Credit Counseling: The Bankruptcy Alternative?

Author: financenewstoday.com

Bankruptcy is not right for everyone, but for some it could be the only option. There are several factors regarding personal bankruptcy that you need to consider before you can make an informed decision regarding whether or not filing bankruptcy is the right course for you to take. By going through this basic bankruptcy information you will hopefully gain a better understanding for the general idea of bankruptcy filing in the United States and how filing bankruptcy could affect your personal situation. If you feel that you need more information, or bankruptcy help, you should not hesitate to contact a professional that can help you with your specific financial situation.

First you should take a realistic look at the debt you owe and see if there is a feasible way to payoff your debt on your current budget. This means making some difficult choices. We offer a great tool called the Accelerated Debt Payoff Calculator that allows you to see how much time and money you could save by paying off your debts using the "rollover" method. Using the rollover method, as each smaller debt is paid off, the freed-up payment amount is then applied to the next larger debt, and so on until all debts are paid off.

As you are about to see, the rollover method can save you a ton of money in interest charges, and get you debt free in a very short period of time.

The most common type of bankruptcy for individuals is Chapter 7 bankruptcy. In 2003, there were more than 1 million filings for personal bankruptcy under Chapter 7 of the U.S. Bankruptcy code. When you file for personal bankruptcy you will be allowed to keep certain exempt property. All your other assets will be sold by an interim trustee appointed by the United States Trustee. Several types of liens, such as real estate mortgages, will survive a personal bankruptcy under Chapter 7, while many types of unsecured debts will be cancelled. As of 2005, there are 19 different types of debt classes that will not be discharged by a Chapter 7 bankruptcy. Examples of such debts are child support, a majority of the student loans and most taxes. If you have been imposed to pay fines and restitution after committing a crime, such debts will also stay after a Chapter 7 personal bankruptcy.

There are several strong reasons for you to try to avoid bankruptcy. Despite what some people think, personal bankruptcy is not a “Get out of Jail free card” to leave all your financial problems behind you and start over fresh. Your personal bankruptcy will be noted and stay on your individual credit report for 10 years. This can make it difficult for you to obtain new credit for a long period of time. Not only can you be disqualified for larger loans, such a real estate mortgage, you can also encounter troubles when you want to buy smaller things, such as gas or groceries, without paying in cash. Banks won’t even give you a checking account. If you are given credit, you will usually end up paying much higher interest rates than normal since you are viewed as a higher risk by the credit providers. Avoiding bankruptcy and trying to sort out your financial situation in other ways can therefore often be recommended, especially if a large part of your debts are debts that will not be removed by a Chapter 7 personal bankruptcy.

Proceed with caution and be sure to get all the facts. Personal finance is an important part of everyone’s life and requires great discipline and responsibility.