Debt Relief: is Bankruptcy the Best Option?

Nearly everyone is seeking debt relief. Financial experts claim 17% Americans owe more than $10,000 in credit card debts alone.

Add in interest rates and late penalties and before long consumers owe nearly triple the amount borrowed.

Many consumers are turning to debt relief companies in an attempt to regain control of their finances.

Debt settlers can negotiate with creditors to reduce outstanding balances, lower interest rates, and eliminate late penalties.

Consumers who enlist the services of debt relief companies can oftentimes get out of debt in a matter of months instead of years.

scammerWhile there are plenty of legitimate debt settlement companies, there are also many scammers.

If you venture down this path make certain to engage in due diligence.

Take time to conduct research online or contact the Better Business Bureau and the Attorney General’s Office.

Realize, you will be providing your most intimate financial details. Find out everything you can about the debt relief company before turning over your personal information. Otherwise, you could end up with the bigger problem of identity theft.

People facing foreclosure oftentimes file bankruptcy to obtain debt relief. Although filing bankruptcy can temporarily halt foreclosure proceedings, it may not offer a permanent solution.

In 2005, Congress enacted new bankruptcy laws which make filing bankruptcy considerably more challenging.

In the past, debtors filed chapter 7 in order to have outstanding debts discharged. Although debtors were required to liquidate non-exempt assets, they obtained a clean financial slate. The Bankruptcy Abuse Prevention and Consumer Protection Act changed that.

Today, debtors are required to repay a portion of their debts through a chapter 13 payments. Debtors must submit to the ‘mean’s test; a financial tool used to determine the percentage of debt to be repaid. A repayment plan is submitted to the court for approval. The bankruptcy judge can approve, deny, or request a modification of the plan.

The problem with chapter 13 repayment plans is they require debtors to contribute a large percentage of disposable income toward repayment of debt. Payments are sent to the bankruptcy Trustee who distributes payment to creditors. If debtors are unable to adhere to the repayment plan, creditors can petition the court seeking dismissal.

bankruptcy judgeA bankruptcy judge will review the case and either modify the repayment plan; allow debtors to file chapter 7; or dismiss the petition.

When bankruptcy is dismissed, debtors lose all protection from the court, and creditors can commence with collection action.

Bankruptcy should be the last resort for obtaining debt relief. Options exist that can achieve the same results while lessening the impact on your credit.

Credit counseling is one such option. The Department of Justice established the U.S. Trustee Program to educate consumers about bankruptcy. The website provides a list of approved credit counseling agencies.

Debt settlement, debt consolidation, and budgeting are also effective ways to regain control of your finances.

Debt relief is an obtainable goal. Regardless of the amount of debt you owe, there is always a solution. Take time to become educated about money management, budgeting, and debt reduction. Start by conducting research via the Internet or visit your local library.

Finally, determine which debt relief program is suited for you. Locate the resource that can help you achieve your goals and put your financial plan in action. Always keep in mind there is nothing better than financial freedom!