|
Have you ever wondered how it is that some people manage to save money no
matter how little they make and others are deep in debt even if they’re
bringing home a big paycheck? If so, you’re not alone. No matter how much money
you make, there are many ways to get into debt. Indeed, one significant medical
emergency can put you helplessly in the red. Learning how to get out of debt is
not easy—especially on a limited income—however, it can be done. Bankruptcy is
one way to get out of debt.
If you are wondering if you will ever get out of debt, you must ask yourself
the difficult question, “Is bankruptcy the right answer to get me out of debt?”
Because there are many pros and cons to declaring bankruptcy, it’s not an easy
question to answer. Let’s take a closer look at bankruptcy—its pros and
cons—and decide whether or not declaring bankruptcy to get out of debt is the
right solution for you
|
|
You hear about it almost every day: Big corporations all over the world declare
bankruptcy to get out of debt. And, while you’re likely not millions of dollars
in debt, you—like many others—are left wondering: What exactly is bankruptcy
and how will it help get me out of debt?
At its most basic, bankruptcy is a federal legal proceeding that gives people
who need to get out of debt and are unable to pay their bills the right to
start again financially. More specifically, bankruptcy is a federal court
proceeding that prohibits collectors from continuing to collect debts from an
individual who has declared bankruptcy until the debts are sorted out according
to federal Bankruptcy laws.
Because there are many different debt situations, there are also a number of
different types of bankruptcy to help individuals and businesses get out of
debt:
-
Chapter 7, also called “Straight Bankruptcy,” requires a debtor to be within a
certain asset limit or to give up property over that limit to be sold by the
court. A person who successfully declares Chapter 7 bankruptcy is able to get
out of debt completely.
-
Chapter 11, also called “Reorganization,” is way for for businesses or
individuals with massive debts to get out of debt.
-
Chapter 12 is not very familiar to most people as it is reserved specifically
to help farmers get out of debt.
-
Chapter 13, the Wage Earner Plan, requires a debtor to repay at least some
portion of the debts from their current wages to get out of debt.
|
|
No matter why you are in debt, you need to get out debt as intelligently as
possible. So, whether you’re in debt because you spend more than you make,
overburden your credit cards, gamble, or have had unexpected emergency
expenditures, ultimately you will have to ask yourself, “Is bankruptcy the
right decision to get me out of debt?”
There are pros and cons to declaring bankruptcy to get out of debt.
|
-
When declaring bankruptcy to get out of debt, you will not have to repay most
or all of your debt.
-
Declaring bankruptcy could prevent foreclosure of your home, stop repossession
of such items as automobiles, and keep your utilities from being disconnected.
-
Bankruptcy to get out of debt will often stop wage garnishments and phone calls
from debt collectors and allow you to get out of debt without continued
harassment.
|
|
-
When declaring bankruptcy to get out of debt, you will not be allowed to keep
collateral owed to a creditor unless you can keep up with the payments.
-
Declaring bankruptcy usually does not allow you to stop payment on such things
as child support, student loans, alimony, court restitution orders, certain
types of taxes, or criminal fines.
-
If you had consigners on any of your collateral, your cosigners will not be
able to get out of debt with you as they are liable for part or all of the debt
you discharge through a bankruptcy.
-
Declaring bankruptcy, in an attempt to get out of debt, will not eliminate your
mortgage or any other collateralized loan—it will only keep these payments at
bay until you have dealt with other creditors.
|
|
If you’ve reviewed all of your options and are still thinking “Bankruptcy is
the answer to get me out of debt,” then you’ll need to begin official
bankruptcy proceedings to start the ball rolling to get out of debt. However,
if you have decided that you are not ready to file bankruptcy until you’ve
researched all of the ways to get out of debt, then review the Get Me Out of
Debt checklist for ideas of how you can get out of debt starting today.
The Get Me Out of Debt Checklist offers you a handful of starting points that
could help you get out of debt.
Use Your Assets to Get Out of Debt—if you have any “big ticket” assets that you
are willing to part with, you can use these to pay down loans or to turn into
cash and negotiate new payment terms with creditors to help get out of debt.
Take a Second Job—Most of us already work hard, but if you’re ready to take
responsibility to get out of debt and say, “I got myself into this, so I’m
going to get out debt myself,” then taking on a second job to help pay down
your debts is a great idea.
Have Your Credit Cards Take a Vacation—Even if your debt is not credit
card-based, putting your credit cards on hold is a good idea to avoid overuse
and increased debt. If you take the “get me out of debt” mantra seriously,
you’ll consider getting rid of your credit cards or, at least putting them on
hold, until you get out of debt.
Set up a Repayment Plan—Rather than lose all their money in a bankruptcy
filing, creditors are often willing to negotiate new payment terms with you.
Often these new terms may mean lower interest rates or lower minimum payments.
If it means avoiding bankruptcy proceedings, it’s worth your effort to attempt
negotiating with your creditors to get out of debt.
Contact a Credit Counselor—Whether you go to a nonprofit or for-profit service,
credit counselors provide excellent answers to your “how can we get me out of
debt” questions. These trained professionals will assist you in navigating the
difficult terrain of debt recovery and will make it their goal to help you get
out of debt.
|
|
|
|
|
