Bankruptcy may be the only solution if you find yourself piled debt with no way out. Since it is a tedious process with very serious and real consequences, understanding how bankruptcy works before following through is necessary. Also, not all debt can be cleared and filing bankruptcy will have an effect on your credit for a very very long time.
Types of bankruptcy
There are many types of bankruptcy. Some are designed for businesses (Chapter 11) while others are for individuals (Chapter 7, 13). Chapter 7 bankruptcy is called liquidation bankruptcy. When you file for this type of bankruptcy any unsecured debts are erased. Chapter 13 bankruptcy works differently as it allows you to recognize your debts by creating a repayment plan with lenders. When you file a Chapter 13 bankruptcy you are able to keep the things that you own so this option can be better for some individuals.
Who can claim bankruptcy?
Filing for chapter 7 or chapter 13 bankruptcy depends on a lot of factors. A chapter 7 bankruptcy can be filed by individuals and businesses and only be filed if your income is not enough to repay your debts on a payment plan. Chapter 13 bankruptcy can only be filed by individuals and be claimed if you have less than $383K in unsecured debt or less than 1.1MM in secured debt.
What happens to the debts?
Chapter 7: Most unsecured debts are eliminated and any assets that you have are sold. Assets such as clothing and cars are usually exempt from repossession. Any secured debts you have (ie: car loan or mortgage) can be exchanged for the item that is used to secure the loan or you can arrange a repayment plan.
Chapter 13: You will work with your creditors to set up a payment plan that states how much you will pay and how long it will take to pay your debts back.
And then what happens?
Bankruptcy does not provide you with a clean state even though is can help you get your finances back on track. The bankruptcy will stay on record for up to 10 years and will make getting any new credit extremely difficult. A personal financial management course is also mandatory to teach you the skills you need to manage your money.
What are my other options?
Debt consolidation is a good option for people who find themselves in a great deal of debt. There are counselors and companies that you can go to which can help you consolidate your debts. You can also work on a repayment plan with creditors on your own, saving you from having to file bankruptcy. Bankruptcy is not a quick fix and while it may help you, it’s not always the best option. In the long run it will hurt your credit for a very long time and make it near impossible to get any new credit for years.
Debt consolidation is a term you hear often, but what is it? How does it work? Is it a good thing? Should I be consolidating my debt? Here are some details that everyone should know when considering debt consolidation:
What is Debt Consolidation?
Debt consolidation is when you take out a loan to pay off many others. It is often done to secure a lower or fixed interest rate or for the convenience of only having one loan to pay each month. You can do it on your own or you can choose to have a company consolidate your debt on your behalf. When you use a consolidation company they can arrange contact with all of your bill collectors to make payments for you. To do this they would need to know your monthly income and bills that may not be in collections. They then will set up a budget so that all of your bills that may be harming your credit score can be paid down a little at a time with one payment to the debt consolidation company each month.
The best type of debt consolidation is one that would allow you to make only one payment per month because they have paid off all your collectors completely; this also means that your credit score can begin to recover. When you make this payment the consolidation company will split it up between your bills. Usually a debt consolidation will charge you a start-up price then a monthly payment that is a percentage of interest on your total debt.
How long will it take me to get out of debt?
The length of the term on your loan would be dependent on two things: your income and the amount of debt that you have. To pay of the loan you will have to take charge on your payments and pay more than the minimum, when you only pay minimum a great deal of it is only paying off interest with little actually going towards your debt.
If you choose to work with a debt consolidation company they will help you to make a plan that will let you know how long the process while maintaining a standard of living that is acceptable. The average goal is to get you out of debt in 5 years.
Does debt consolidation work?
Ideally, yes. If executed properly debt consolidation can eliminate all of your debt and you can live without ever having a financial problem ever again. Some people can move on from their past mistakes and do this. Just be honest with your consolidation councilor and do not withhold any of your financial information, this will only come back to hurt your chances of managing your debts.
You also must not use debt consolidation as a bandaid. If you do not stop making bad financial decisions you will continue to have problems paying your bills. Stop overspending and live within your means, once you have your debt paid off do you really want to be in the same boat again?
How do I find a Debt Consolidation Company?
There are many companies which can help you make the right financial decisions. It may take some time to find the est company for your financial situation. It’s a good idea to make a list of questions to ask each company and to write down all their answers. You want to know things like how they will protect your privacy, what their fees are, how they charge for services, what are their policies on late payments, etc. A lot of this information may be available online as well.
Debt consolidation works only when you are dedicated to getting out of debt. It can be the best thing you ever did, but only when you understand it correctly and learn from your past mistakes. The best way to stay out of debt is to never get into debt in the first place.
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Deep in debt with no way out? While you may feel that all is hopeless right now, that doesn’t have to be the case. Often debt is just a temporary situation that you can get yourself out of. While your debt load may be a heavy burden now, it is possible to escape the shackles of debt.
Chances are, if you own a home, it is one of your greatest weapons to help you get out of debt. With historically low interest rates, now might be the time to refinance your home to help with your debt consolidation Canada or in the United States.
How Does Debt Consolidation Work?
So, how does it work? If you have equity in your home, you can refinance and use that equity to pay down the debt you currently have, including, but not limited to, auto loans, credit cards and student loans. Some of these debts such as credit card debt likely have very high interest rates from 12 to 25%. If you refinance, you will have one monthly payment–your house–at a significantly lower interest rate than your current debts. Your money will be able to work harder at a lower interest rate.
The key to a good debt consolidation is to find a good debt relief agency to work with such as Debt.ca. They will help you not only consolidate your debts but also learn how to manage your money and make smart financial choices so you don’t end up in this situation again.
Once you consolidate your debt, you will notice instant relief. Your monthly payment on your refinanced home will likely be lower than you were paying when you had many separate bills to pay. If you had creditors calling your home at all hours, those calls will cease. If your wages were being garnished, that will end.
Debt consolidation can offer you a way to get out from under your debt. In addition, paying a lower interest rate on your home means eventually more money will be able to go to the principal faster than it would if you were still paying high interest debt.