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Financial Vulnerability: Bankruptcy Pitfalls to Avoid

Bankruptcy

When your financial crisis has come to a head and your only option is bankruptcy, you’re at a pretty vulnerable point. There will be alluring ideas waiting on you, as well as some less than respectable people waiting to take advantage of the state you are in. This does not mean you should steer clear of filing bankruptcy if it is going to make your life a lot better, nor does it mean you should avoid businesses and services who are there to help you. You simply need to be aware and be on the lookout for things that could lead to further financial trouble and to avoid things that could easily lead to your being taken advantage of.

Credit Counselors

Credit counseling is a wise idea if you find yourself in a bad way financially. For those who are filing bankruptcy, it is often a requirement of the court that you go through a credit counseling program and receive your certification. Credit counseling can teach you how to budget, how to manage your bills and finances, they can negotiate some of your bills for smaller settlements and can give you a lot of tools for a healthy financial future. Even people who are not in financial trouble could benefit from such services. Unfortunately, not all of these services are reputable, having less than your best interest in mind. If you need to go through one of these programs, ask if your state or county offers a free program. If not, ask for a recommendation from the court or someone who knows all about it. Do not trust advertising and be one the lookout for those who want a bunch of money up front. Some of the most unscrupulous companies will gladly take your money while failing to deliver what they have promised.

Watch out for credit repair offers as well. Accurate information can not be removed, even if it is negative. If something is old and needs updated, or is inaccurate, you can call the credit bureaus yourself to see that this is taken care of.

Risky Financing

Once a bankruptcy is discharged, you might think that offers for financing and refinancing would be slow or non-existent. The truth is, a lot of these offers will start coming out of the woodwork once your bankruptcy is behind you, even if it is still on your credit report. Why? because the lenders making the offer operate on the assumption, whether true or false, that because you filed for bankruptcy, you are less likely to get into financial trouble again. It is not real smart on their part, as some people do file for bankruptcy numerous times. Some are irresponsible and others, well, life happens.

Some of the offers you might see are refinancing options for mortgages, loans and even credit card offers. It is not a bad idea to take a lender up on an offer. Sometimes, it can help to rebuild your credit. However, you will want to pay close attention to the terms and conditions, as well as the rates you will be expected to pay. You will want to weigh this against your financial ability and will want to ensure that you are responsible with paying the bill each and every time it is due.

Once you have filed bankruptcy and had a favorable decision, you just want to be careful. Work to get your financial health back on track and be wary of things that could lead you right back into bankruptcy court.

Debt Consolidation a Possible Alternative to Bankruptcy?

Bankruptcy

When financial woes have the road ahead of you seeming pretty bleak, it can be quite overwhelming. The idea of simply ignoring the debt collectors and everything else tied into your finances often sounds appealing. Unfortunately, it’s no solution. The problem is still going to be there, no matter how long you run from it. The longer you wait to take action, the worse it can get. You do have options. You could pay your bills off by making payment arrangements or paying them in full. You could file for bankruptcy, or before you race off to file those papers in court, you might consider debt consolidation.

What Debt Consolidation Isn’t

Debt consolidation. It sounds like a type of loan allowing you to pay off your creditors and transfer the debt to one company. No. That is a common misconception. Debt consolidation is not the same as a consolidation loan (a long term loan to help pay off your debts). The company is not going to give you the money to pay what you owe. You’ve probably seen the ads. “Consolidate your debts! Let us help you pay your bills! Pennies on the dollar!” Below that, most of them typically tell you that this is, in fact, not a loan.

What It Is

So, what exactly is debt consolidation? Debt consolidation is similar to certain types of bankruptcy, without the bankruptcy tag. With the help of a debt consolidation company, your debts are reorganized and renegotiated, allowing you to pay off what you owe for a lower monthly payment than before and sometimes for less than the original amount. Of course, the debt consolidation company will want their share of money too, however, the price should not be burdensome, considering what they do. The only thing to watch out for is companies that want a significant amount of money up front and then don’t deliver results. The truth is, these companies have to give you a contract that lays out the plan in black and white with a clause that allows you to back out within 3-days. Legally, they can not ask for money until they deliver the goods.

Is Debt Consolidation Right For You?

If you’re thousands upon thousands of dollars in debt, by all means, file bankruptcy if it is the only way you can see yourself keeping your head above water amongst huge waves of debt. However, if you are only a couple of thousand to a few thousand dollars behind, consider debt consolidation. It might be the best choice for you. Think about it. There is no guarantee, depending on what chapter of bankruptcy you file, that your debts will be discharged. In that case, you are forced to reorganize and pay off what you can; sometimes a few debts will be canceled and others reduced. That’s really no different than a debt consolidation plan. With a bankruptcy, you’re going to pay, out of your own pocket, upwards of $600 to $1000 just to file. Then you may also have the expense of a credit counseling program, as well as any debts left to pay off. When you look at it from this angle, debt consolidation seems to have its advantages.

Methods for Filing Chapter 7 Bankruptcy

Bankruptcy

When it comes to out of control finances, sometimes bankruptcy is the only answer. Personal bankruptcy is quite common, with most filers choosing Chapter 7. Chapter 7 is one of the simpler forms of  personal bankruptcy, which is why it is so popular. Filing bankruptcy can ease the pain of financial burdens. However, before you file, you need to know what methods you can use and which one is right for you.

Consider DIY Bankruptcy

Yes, you can file for bankruptcy on your own. A do-it-yourself bankruptcy is not a bad idea, if you are willing to put in the time and effort to educate yourself and to do it right. In the end, it will cost you less money, as all you will have to pay out will be the cost of the filing fee and any other expenses related to your preparation and bankruptcy requirements.

Educate yourself thoroughly on both federal and state bankruptcy laws, including anything required of you during the bankruptcy process. Read a detailed book about it. As for forms, you can download them off the internet, get a DIY bankruptcy book, or a bankruptcy kit. However, do not utilize a fill in the blanks process as some courts will not accept those. Be sure to type everything in a professionally formatted manner. Make several copies for yourself and for the court. You will need to have these notarized at the time you sign them. Take them to the court with a money order for the fees in hand. Some courts still accept cash, but not all, so find out in advance.

Whatever you do, do not ask for help from the court clerks. They are not legally licensed to practice law and will not offer any advice. If you do need help, call on a paralegal, but know that you won’t get the service for free.

Assisted Bankruptcy

This is the bankruptcy method where you hire an attorney or paralegal or even a professional legal document service to prepare your case and your paperwork. You pay them a flat fee for doing so, and once the papers are finished, you are on your own. You file the papers with the fee and go through the rest of your case on your own. With this method, it is always good to find some way to become more knowledgeable about the whole bankruptcy process, so you’re not in the dark or caught off guard when you go to court.

Full Representation

Hire an attorney to oversee your entire bankruptcy case from start to finish. They take care of all the headaches. All you have to do is listen, take their advice, be honest and offer the information needed for your case and show up in court. You will be well-advised and everything will be in order. However, full representation is going to cost you, and it certainly won’t come cheap. For those brave souls who don’t mind a bit of extra effort, especially that of learning the legal system, the other two methods are probably just fine. However, if your debts amount to mountains more than molehills and you are either afraid of the system, unsure of things or just do not want to go it alone, hiring an attorney to see your case through might be the option for you.

Whatever method you choose, each one is tried and true. As long as you are honest and do your part to meet the requirements, filing Chapter 7 bankruptcy, no matter what the method, can result in your favor, relieving your financial burdens and debt-laden stress.

Bankruptcy and Credit Card Debt

Credit Card Debt

For those who have fallen head over heels into debt and can find no other way out, bankruptcy can really be the light at the end of the tunnel. Unfortunately, many people have abused the bankruptcy system over the years, using it as the easy way out from under the consequences of financial irresponsibility. Much of this irresponsibility includes massive credit card debt, and because the bankruptcy courts have allowed so much of this credit card debt to be discharged and go unpaid, it has hit the credit card companies right where it hurts – in their own pocket books, so to speak.

When a credit card is issued, the issuer becomes a lender  who has, in fact, loaned out a sum of money equivalent to the credit limit on the card. When credit card debts go unpaid, the credit card company suffers a financial blow because they still have to pay the vendors who accepted your credit card for payment.

With the rise in bankruptcy filings, especially due to the poor economy, credit card companies are fighting hard to get some of this consumer debt repaid and avoid suffering the mass financial losses that the bankruptcy courts have enabled.

Reform Not Working

The credit card companies put out a lot of time, money and energy to get a bill passed that would push for reform in bankruptcy laws regarding credit cards. Unfortunately, it’s not working out the way they had hoped. The idea was to push more filers toward repayment plans rather than discharging the credit card debt altogether. Unfortunately, even the best laid plans don’t always work out. Bankruptcy filings continue to surge and few consumers are in the financial position to repay the debt, resulting in more discharged debt, rather than the hoped for repayments.

Ramifications for Both Consumers and Credit Card Companies

Even if the new law starts to work somewhat, it is doubtful that credit card companies will see much improvement in their bottom lines. Consumers can not be forced into filing one kind of bankruptcy over another. While it is at the courts discretion to discharge or reorganize certain debts for repayment, the determining factor is the consumer’s ability to pay. If they can’t pay, well, they can’t pay. In that case, the court is still likely to discharge the debt.

Many credit card companies have warned that their charge-off rates are bound to rise, and when they do, consumers are bound to see higher rates reflected in their credit card statements.

Making the Choice between Bankruptcy and Credit Card Consolidation

Credit Card Debt

With the economy and credit crisis taking its toll on countless Americans, many people have had to make the hard decision to either file bankruptcy or enter into a credit card consolidation program. If you are on the receiving end of finances that have spun out of control, you may have also considered either bankruptcy or debt consolidation.

The question is: which one is right for you?

The deciding factor for most individuals is the impact these decisions will have on their credit score. In particular, they want to know which move will cause the least amount of damage to their credit.

Debt Consolidation Programs

Let’s first take a look at debt consolidation. A debt consolidation program is generally reserved for individuals who are already behind on their credit card payments. Although the process of debt consolidation does lower one’s credit, the impact of paying off bills also works to raise their credit score back up again.

However, it must be understood that, during a debt consolidation program, that the debt will be marked “satisfied” or “paid in full;” otherwise, the debt consolidation will likely have a negative impact on the individual’s credit score.

Bankruptcy

The other alternative to debt consolidation is usually bankruptcy, which generally carries with a negative connotation; and rightly so. Bankruptcy can lower one’s credit score up to 250 points, and bankruptcy can stay on an individual’s credit score for up to ten years.

Keep in mind, also, that not everyone will qualify for bankruptcy, and not everyone will qualify for Chapter 7, which is the total liquidation of all debts (also called straight bankruptcy). Instead, some individuals may qualify for Chapter 13, which essentially means that the individual must repay the debt.

Chapter 13, although it doesn’t provide for the total liquidation that Chapter 7 does, allows the debtors to keep their property and pay their debts over a certain period of time; usually three to five years.

In particular, Chapter 13 allows individuals to save their homes from foreclosure.

So, the question of whether debt consolidation is better than bankruptcy, or vice versa, will depend largely on the individual’s financial circumstances and needs.

Credit Card Debt Settlement Scams: The Danger Signs

Credit Card Debt

If your debts are overwhelming and you find yourself falling behind on monthly payments, then it may be time to get the help you need.

Because the recession has left many Americans out of work and unable to meet their monthly obligations, a wide variety of debt settlement companies have cropped up. The majority of these companies are reputable, but some are not. It’s a classic example of fraudulent individuals swooping in to take advantage of a situation; in this case it is a wide group of individuals who are struggling to pay their bills.

Debt settlement services are companies that provide a service to individuals in financial straits. The goal of a reputable debt settlement service is to negotiate deals with your creditors to repay your debt, usually for a fraction of your balance, without interest fees or other charges.

It is important to understand, however, that a debt settlement service may not be right for you, and it may be more advantageous to file bankruptcy. It is therefore essential that you speak with a lawyer regarding your choices and your rights, as each situation can be very different.

Debt settlement services may be a smart alternative for individuals that want to avoid bankruptcy, or for individuals that, under the new bankruptcy laws, may have difficulty filing for bankruptcy under Chapter 7.

Once you have talked with an attorney and have decided to pursue debt settlement, it is vital that you choose a reputable debt settlement company. Although it may be difficult to differentiate between a reputable company and a scam, the following warning signs should tip you off to a less-than-reputable company:

• The debt settlement company charges a huge, upfront fee for their services. In other words, avoid any company that demands a large, initial fee is typically not trustworthy, as federal and state regulators have busted many companies that take thousands of dollars from consumers, only to fall short on their promises of debt relief.
• The debt settlement company claims to repair your credit. It is important to understand that debt settlement, regardless of which company it is through, will significantly impact your credit score. A debt settlement on your credit report will damage your credit, so don’t let anyone tell you otherwise.

It is important to remember that a debt settlement company is NOT the same as non-profit, consumer credit agencies. Many consumers find that using a consumer credit counseling agency, or simply negotiating directly with their creditors, is often a better option than debt settlement companies.

Starting Over after your Bankruptcy: What you can do to Help Begin Repairing your Credit

Credit Repair

First things first: we all know that bankruptcy can severely damage your credit score. Luckily, however, it doesn’t have to be a life-long sentence!

You can begin rebuilding your credit rating almost immediately after you file for bankruptcy, provided you have recognized your credit mistakes in the past and have learned from them. A good place to start is consumer credit counseling classes. These classes can help you properly manage your monthly finances and budget, and can also teach you ways in which you can responsibly handle your debts and rebuild your credit rating.

Secured Credit Cards

A great first step is to apply for a secured credit card. A secured credit card essentially means that you send the credit card company a certain amount of money that they hold in a separate account. The amount you send generally matches your credit limit. For example, if you have a credit card with a $500 credit limit you would have to send the credit card company $500 to secure the card.

If you pay the bill on time, your $500 remains in your account. If, however, you fail to pay the credit card bill, the credit card company simply takes the money out of your account to settle the debt. The credit card company will then likely cancel your account, so it is well worth your time to remain responsible when dealing with a secured credit card.

It is also important to remember that a secured credit card can affect your credit rating, so always pay your balance in full every month so that you can begin rebuilding your credit rating.

Unsecured Credit Cards

Another option may be a credit card with a low credit limit. Many people can successfully get credit cards while still in bankruptcy, but it is important to remember that these cards often come with high fees and equally high interest rates. In other words, pay off your balance in full each month to avoid paying astronomical interest rates and to begin building a positive credit history.

A bankruptcy is certainly going to blemish your credit score, but you can begin working toward a brighter credit future if you act now!