruptcy is filed, the automatic stay goes into place stopping all collection activities from the creditors including the aggressive phone calls.
For those that are not so worried about what the creditors will think, Chapter 7 bankruptcy is available. Chapter 7 is the most common type of bankruptcy because it wipes the entire slate clean eliminating all unsecured debt. Debts that fall in the unsecured category are credit card, medical bills, personal loans and possibly even some old back taxes. Typically, a person filing chapter 7 should be able to complete and get a discharge in about 4 to 6 months. Chapter 7 is also called a liquidation bankruptcy because the trustee can liquidate or sell any nonexempt assets to pay the creditors. Most people can find sufficient exemptions to protect most of their property and rarely lose anything. This is one reason why a bankruptcy attorney can be very beneficial in a bankruptcy as they are educated in the exemption laws of the state you reside in.
Prior to 2005, Congress felt there was too many people abusing the bankruptcy system and made changes to the bankruptcy code. They added tougher qualifications for Chapter 7 using the means test. The means test uses an average household income table for the individual's state and compares it against the debtor's expenses to achieve the current monthly income. Along with this, they require all individuals filing bankruptcy to take credit counseling courses. What is required is a pre-bankruptcy filing course and a pre-bankruptcy discharge course. Congress believed that credit counseling would help debtors make better future financial decisions and help them to rebuild their credit. For individuals that are having financial troubles don't beat yourself up emotionally, consult a bankruptcy attorney to see if filing bankruptcy could be beneficial in your situation. Bankruptcy was created to give good people a second chance.
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