Get Out of Debt On Credit Cards

Credit card debt eating you alive?  Having issues paying your debts? Getting threatening notices from creditors? Are your bills being turned over to debt collectors? Are you distressed about losing your residence or your auto?

You’re not alone. Many people face a financial problems some time in their lives. Whether the issues is caused by personal or family illness, the loss of a job, or overspending, it can seem overwhelming. But oft, it can be conquered. Your money situation doesn’t have to go from bad to worse.

If you or someone you know is in money distress, look at these choices: realistic budgeting, credit counseling from a honest organization, debt consolidation, or bankruptcy. Debt negotiation is yet another choice. How do you know which will work best for you? It depends on your grade of debt, your amount of field of study, and your prospects for the future.

Bankruptcy

Personal bankruptcy generally is considered the debt management choice of last resort because the results are long-lasting and far reaching. People who follow the bankruptcy rules receive a discharge — a court order that says they don’t have to repay certain debts. However, bankruptcy information (both the date of your filing and the later date of discharge) stay on your credit report for 10 years, and can make it hard to obtain credit, buy a house, get life insurance, or sometimes get a job. Still, bankruptcy is a legal procedure that offers a fresh start for people who have gotten into money difficulty and can’t satisfy their debts.

There are two main types of personal bankruptcy: Chapter 13 and Chapter 7. Each must be filed in federal bankruptcy court. As of April 2006, the filing fees run about $274 for Chapter 13 and $299 for Chapter 7. Lawyer fees are over-and-above and can vary.

Effective October 2005, Congress made wholesale changes to the bankruptcy laws. The desired effect of these changes is to give people more reason to seek bankruptcy relief under Chapter 13 rather than Chapter 7. Chapter 13 permits people with a steady income to keep property, like a mortgaged house or a automobile, that they might otherwise lose through the bankruptcy process. In Chapter 13, the court approves a repayment plan that allows you to use your future income to pay off your debts during a three-to-five-year period of time, rather than hand over any property. After you have made all the payments under the plan, you have a discharge of your debts.

Chapter 7 is known as straight bankruptcy, and involves liquidation of all assets that are not exempt. Exempt property may include cars, work-related instruments, and basic household furniture. Some of your property may be sold by a court-appointed official — a trustee — or turned over to your creditors. The new bankruptcy laws have changed the time period during which you can receive a discharge through Chapter 7. You now are required to wait 8 years after being granted a discharge in Chapter 7 before you can file again under that chapter. The Chapter 13 waiting period is much less and can be as little as two years between filings.

Both types of bankruptcy may eliminate unsecured debts and halt foreclosures, repossessions, garnishments and utility shut-offs, and debt collection activities. Both also render exemptions that permit people to keep certain property, although exemption amounts vary by state. Note that personal bankruptcy commonly does not wipe out child support, alimony, fines, taxes, and some student loan obligations. And, unless you have an acceptable plan to catch up on your debt under Chapter 13, bankruptcy usually does not allow you to keep property when your creditor has an unpaid house payment or security lien on it.
Another major modification to the bankruptcy laws regard certain requirements that a consumer must clear prior to filing for bankruptcy, no matter what the chapter. You must get credit counseling from a government-approved organization within six months before you file for any bankruptcy protection. You can find a state-by-state list of government-approved organizations at www.usdoj.gov/ust. That is the website of the U.S. Trustee Program, the organization within the U.S. Department of Justice that manages bankruptcy cases and trustees. Also, before you file a Chapter 7 bankruptcy case, you must satisfy a “means test.” This test requires you to confirm that your income does not exceed a certain amount. The amount varies by state and is provided by the U.S. Trustee Program at www.usdoj.gov/ust.

Debt Consolidation

You may be able to lower your cost of credit by consolidating your debt through a second house payment or a home equity line of credit. Remember that these loans demand you to put up your residence as collateral. If you can’t make the payments — or if your payments are late — you could lose your home.

What’s more, the costs of consolidation loans can add up. In addition to interest on the loans, you may have to pay “points,” with one point equal to one percent of the amount you borrow. But, these loans may provide additional tax advantages that are not provided by with other kinds of credit.

All the best to you!