Debt Consolidation
You may be able to lower your cost of credit by consolidating your debt through a second mortgage, home equity line of credit, or personal loan if your credit score is above average (650+). Remember that these loans require you to put up your home as collateral or you must have a excellent credit history.
If you can’t make the payments — or if your payments are late — you could lose your home. These loans may provide certain tax advantages that are not available with other kinds of credit and could be the best debt elimination service available.
Debt Settlement
Debt settlement differs greatly from credit counseling and Debt Management Plans (DMP) and is the best of all debt elimination services available to avoid bankruptcy. It is best to have a licensed and experienced debt settlement attorney handle the debt settlement negotiation with your creditors to avoid any problems. Also, you can convert the debt settlement process to a personal bankruptcy if necessary.
Bankruptcy
Personal bankruptcy generally is considered the debt elimination service of last resort because the results are long-lasting and far reaching. People who follow the bankruptcy rules receive a discharge — a court order that says they don’t have to repay certain debts.
However, bankruptcy information (both the date of your filing and the later date of discharge) stay on your credit report for 10 years, and can make it difficult to obtain credit, buy a home, get life insurance, or sometimes get a job. Still, bankruptcy is a debt elimination service that offers a fresh start for people who have gotten into financial difficulty and can’t satisfy their debts.
There are two primary types of personal bankruptcy: Chapter 13 and Chapter 7. Each must be filed in federal bankruptcy court. As of April 2006, the filing fees run about $274 for Chapter 13 and $299 for Chapter 7. Attorney fees are additional and can vary.
Chapter 7 is known as straight bankruptcy, and involves liquidation of all assets that are not exempt. Exempt property may include automobiles, work-related tools, and basic household furnishings. Some of your property may be sold by a court-appointed official — a trustee — or turned over to your creditors.
The new bankruptcy laws have changed the time period during which you can receive a discharge through Chapter 7. You now must wait 8 years after receiving a discharge in Chapter 7 before you can file again under that chapter. The Chapter 13 waiting period is much shorter and can be as little as two years between filings.
Both types of bankruptcy may get rid of unsecured debts and stop foreclosures, repossessions, garnishments and utility shut-offs, and debt collection activities. Both also provide exemptions that allow people to keep certain assets, although exemption amounts vary by state.
Note that personal bankruptcy usually does not erase child support, alimony, fines, taxes, and some student loan obligations. And, unless you have an acceptable plan to catch up on your debt under Chapter 13, bankruptcy usually does not allow you to keep property when your creditor has an unpaid mortgage or security lien on it.
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