Debt Solutions: Bankruptcy
and You
Debt got you down? You're not alone. Consumer debt is at an
all-time high. What's more, record numbers of consumers-more
than 1 million in 1998-are filing for bankruptcy. Whether
your debt dilemma is the result of an illness, unemployment,
or simply overspending, it can seem overwhelming. In your
effort to get solvent, be on the alert for advertisements
that offer seemingly quick debt solutions. While the ads pitch the
promise of debt relief, they rarely say relief may be spelled
b-a-n-k-r-u-p-t-c-y. And although bankruptcy is one debt solutions option
to deal with financial problems, it's generally considered
the option of last resort. The reason: its long-term negative
impact on your creditworthiness. A bankruptcy stays on your
credit report for 10 years and can hinder your ability to
get credit, a job, insurance, or even a place to live.
The
Federal Trade Commission cautions consumers to read between
the lines when faced with ads in newspapers, magazines or
even telephone directories that say:
"Consolidate your bills into one monthly payment without
borrowing."
"STOP
credit harassment, foreclosures, repossessions,
tax levies and garnishments," "Keep Your Property."
"Wipe
out your debts! Consolidate your bills! How? By using the
protection and assistance provided by federal law. For once,
let the law work for you!"
You'll find out later that such phrases often involve bankruptcy
proceedings, which can hurt your credit and cost you attorneys'
fees. These aren't the most viable debt solutionss.
If
you're having trouble paying your bills, consider these debt solution possibilities
before considering filing for bankruptcy:
- Talk
with your creditors. They may be willing to work out
a modified payment plan.
- Contact
a debt solutions service. These organizations work
with you and your creditors to develop debt repayment plans.
Such debt solutions require you to deposit money each month with
the counseling service. The service then pays your creditors.
Some nonprofit organizations charge little or nothing for
their services.
- Carefully
consider a second mortgage or home equity line of credit.
While these loans may allow you to consolidate your debt,
they also require your home as collateral.
If
none of these options is possible, bankruptcy may be the
likely alternative. There are two primary types of personal
bankruptcy: Chapter 13 and Chapter 7. Each must be filed
in federal bankruptcy court. Attorney fees are additional
and can vary widely. The consequences of bankruptcy are
significant and require careful consideration.
Chapter
13 allows you, if you have a regular income and limited
debt, to keep property, such as a mortgaged house or car,
that you otherwise might lose. In Chapter 13, the court
approves a repayment plan that allows you to pay off a
default during a period of three to five years, rather
than surrender any property.
Chapter
7, known as straight bankruptcy, involves liquidating
all assets that are not exempt. Exempt property may include
cars, work-related tools and basic household furnishings.
Some property may be sold by a court-appointed official-a
trustee-or turned over to creditors. You can receive a
discharge of your debts under Chapter 7 once every six
years.
Both
types of bankruptcy may get rid of unsecured debts and
stop foreclosures, repossessions, garnishments, utility
shut-offs, and debt collection activities. Both also provide
exemptions that allow you to keep certain assets, although
exemption amounts vary. Personal bankruptcy usually does
not erase child support, alimony, fines, taxes, and some
student loan obligations. Also, unless you have an acceptable
plan to catch up on your debt under Chapter 13, bankruptcy
usually does not allow you to keep property when your
creditor has an unpaid mortgage or lien on it.
For
More Information
Visit the Federal Trade Commission web site, or contact
the AFSA's Education Foundation at 1-888-400-2233 for
more credit/money management information.
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General Questions
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