Filing Bankruptcy - A Personal Financial Solution To Digging|
by Philippa Munster
Which way are your finances leading you? Do you direct your
financial picture or are your debts telling you how to spend
your money? Debt has a funny way of piling up so high that
sometimes you're forced to stop and ask how the situation
got so out of control. While sometimes you can point the
finger at yourself, other times the guilty source is out of
your control. At this point, filing bankruptcy seems a lot
better solution than remaining at the bottom of the pit.
Bankruptcy is a way to clear away uncontrolled debts. Each
state has its own interpretation of bankruptcy laws and
Chapters. Some state laws let you keep your belongings
while others take over ownership of everything. According
to nearly every state, the minimum time that bankruptcy must
remain on credit history is seven years. You have no choice
but to have this on your credit report during this time.
Most lenders will not consider offering you a loan until
three years after the bankruptcy verdict.
The laws surrounding filing bankruptcy are very complex.
Bankruptcy comes in various forms and follows the laws set
in chapters. Most personal bankruptcy is handled under
Chapter 7, which discharges or cancels all debts. However,
the larger debts such as a home loan must be paid with
personal collateral or returned to the creditor. In Chapter
13, you consolidate your debts and make one payment to the
court for a set amount of time such as 3 to 5 years. Most
people who file Chapter 13 retain their property but must
prove that their monthly income exceeds their monthly living
expenses. The other common types of bankruptcy - Chapter 11
and 12 - are reserved for corporations and businesses that
are closing or reorganizing.
If clearing your debts sounds like such a great way to get
rid of expenses, why don~t more people do it? Simply put,
it ruins your credit. Bad credit is a curse that follows
you for a long period of time. Every time you file for
another loan, this plague sits on your credit report waiting
to explode like a fireball and destroying any hopes for a
loan with great terms. In fact, while many creditors say
they~ll help you qualify for a loan even though you have bad
credit, these creditors are really saying, "Hey, I~ll give
you a loan but you have to pay the highest premiums, over
inflated interest rates, and you may even have to take out a
second mortgage to pay our additional fees!" As sweet as
that might sound, you~d probably be better off passing on
those "too good to be true deals" and waiting a few years
until your credit history clears or another lender a few
years down the road doesn~t find you as big of a risk.
Carefully go over any offer to consolidate your loans and
debts. While these offers sometimes combine your troubles
into one big sum, you should review how your debts would be
paid off. The FTC (Federal Trade Commission) contains
numerous reports online about scam debt-counseling services
that do little more than make your situation worse. Some
counseling firms, however, are much better than filing
Chapter 13. The American Bankruptcy Institute at
http://www.abiworld.org has great reports and reliable
information to help you side step and handle bankruptcy
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