Excessive debt is a major source of stress. Debt collectors call you for payment. They can also sue you, and a creditor that wins a lawsuit will have a judgment against you. Some states allow judgment owners to garnish your wages and seize funds in your bank account. Filing for bankruptcy stops creditors from harassing you and puts a hold on foreclosure actions. But because personal bankruptcy is sucy a drastic step, you may want to try other options first.
Chapter 7 Bankruptcy Erases Most Debts
A Chapter 7 bankruptcy wipes the slate clean and gives you a fresh financial start. You don't have to repay your debts, but you may have to sell your property. Not everyone qualifies for Chapter 7. Also, debt from student loans and taxes is not included in your bankruptcy filing. Before you file for bankruptcy, you are required to get credit counseling. A credit counselor sets up low-interest repayment plans with your creditors and helps you sort out your finances. A credit counselor and a personal bankruptcy lawyer can help you decide if Chapter 7 is the right choice.
Chapter 13 Bankruptcy Reorganizes Your Debts
Chapter 13 bankruptcy does not erase debts. Instead, you make monthly payments over a three-five year period to repay what you owe. The bankruptcy court supervises the payment plan. You can keep your property, but you can't miss any of your payments. If you do, the court may dismiss the case. The court may also change the case into a Chapter 7 and force you to sell your property. Certain debts like student loans and taxes can't be included in a Chapter 13 either.
Credit Counseling Can Help You Manage Money
If most of your debt is credit card debt, reputable credit counseling agencies can help you organize your finances, so you can pay off your bills. They can also help you learn how to manage your money better, so you don't get back into debt in the future. Many nonprofits offer credit counseling services at little or no cost. A reputable counselor should be trained and certified in the area of consumer credit and should not charge high upfront fees.
Debt Management Plans May Reduce Bills
If you choose a debt-management plan, your credit counselor negotiates with creditors to accept a lesser amount for what you owe. You pay the lesser amount and the creditor does not pursue you for the balance. You must pay a fee to the debt-settlement company for its help. This fee varies from company to company. You may have to pay taxes if the settled debt amount is $600 or more. When pursuing this option, you need to watch out for scams. Some companies over-charge or promise more than they can deliver.
A Personal Bankruptcy Lawyer Can Help
The law surrounding alternatives to personal bankruptcy is complicated. Plus, the facts of each case are unique. This article provides a brief, general introduction to the topic. For more detailed, specific information, please contact a personal bankruptcy lawyer.