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| Credit Counseling or Bankruptcy: Which is Best for You? |
By:
Ethan Hunter |
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People often get to a place where they simply can't pay their
bills, especially in today's economy which is not particularly
sympathetic toward the poor or even the middle class. Inflation
has impacted nearly every facet of daily life including food,
gas, rent, clothes, utility bills and more. At the same time,
salaries, especially in the lower ranges, have utterly failed to
keep pace. When you get to the place where you cannot pay your
bills and have money left over for food and other necessities,
there are some hard decisions that have to be faced. The options
are credit counseling and debt management services, or
bankruptcy. Both have their pros and cons, so which road to take
depends largely on the individual and how severe his or her
financial problems have grown.
There are numerous credit counseling/debt management services
available, both in most local communities and over the Internet.
The services vary considerably, for example some charge fees and
exist to make a profit, while others are strictly operated by
volunteers and don't charge fees for their services. Some
services are certified or accredited, and others are not. Some
guarantee confidentiality, and unfortunately, others do not.
If your debt situation has not yet reached a point of no return,
credit counseling and debt management may be the best option for
you. This is the way it works: · Check out a variety of
counseling services, both in your community and on the Internet
to determine which best suits your needs. Avoid those that
charge high fees, do not guarantee your privacy and that don't
have any credentials or accreditations to offer. · Make an
appointment with the agency of your choice. When you go to the
appointment, take as much of your paperwork and documentation
with you as possible, i.e. proof of your expenses and income,
along with verification of the debts you owe. · The counselor
will review your situation and develop a plan to help you pay
off your bills. Legitimate counseling services can often
persuade your creditors to take less than the total amount you
owe and arrange for longer periods of time to pay the debt off.
· Instead of paying your bills directly, in most cases, you make
one monthly payment to the counseling service, which then
distributes that amount among your creditors according to the
agreements they have worked out. The arrangement leaves you
enough money to live and halts collection procedures. Over a
period of time, all your bills are paid in full and you
essentially have a new start, provided you don't get yourself
back into additional debt in the meantime.
On the other hand, if you have too much debt and your creditors
are not inclined to work out payment arrangements with you, the
best possibility may be declaring bankruptcy. There are numerous
bankruptcy attorneys and, again, it behooves you to shop around
to obtain the best possible services at the least possible
price.
It is wisest to work with an attorney who does a lot of
bankruptcy work because he or she will be most familiar with the
rules and regulations as well as with the judges and bankruptcy
trustees who work in the local system. A good attorney will know
what the trustees and the courts will allow and what they won't,
and will be able to advise you as to your best options.
There are two kinds of bankruptcies available to individual
debtors. Those are Chapter 7 and Chapter 13. Chapter 7 is a
complete discharge of all nonsecured debts, and some secured
ones, generally including everything except taxes and school
loans. The debtor generally has to give up anything of value
that can be sold to pay his or her debts, although in most cases
a person's home and their primary transportation are exempted.
In a Chapter 13, nothing has to be given up, but the debts have
to be paid in full. The court simply works out a repayment plan
and instead of paying the money to your debtors, you pay it to
the bankruptcy trustee who then distributes it to the creditors.
There are advantages and disadvantages, as well as eligibility
requirements, for both types of bankruptcy and the bankruptcy
attorney can best advise you which option will work better in
your particular situation.
Whether you choose credit counseling or bankruptcy, either one
can help you eliminate debt and get back on your financial feet.
Both can stop collections procedures and eliminate annoying and
harassing phone calls from collectors. The bottom line is, you
don't have to continue suffering; there are ways to get out of
the debt situation and begin again. The most important thing is,
once you are out of debt, carefully manage your money so you
don't land back in the same situation again.
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