Should you declare bankruptcy?

Personal bankruptcy generally is considered the debt management option of last resort because the results are long-lasting and far-reaching. A bankruptcy stays on your credit report for 10 years, making it difficult to acquire credit, buy a home, get life insurance, or sometimes get a job. However, it is a legal procedure that offers a fresh start for people who can't satisfy their debts. Individuals who follow the bankruptcy rules receive a discharge which is a court order that says they do not have to repay certain debts.

Chapter 13 and Chapter 7. 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 people to keep certain assets, although exemption amounts vary. Note that personal bankruptcy usually does not erase child support, alimony, fines, taxes, and some student loan obligations. And 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. Whether one files bankruptcy is very subjective & one should consult an attorney for help deciding. Accordingly, everything below is FOR INFORMATIONAL PURPOSES ONLY & no person should take any action or inaction based on what it says. The info below is NOT legal advice and does NOT create an attorney-client relationship & no person should rely on info they get off the internet as a substitute for actual legal advice.

BUDGETING One of the things to consider is whether you can find a way to pay bills on your own, and if so, how long it will take to become debt-free and how hard it will be on your family to do so. One can get their pay stub & checkbook and see if they can design a feasible budget that pays more than minimum payments toward the debts without sacrificing too much (i.e. can you afford your child's medicine if you pay triple payments on the credit cards?). Make a budget that pays at least triple the minimum monthly payments toward unsecured debts (like credit cards) or it might take 20 years to pay them off!

CREDIT COUNSELING The credit counseling service one calls should be selected carefully since MANY OF THEM ARE SCAMS. A good credit counseling service should sit down with you IN PERSON (if you have to call an out of state place at an 800 number, you might be making a mistake!), look at your income and expenses, help you fashion a workable budget, & then contact all of your unsecured creditors & negotiate lower balances & interest rates. Then, you pay one monthly payment to the credit counseling service that they then distribute to each of the unsecured creditors. Ideally you become debt-free in 3 to 5 yrs. If the credit counseling service bad-mouths other debt reduction alternatives (i.e. if they say something like "bankruptcy is a 10 year mistake" or other such rhetoric), then they may not really be concerned with what course of action is in your best interest but rather they just want to sell you their product. If they don't seem open-minded to every possibility that might make your life better, find another credit counseling agency. If the credit counseling service suggests you see a bankruptcy attorney, or if the payment amount they come up with is too high, then bankruptcy may be a good option.

DEBT SETTLEMENT Another option to deal with debt is to try settling it. Many people use an attorney for this since there are many pitfalls to debt settlement (more than I can cover here). One catch with debt settlement is that you usually need cash to do it. If you can come up with cash (i.e. from a home refinance, tax refund check, or loan from a relative, for example), then one can frequently settle his or her unsecured debts for around 30 to 60% of the balances. One normally contacts his or her creditors IN WRITING and offers a cash settlement of maybe 15% of the balances, & then negotiates with the creditors until each creditor agrees IN WRITING to accept a certain amount of money to forgive the rest of the debt so long as the settlement amount is received by a certain date. Then, the person mails the agreed-upon amount to each creditor, by certified mail, return receipt requested (so the person can prove that each creditor received the settlement funds timely), and then the debts are gone. Sending cash is a BAD idea, the payment needs to be a check or in some other form that you can prove they got. NOT getting the agreement in writing prior to sending money or not BEING SURE you can get the money to the creditor by the agreed upon deadline are BIG mistakes. it is advisable to use an attorney.