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Debt Relief or Bankruptcy? Doing It Yourself vs. Hiring A Professional

5 Debt Management PlanDebt is one undesirable asset that most of us would have earned during the course of life at different stages.

The wheel of life has its own twists and turns and would throw unexpected surprises before us that too at the most unexpected of times.

 

There are lots of people who find themselves crushed under the heavy burden of debts and find that all the way that leads them out are shut. This pathetic scenario may result due to various factors like sudden illness, unemployment or over exceeding your spending limit.

 

For all problems there ought to be a solution, similarly to get out of debts there is a lot of options and debt relief programs offered by various credit counselors and agencies dealing with these types of debt relief services.

 

Careful scrutiny has to be done while selecting such service providers and even more care has to be exercised while trying to resolve all these issues ourselves.

 

There is a lot of ads regarding debt relief programs going rounds, but most of the time it is disguised as bankruptcy filing services. Nevertheless bankruptcy also proves as a relief from financial problems, his should be last step to be taken to get relieved, since this might adversely impact your credit reports for the next 10 years.

 

What are the options to be considered to get relieved from Debt before going in for bankruptcy filing?

  1. Talk and discuss with your creditors about your situation and work out some option/repayment plan that would help you out from this crisis.
  2. In case you are not able to find solutions with your creditors directly, you may seek guidance and help from a credit counseling service. These credit counseling service acts as a mediator between you and the creditors and works out a repayment plan for you.You may then have to deposit the monthly payments with the credit counseling service, which will then be settled to the creditors by them on your behalf.

However these services often come with a cost attached for the service they render.

  1. The next possible option is to go in for a second mortgage or home equity line of credit. But keep this your last option since it may require your home as collateral.

 

If you do not get a solution to your debt problem even after trying out all possible options, then the last step would be to go in for filing a bankruptcy. Bankruptcy basically comes with two options, Chapter 13 and Chapter 7, which has to be legally filed in the federal bankruptcy court.

 

What does Chapter 13 allow you to do?

If you are a person having a stable and steady income, then Chapter 13 gives you the benefit to retain your property, such as a mortgaged house or car, which you might have lost. The court recommends and approves a repayment plan that will allows you pay off your debts during with your future incomes during the time span of three-to-five-year, instead of you surrendering any property. You might very well receive a discharge from your debts after completion of the payments under the specified repayment plan.

The time limit or the waiting period, for going in for a second filing under The Chapter 13 is far reduced to mere 2 years after receiving discharge from the first filing.

What does Chapter 7 allow you to do?

Chapter 7 is also known as the straight bankruptcy. Generally chapter 7 includes the selling of all assets that are not discharged/Exempt. Exempt property may be anything, which are not yet discharged from lien and includes property such as cars, professional instruments, and basic domestic furnishings. These properties might be sold or auctioned by an official appointed and authorized by the court or a trustee. At times these properties might also be handed over to your creditors.

 

The time limit or the waiting period, for going in for a second filing under The Chapter 7 is a whooping eight years after receiving a discharge in Chapter 7.

[PDF]chapter 7 petition package – United States Bankruptcy Court

 

The ultimate aim of both Chapter 13 and Chapter 7 of bankruptcy is get you relieved from major financial crunch and to get you rid of all possible types of debts. They also facilitateexemptions that permit you to retain particular assets; however the exemption amounts might vary from state to state.

If you have filed for personal bankruptcy, then you will not be exempted from child support, alimony, penalties and fines, taxes, and some student loan commitments. You should also be clear about the fact that unless and until you have a satisfactory and stable strategy to get discharged off your debts under Chapter 13, you will not be given the advantage of retaining certain properties that are exempt.

5 Debt SettlementPre-requisites before filing bankruptcy:

  1. The law demands that you should get a credit counseling from an organization that is authorized and approved by the federal government within 6 months prior to your bankruptcy filing.

The U.S. Trustee program is the organization affiliated to the U.S. Department of Justice that deals with cases relating to bankruptcy. This is the organization, which publishes a state-wise list of government-approved organizations to provide credit counseling.

  1. If you are filing a bankruptcy under chapter 7, then you are supposed to satisfy a “means test”. This is a test that requires you to assure that your income is well within the approved limits and does not exceed the limit at any time. This limit varies from state to state.

 

Debt- Relief and Bankruptcy services by Professionals:

If you have decided to hire a professional to deal with your financial crisis, then you are left with several professional debt-relief options to guide and help you lower or even totally make you debt-free in a steady and reasonable approach.

These professional services usually come with a price attached due to the fact that they are going to deal with real complex and delicate issues. It is also sure to comprise of a lot of documentary works that might sound Greek and Latin to us.

With little or no knowledge about the financial jargons and legal procedures, most of the debtors seek help from such financial professionals for various services.

Professional Debt Relief Programs comprises of various measures that are followed according to the level of financial struggle and scale of indebtedness of the individual.

 

  1. Debt Settlement
  2. Debt consolidation
  3. Debt management Plans
  4. Credit Counseling
  5. Bankruptcy

 

Debt Settlement:

Debt Settlement is also known as debt negotiation or debt resolution.  Debt settlement as the name conveys, settles your debt to your creditors and make you discharged of your liens.  Either you or a debt settlement company does this by finalizing a lump-sum settlement to your creditors and to get yourself relieved from your debts once for all.

 

Benefits of a Debt Settlement Company:

  • Professional Experience in handling crisis situations
  • Professional guidance and support in handling legal document works which could have been a nightmare to do it all alone.

 

Drawbacks of a Debt Settlement Company:

  • Finding an authentic and right company might prove to be a challenging task.
  • The service comes with a cost attached to it, which usually happens to be a percentage of the debts settled.

 

Debt Consolidation

Debt consolidation is the process of taking out a new loan, which is then used to consolidate and pay off all your previous debts. This consolidation process lowers the amount of interest you pay each month and makes it more easy and reasonable to manage your debts.

Benefits of a Debt Consolidation Company:

  • Authenticated Expertise and tremendous negotiating skills are the major benefits of going in for a debt consolidation company. The company reduces the monthly payments that you have to pay to the minimum possible amount. In most cases these companies are authorized with a certification to offer these consolidation services.
  • Experience again comes only with professional companies when compared to individuals dealing with these types of services.

Drawbacks of a Debt Consolidation Company:

  • The higher the level of experience and expertise, the higher will be the cost of services offered by the companies.
  • Finding a reliable and certified company again becomes a challenging task.

Debt management:

A Debt Management Program deals with all your unsecured debts, which comprises of your credit card bills, medical bills, student loansand unsecured lines of credit.

The main motive of this DMP is to minimize your monthly payments by getting an excuse to pay your interest rates, late fees or penalties from your creditors, which might bring down your total outstanding drastically. They also facilitate a repayment schedule to repay the full principal over a certain period of time.

5 BankruptcyBenefits of a DMP:

  • Expert guidance and organized planning makes the task of managing your debts a seemingly achievable task.
  • A DMP also keeps a constant track of your credit records and scores and helps you to build a good credit score as well.
  • It will also help you arrive at a reasonable and practically viable monthly budget.

Drawbacks of a Debt management Company:

  • This DMP usually calls for an enrollment and maintenance fee.

 

Credit Counseling:

Credit Counseling is a service that provides you with counseling about your financial aspects after carefully investigating your incomes and debts. It formulates an effective debt relief program that helps you to get discharged from your debts.

Also it becomes mandatory to receive the services from government approved Credit Counseling Service before filing for bankruptcy.

Benefits of Credit Counseling:

  • The Credit Counseling services are provided by many non-profit organizations and often come with no or very less cost attached to it.
  • Most of the Credit counselors are approved by the government which makes them more reliable,

Drawbacks of Credit Counseling:

  • With most of the credit counselors being government approved, there also are some who are not. So beware of choosing a reputed credit counselor.

Bankruptcy:

This is the last option to go in for to get rid of your financial crisis. This can be done through filing Chapter 13 or Chapter 7 under the federal bankruptcy court. This actually gives you a fresh lease of debt-free life.

Benefits of filing bankruptcy:

  • Professionally sound experts are better at dealing with legal documentations, which are really very huge in filing bankruptcy.
  • It protects you from harassment from creditors and collection companies.
  • It is a total government and legal process and trustees and government-approved people take care of all the procedures providing you with ease from hectic paper works.

Drawbacks of Filing Bankruptcy:

  • There are a lot of Attorney costs and legal costs attached.
  • Also this is going to have adverse affects on your credit scores and reports.

How to take debt-relief measures by ourselves?

As we have seen all the types of professional help provided by various companies, there are also individuals who think that these tasks can be done on their own. They also feel incurring extra costs by hiring professionals cannot be handled at this juncture of financial crunch.

The various ways by which you can perform some debt-relief measures by yourself are:

  • Keep a constant track of your spending and formulate a budget that reduces your monthly costs.
  • Also keep constant track of your credit reports and scores along with improving your DTI score.
  • You can go in for Budgeting software that helps you to formulate a reasonable and accurate budget for you.
  • You may try refinancing your mortgages to pay off all your existing mortgages.
  • Negotiate with your creditors and try to work out a viable monthly installment plan.

 

With all these and many more options provided to you to get you out of your financial crisis and help you lead you a debt-free life, it is up to you to choose the most suitable option that will suit you the best.

Always have in mind managing finances at an early stage will prevent you from falling into such traps. Formulate and lead your life in a financially healthy way. Also remember to keep filing bankruptcy your last option to get rid of your debts.

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