If you’re considering filing bankruptcy, there are some things to consider before doing so. Planning ahead can help in avoiding “surprises.” Bankruptcy provides a legal way to gain shelter from insurmountable debt, but it does not protect you from paying debts secured by real property or merchandise, such as your home or car. Here’s more information about how bankruptcy works and what you should know before filing.
Which bankruptcy option best suits your situation? There are two types of personal bankruptcy, Chapter 7 and Chapter 13. Chapter 7 “wipes out” most unsecured debt and is typically filed by those who are unemployed or otherwise have no hope of repaying their debts. Chapter 13 bankruptcy allows those with steady income to restructure their debt and repay it within three to five years. This option can work for those who have returned to work after a long period of unemployment, or who have experienced a reduction of income. Consulting a bankruptcy attorney before filing can help in determining which option matches your needs.
Bankruptcy stays on your credit reports for 10 years: Although filing bankruptcy provides legal protection from creditors, and may eliminate or reduce debt, it stays on your credit record for ten years, and can severely lower your credit scores. Credit counseling can offer debt consolidation and affordable repayment plans as affordable alternatives to bankruptcy.
Don’t try to shelter your assets: You may be tempted to transfer assets to relatives or friends before filing bankruptcy, or repay friends and family in advance of repaying creditors. Don’t go there! The bankruptcy trustee can sue to recover assets transferred this way. You may also be subject to prosecution for fraudulent transfer of assets.
Certain assets are exempt from bankruptcy protection: You can’t file bankruptcy to avoid paying taxes, alimony, or child support. Most student loans are exempt from bankruptcy protection. Secured credit accounts including mortgages and auto loans are also not extinguished by filing bankruptcy, although payments can be temporarily delayed.
Continue paying on secured accounts: If you want to keep your home and car, it’s best to continue making payments during bankruptcy. This prevents additional negative credit reporting and can help you avoid paying late charges.
Bankruptcy attorneys require payment in advance: Any money you have after filing bankruptcy becomes part of your bankruptcy assets; attorneys expect payment up front. Filing bankruptcy can cost a few hundred to thousands of dollars depending on the complexity of your case and customary fees and costs in your area.
Bankruptcy won’t solve underlying issues: If you got into trouble with credit card debt due to overspending or other financial mismanagement, it’s important to get help so you can avoid future financial problems.
Filing bankruptcy is a major financial decision that can impact your life for years. Consider seeking credit counseling to learn more about bankruptcy and options that can help you avoid bankruptcy.
While most people think of winning the lottery when you talk about financial windfalls, that’s just one source of surprise payouts. You’ve may have received an unexpected check in the mail, monetary gift, or rebate at some time or other. Make a conscious choice to put any unexpected payments in the future toward knocking out debt.
Credit Card Debt and Tax Refunds
Many people look forward to getting a tax refund each year so they can buy new gadgets or take a trip. But a lump sum of cash from Uncle Sam is better spent on paying down credit card debt if you’re drowning in bills.
Birthday Checks from Grandma
You may be fortunate enough to have a sweet grandmother or other relative who still sends you checks every year for your birthday or other holidays—even if you have your own kids! When you get these gifts, don’t run out and treat yourself to dinner. Put this money toward your debt reduction plan. One of these checks may even cover the modest fees for using a nonprofit debt counseling service.
Cashing in Rewards Points Can Help with Debt
If you’ve wracked up a lot of credit card debt, you may have accumulated a lot of rewards points. Check your rewards program to see if you can redeem those points as cash back on your credit card. Also, consider ordering a gift cards to purchase items you need, like gas, clothing, or food. The money you don’t spend on those purchase can be put toward your debt reduction plan.
(1 votes, average: 5 out of 5)
Welcome to the DebtHelp Blog
This blog covers a wide variety of debt consolidation and loan topics.
We rely on a large network of financial experts and leading authors to write the content for the DebtHelp.com Blog.
Chris Rocks is the Regional Director of the National Credit Federation (NCF). NCF is a nationwide membership-based organization that assists consumers recovering from a financial difficulty and those who need a significant increase in their credit score.
Chris began his financial services career as a Financial Advisor helping young families with risk management and asset accumulation strategies. It was during that time that Chris realized that many of these young families also needed someone to guide their choices with regards to debt management.
He made the transition into the mortgage industry where he first worked as a loan originator and later the Vice President of a small mortgage company. As Chris came across clients who had suffered through financial challenges and saw the difficulty they had in re-entering our credit driven economy, he discovered there was a real opportunity to leverage his unique background and help others.
He can be contacted by visiting his personal site, GoodCreditLiving.com.
Francine L. Huff is the Publisher and Editorial Director of Super Savvy Publishing, LLC, which provides editorial and publishing services. She is a gifted author, freelance journalist, and motivational speaker who has entertained and motivated a variety of audiences through workshops, panels and keynote addresses. Francine is the author of The 25-Day Money Makeover for Women, which has inspired and motivated many readers to rein in poor financial habits, become good stewards over their money and work toward a debt-free life. She has appeared on a variety of TV and radio shows. Francine previously worked for the Wall Street Journal, where she was the spot news bureau chief, a news editor and a copy editor. She has interviewed a variety of financial professionals about financial issues and strives to present information about managing money in an easy-to-understand format that is accessible to people of all backgrounds and income levels.
Karen Lawson is a freelance writer with more than 15 years of experience working in mortgage banking and loan servicing. She holds BA and MA degrees in English from the University of Nevada, Reno. She enjoys writing informative articles about debt management and personal finance.