- Managing Your
Debts: How to Regain Financial Health
-
- BY VISA U.S.A.
& THE CONSUMER FEDERATION OF AMERICA
Personal
Bankruptcy.
Bankruptcy
is a legal procedure which can give people who cannot pay their
bills a fresh start. A decision to file for bankruptcy is a serious
step. You should make it only if it is the best way to deal with
financial problems.
There are two
types of bankruptcy available to most individuals. Chapter 13
or "reorganization" allows debtors to keep property
which they might otherwise lose, such as a mortgaged house or
car.
Reorganizations
may allow debtors to pay off or cure a default over a period
of three to five years, rather than surrender property.
Chapter 7 or
"straight bankruptcy" involves liquidation of all assets
that are not exempt in your state. The exempt property may include
items such as work-related tools and basic household furnishings,
among others. Some of your property may be sold by a court-appointed
official or turned over to your creditors. You can file for Chapter
7 only once every six years.
Both types
of bankruptcy may get rid of unsecured debts (those where creditors
have no rights to specific property), and stop foreclosures,
repossessions, garnishments, utility shutoffs, and debt collection
activities. Both types also provide exemptions that permit most
individual debtors to keep most of their assets, though these
"exemption" amounts vary greatly from state to state.
Bankruptcy
cannot clean up a bad credit record and will be part of this
record for up to ten years. It can, for example, make it more
difficult to get a mortgage to buy a house. It usually does not
wipe out child support, alimony, fines, taxes, and some student
loan obligations. Also, unless under Chapter 13 you have an acceptable
plan to catch up on your debt, bankruptcy usually does not permit
you to keep property when the creditor has an unpaid mortgage
or lien on it.
Choosing
a bankruptcy lawyer may be difficult.
Some of the
least reputable lawyers make easy money by handling hundreds
of bankruptcy cases without adequately considering individual
needs.
Recommendations
from those you know and trust, and from employee assistance programs,
are most useful.
Some public-funded
legal services programs handle bankruptcy cases without charging
attorney fees. Or these programs may provide referrals to private
bankruptcy lawyers. Keep in mind that the fees of these attorneys
may vary widely.
POSSIBLE
PITFALLS
Credit counselors
who aren't helpful. Often for-profit or non-credentialed counseling
organizations make promises that they cannot or do not keep.
Be especially careful when asked for a large sum of money in
advance. To check the organization's reputation, contact your
state Attorney General, consumer protection agency, or Better
Business Bureau.
"Credit
repair" clinics and "credit doctors" have been
frequently criticized for promising that they can remove negative
information from your credit report. But accurate information
cannot be changed. If information is old or inaccurate, you can
contact a credit bureau yourself and ask that it be removed.
Risky refinancing
options. When already in financial trouble, second mortgages
greatly increase the risk that you may lose your home. Be wary
of any loan consolidations or other refinancing that actually
increase interest owed or require payments of points or large
fees.
A Final Word:
Don't lose
hope, even if you despair of ever recovering financially. You
can regain financial health if you act. Pursuing the options
presented in this article can put you on the road to financial
recovery.
_______________________________________
Author:
The following
organizations and individuals worked together in the preparation
of this article and endorse its content.
- American Association
of Retired Persons
- Consumer Action
- Consumer Federation
of America
- National Consumer
Law Center staffers
- National Foundation
for Consumer Credit
- U.S. Consumer
Information Center
- U.S. Office
of Consumer Affairs
- Visa U.S.A.
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