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September 30th, 2009

Filing Bankruptcy: Seven Considerations

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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.

      1. 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.
      2. 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.
      3. 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.
      4. 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.
      5. 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.
      6. 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.
      7. 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.

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      September 30th, 2009

      Financial Windfalls Can Help with Debt

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      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.

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