The average consumer was hailed savior of America’s economic slump that was experienced soon after Sept. 11, 2001, as people everywhere were encouraged to put money back into the economy. Now, as the economy is improving, many of those people are now dealing with the consequences of this over-zealous shopping. Americans are becoming more concerned about their financial fate now more than ever. There are a couple of choices when it comes to clearing your name of unwanted debt: debt consolidation services or filing for bankruptcy and going through court.
Debt consolidation is a smart choice for those whose level of unsecured debt is somewhat reasonable and feasibly reducible. A debt consolidation program is designed to combine your outstanding bills into one affordable monthly payment that, over time, can lower your bills by as much as 60 percent. This not only does away with pointless minimum payments, but it also gets the creditors off of your back, so there are no more nasty phone calls.
Bankruptcy court, on the other hand, can have its own advantages and disadvantages when compared to debt consolidation. For those over their heads in debt, bankruptcy may be the only way out because of its ability to wipe the slate clean. This legal process allows individuals who cannot pay their bills and other debts to have some or all of their debts dismissed or sorted out. This enables the debtors to start over, and also provides a fair compensation for creditors.
The repercussions are not light, however, and going to bankruptcy court is anything but fun. First, a petition must be filed by you for the court. A trustee, or a person who will be taking care of your case and your creditors, is then appointed to you. Creditors are prevented from seizing your assets and your bank accounts. Most of all, bankruptcy can remain on one’s credit report for up to ten years. During that time, yards of red tape seem to confine one’s purchasing power, preventing one to make investments, such as in a home or car.
There are two types of bankruptcies to choose from: Chapter 7, commonly known as “straight bankruptcy,” and Chapter 13, or “reorganization bankruptcy.” The most common of the two is Chapter 7 because its purpose is to liquidate all debts, by both using the debtors existing assets and by discharging those debts that cannot be paid even after assets have been considered. Don’t be fooled, though — even in Chapter 7, some items can be non-dischargeable and must be paid off by the debtor. These include child support, student loans, and taxes.
There are different types of assets and debts. Exempt assets are those the debtor is allowing to keep after the bankruptcy court proceeding. Equities in a person's home or vehicle, some clothing, and a small amount of other personal items are considered exempt property. Everything else is considered non-exempt and will be collected and sold. A secured debt when the creditor holds a part of some of the debtor's property until the debt is paid. Secured debts will get paid off before non-secured debts, the last to be paid.
When a debtor wants to pay off his or her debts within a period of three to five years, he or she will file for Chapter 13. This proceeding is good for those who have a fixed income and are able to put aside some of their money towards paying down their debts over a period of time. However, one must still go through similar court proceedings, which include declaration of one’s assets and liabilities, a confirmation test that compares the amount creditors will get back and makes sure that the creditor would get the same amount if the debtor was filing for Chapter 7. The debtor may also give up some of his or her secured property to the creditor as part of the plan if he or she has fallen behind on payments.
There are other important differences between Chapter 7 and Chapter 13 bankruptcy. Contact an attorney with experience in the practice of bankruptcy court law to determine which type is best for you.
By Kelley Caner