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Bankruptcy
Bankruptcy
Notes about bankruptcy
Why you want to avoid bankruptcy
Alternatives to bankruptcy
Avoid consolidator loans
How to find money to work out of a hole
Notes about bankruptcy
If you file for bankruptcy, you generally can keep your home, one auto and some personal belongings
Chapter 7
- More severe form of personal bankruptcy
- Completely discharges unsecured debts
- Stays on your credit record for 10 years
Chapter 13
- Less severe form of debt restructuring
- You pay back your creditors slowly
- Creditors agree to forgive some interest and penalties
- Stays on your credit record for seven years
You can still get limited credit after you file for bankruptcy
- After filing for bankruptcy, you can't file again for six years
- Many credit issuers think that this makes you a good credit risk
Why you want to avoid bankruptcy
Filing for bankruptcy costs $500 to $1,000
Many major obligations are not dischargeable by bankruptcy
- Taxes
- Child support
- Alimony
- Student loans
- Court-ordered payments (e.g., drunk driving damages)
- Money borrowed within 20 days of filing for bankruptcy
Alternatives to bankruptcy
Consumer Credit Counseling Services (CCCS)
- Funded by credit card companies
- Won't recommend bankruptcy
- Work out settlement to keep creditors at bay
- May help you by lowering interest rate and eliminating penalties
- Telephone : 800-388-2227
It may take three to five years to pay off the debt
Consider conflict of interest if you go to a credit counselor
Counselor may be
Paid by credit card companies
Most counselors receive up to 15 percent of the debt they help recover
For this reason, many counselors won't suggest bankruptcy
Avoid consolidator loans
Offered by consumer finance companies
Promise to consolidate all those bills into "one easy payment"
Problem : Lock you into making high interest payments for years
Better strategy : Grin and bear it for a short while while you find money to work out of a hole
How to find money to work out of a hole
- Avoid fees from bounced checks (these can really add up)
- Tap home equity
- Borrow from a relative
- Start and follow a budget
- Increase W-4 allowances - but monitor tax liability to avoid underwithholding
- Take a second job
- Work overtime
- Have spouse or children work