Monday, March 5, 2012, AM | Leave Comment
It’s hard to believe but in 2011 Americans carried over $2.5 trillion in consumer debt, according to the Federal Reserve. The debt includes auto and home loans, an exuberant amount in credit card debt and still more in student loans.
Recently, student loan has surpassed credit card debt.
In circumstances like these, many folks are on the edge of declaring bankruptcy, sometimes at no fault of their own but many others because of their non-stop shopping spree. They buy things without giving it second thought whether they can afford it or not.
If you have to declare bankruptcy…
There are three kinds of bankruptcy that are generally followed by consumers and small businesses:
Chapter 7 type of bankruptcy wipes out all of your debt. As you can imagine it also cleans you out of any credit standing you had. No financial institution is going to trust you “no more.”
It will take you many years to restore some credibility with creditors. You can do that only with your best behavior dealing with money. You must quit your reckless spending. In essence, this type is known as liquidation bankruptcy.
Chapter 13 type of bankruptcy enables you to work diligently to solve your debt problem. In most cases, the bankruptcy court will let you solve on some kind of achievable monthly remuneration for about 5 years until your debt is paid off.
Chapter 13 will affect your credit history and might lower your credit score but still it’s not as bad as Chapter 7. You just have to reorganize your priorities under the supervision of the federal bankruptcy court.
Chapter 11 type of bankruptcy deals with failure of businesses. It will let the business reorganize its operation.
Why you may want to declare bankruptcy…
Sometimes it so happens that your assets are worth less than the amount you owe. As a result, you are unable to pay off your debt and are unable to meet your debt obligations. In other words, your financial situation gets worse and worse and becomes insolvent.
Even at the edge of declaring bankruptcy, you still have many debt management options available. But none would work until and unless you come to the conclusion that some if not all your debt misery may be your own making. Bankruptcy perhaps is the best option known to mankind and you follow it to help you deal with your creditors.
However, bankruptcy either in your personal financial life or failure of your business has serious financial implications for the future. A bad credit rating and the possibility that you may lose valuable assets such as your house are two of the worst implications. You might want to seek the help of a debt specialist who will explain steps necessary for dealing with insolvency.
You might be able to avoid bankruptcy…
There are steps you can take yourself to lessen the burden of debt. First off, contact your creditors. Explain your financial situation and set up a repayment plan that takes your available funds into consideration. In the process, don’t hold anything back. The truth might set you free.
When you make some kind of arrangement with your creditors and you are able to follow it on a monthly repayment basis, get it in writing and signed by both parties. Both parties are then responsible to honor their side of the arrangement.
In a Nutshell
Americans are overwhelmed by consumer debt. Filing for bankruptcy – any type – should be your last resort. Change your mindset for the better and transform your reckless spending into saving to get rid of any debt that you may possess.