There are several possible solutions to your problem, depending on how old the debts are, your financial situation and how much money you can afford to allocate to your debts on a monthly basis. Many people in your position would immediately look to bankruptcy as the solution to their problems. However, after reviewing the alternatives, you may find that bankruptcy is not the right solution for you. Therefore, I will tell you about some alternatives to bankruptcy and about bankruptcy itself.
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If you own a home, a secured debt consolidation loan may be right for you. This type of loan is essentially a home equity loan which is used to pay off your other creditors. Secured consolidation loans help many consumers by consolidating all of their debts into a single monthly payment with a lower interest rate and payment amount. However, be careful before you borrow money against your home to pay off credit cards and unsecured loans; you are converting what was previously unsecured debt into secured debt. This could cause you problems down the road if for some reason you are unable to make your payments, or if life circumstances force you to file bankruptcy, as you may not be able to discharge the secured debt as you would unsecured debt. However, secured debt consolidation loans work for many people, so this is an option to consider carefully–the Bills.com Savings Center is a great resource to help you find a lender for this type of loan.
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Another option to consider is a Consumer Credit Counseling Service, or CCCS. CCCS companies offer numerous services, such as financial counseling and budget planning, as well as Debt Management Plans (DMPs). In a DMP, the CCCS would arrange a new payment amount with each of your creditors, usually based on a reduced interest rate. You would then make a single monthly payment to the CCCS which would distribute the funds to your creditors, based on the new payment amounts. There are several drawbacks to CCCS, though. First, depending on your creditors, it may not be able to reduce your monthly payments enough to improve your financial situation. Second, it may have a negative impact on your ability to obtain a loan, so you may not wish to enter into a DMP if you anticipate any large purchases, such as home or an auto, in the near future. Third, the average DMP takes around five years to pay off your debts, so you must be willing and able to commit to a long-term repayment plan.
You may also want to consider the services offered by debt settlement firms. Rather than making monthly payments to your creditors, these programs negotiate lump sum settlements with your creditors, frequently reducing your debts by 50% to 60% of your principal balances. These programs usually take only 2-3 years to complete, so this is a good option for many people to rid themselves of debt in a relatively speedy manner. In many cases they can also reduce your monthly payment toward your debt. There is one major drawback to debt settlement programs, though–they will significantly damage your credit while in the program and for at least a year or two afterwards. However, if you are currently unable to afford to pay your creditors, the hit to your credit may be worth the benefit of ridding yourself of credit card debt.
Depending on your income and the type and amount of debt, one of the several options I have described above may be able to help you. I encourage you to explore the Bills.com website, http://www.bills.com/debthelp/ to read more about these and other options available to you.
If you find that the options I mentioned above will not work for your situation, bankruptcy may be able to help you. There are two basic types of consumer bankruptcy: Chapter 7 and Chapter 13. In a Chapter 7 bankruptcy, also called a liquidation bankruptcy, a bankruptcy trustee will examine your assets, and if you have any assets which are not exempt, sell those non-exempt assets to repay your creditors. Once your non-exempt assets have been sold to pay your creditors, all remaining unsecured debts will be discharged by the bankruptcy court. Many people who file for Chapter 7 protection are able to keep all of their property because they have no non-exempt property. Each state has its own schedule of exempt assets, so you should consult with a qualified bankruptcy attorney in your state to find out if Chapter 7 is a workable solution for your situation. An attorney will also be able to tell you if you qualify to file Chapter 7 under the new guidelines enacted by Congress in 2005.
A Chapter 13 bankruptcy, also called a “wage-earner’s bankruptcy,” allows you to propose a plan to repay creditors over time–usually five years. Your monthly payment amount will be based on your monthly disposable income as defined by the bankruptcy code. After you have made payments to your creditors for five years, any remaining unsecured debts will be discharged. Chapter 13 is commonly used by debtors whose assets exceed the exemptions offered by state law. It is also used by many consumer debtors who do not qualify for Chapter 7 relief under the means test, which went into effect in 2005 with the Bankruptcy Reform Act.
If you are considering filing bankruptcy, you should consult with an attorney to find out if bankruptcy will benefit your financial situation. I encourage you to read more about bankruptcy at the Bills.com Bankruptcy Information page at http://www.bills.com/bankruptcy/
I hope you will be able to resolve your financial problems without the need to file bankruptcy. I encourage you to explore all of the options I have mentioned above, both bankruptcy and non-bankruptcy. I hope this information helps you Find. Learn. Save.