Avoid bankruptcy - 7 reasons and 5 ways to avoid filing bankruptcy
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Are you looking to file bankruptcy as a way out of debt? Do you know how it can affect your financial situation? Filing a bankruptcy when you're knee deep in debt can make things worse for you. Not only does it ruin your credit but you may lose your property as well. In this article, you'll find what bankruptcy is all about and why and how you should avoid bankruptcy.
What is bankruptcy?
Bankruptcy is a federal court process wherein a debtor gets the chance to eliminate or reorganize his debts through sale of assets or by following a repayment plan he can afford. Being a consumer, you can file either Chapter 7 or Chapter 13 personal bankruptcy depending upon your financial situation.
7 Reasons to avoid bankruptcy
Watch out for the 7 reasons to avoid filing bankruptcy.
- Your credit is badly hit: Chapter 7 bankruptcy filing does have a negative effect on your credit. It brings down your credit score by around 200-250 points. Moreover, the negative entry stays on your credit report for 7-10 years thereby making it difficult for you to qualify for new loans and credit for the next 3-4 years.
- You may lose your property: There are certain assets which cannot be protected under bankruptcy laws. You are likely to lose such assets if you cannot avoid personal bankruptcy. This is so because the assets are sold off (if you've filed Chapter 7 bankruptcy) to pay back your dues. So, unless you qualify for federal/state exemptions, you may even lose your home/car if you're not avoiding bankruptcy.
- Not all debts can be eliminated: It's a myth that Chapter 7 can help you get rid of all types of debts. However, this isn't true because you cannot wipe out back taxes, student loans and other unpaid dues simply by filing Chapter 7. Thus, it makes sense to avoid bankruptcy. What you can do is, negotiate a debt settlement or an alternative payment plan with your creditors.
- Creditors/lenders may repossess property: Even if you've filed bankruptcy, there's a chance that your creditors/lenders may repossess or foreclose property on which they hold a lien. This is because bankruptcy relieves you from the personal liability to repay debt. But unless you reaffirm and try to pay down the entire balance, creditors/lenders have the right to repossess or foreclose property as there's already a lien on it.
- Adverse effect on your finances: Bankruptcy has an adverse effect on your financial situation. For instance, you won't be able to buy or even rent a home/car. Filing bankruptcy can also influence the status of your security clearance. However, this will depend more upon whether you've filed bankruptcy on account of financial responsibility or due to an unexpected event.
- You may not qualify for new credit: Getting an approval for new loans/credit is tough after you've filed bankruptcy. It'll take at least 2-4 years in order to qualify for a secured loan (such as mortgage, car loan etc). Even unsecured loans are hardly available if you cannot avoid bankruptcy. However, you may qualify for a secured credit card. But you may have to pay higher fees when you apply for one.
- Not all retirement plans are protected: It's true that bankruptcy laws protect 401k retirement plans. The laws also protect $1 Million in your IRA account but any amount beyond the limit may be used to pay off your debts. So, if you wish to protect your retirement savings, find out how to avoid bankruptcy with any of the 5 alternatives given below.
5 ways to avoid bankruptcy
Check out the 5 alternatives that'll help you to avoid filing bankruptcy.
- Debt settlement: This can be an option for you especially when you cannot keep up with the minimum payments on your debts. A debt settlement (or debt reduction) program is where your creditors cut down your debt amount by 40-60% of what you owe.
What you need to do is, negotiate with creditors or collection agencies in order to reduce your debt amount. You can either take help of professional settlement services or settle debts on your own. Check out the details on how to settle your debts yourself and avoid bankruptcy as a way out of debt problems. - Debt consolidation program: If you wish to avoid bankruptcy and make monthly bill payments at reduced interest rates, then debt consolidation (or bill consolidation) program may be your right choice.
A debt consolidation program is where you get the chance to consolidate your bills into one easy monthly payment. Moreover, late fees and over-the-limit charges on credit card debt are also eliminated. Consolidation has a positive impact on your credit as it makes you pay your way out of debt. Thus, it makes sense to choose debt consolidation in order to avoid bankruptcy. - Debt management: It's an option where a credit counseling agency offers you a plan to keep you current on your bill payments and help you avoid bankruptcy. The purpose is to reduce interest rates and minimize or waive off interest charges incurred due to any late payment on your account. Thus, you can comfortably manage your bills and get debt free faster.
- Payday loan consolidation: If you're struggling with payday loans and wish to avoid bankruptcy, then payday loan consolidation is what you may choose. This is where you consolidate and replace multiple payday loans into an affordable monthly payment.
- Do it yourself plan: The Do it yourself (DIY) plan is where you try getting out of debt on your own without going for professional debt help services. To make your DIY plan effective, you need to negotiate with your creditors depending upon how much you can afford to pay. You'll have to plan a budget so as to manage your daily expenses in addition to paying off your dues.
If you're in trouble paying your bills, the best thing is to contact your creditor asap and work out a payment arrangement you can afford. It'll help you avoid bankruptcy and protect your credit in times of financial crisis. What's important is to analyze your financial situation and find an appropriate solution to your debt problems. If required, compare the consumer debt solutions in order to choose the best out of them.
Related Forum Discussions
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02-03-2008, 09:56 PM
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Join Date: Feb 2008
Posts: 6
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Sub:
Avoid bankruptcy - 7 reasons and 5 ways to avoid filing bankruptcy
Does anyone know the exact procedure for bankruptcy.thanks in advance.
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02-04-2008, 07:09 AM
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There are different types of bankruptcy, are you talking about complete liquidation? The first step is to see an Attorney for a consultation, usually most Attorney's offer a free initial consultation. With the new bankruptcy laws, you can then see if you qualify. I can tell you that there is a massive amount of paperwork involved.
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02-04-2008, 10:20 AM
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Bankruptcy procedure - do it yourself
My mom recently filed chapter 7 bankruptcy through a company called US Bankruptcy Centers (www. usbankruptcycenters.com). They ran her credit reports and prepared all the forms for her. All she had to do was sign the forms and send them to the bankruptcy court in Milwaukee. A few weeks later she met with a trustee that asked her a few questions. She had to provide some recent paystubs to the trustee to show her income. Then she got her final discharge in the mail. She didn't have to appear in court and she didn't need an attorney. The hardest part about filing bankruptcy is filling out all the forms (around 50+ pages) but the bankruptcy place did all that for less than 200 bucks.
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02-07-2008, 08:38 AM
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That's interesting, but I am sure there were some fees involved, how much did this end up costing her? Is this legit, for sure?
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CLICK HERE To join my Social group, The Payday-Loan-Free Advocates! Online Complaints Ohio Attorney General Online complaints: Federal Trade Commission. Ohio Payday Loan Laws CLICK HERE to find a Creditor
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02-07-2008, 08:46 AM
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Senior Member
Join Date: Jul 2007
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Erin, for 200 that is excellent. And yes it is legit if she already got her discharge papers from the court.
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02-07-2008, 09:03 AM
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I actually did a search about this company at the BBB and didn't find anything. It seems almost too good to be true, I am definitely going to explore this further. That would be a wonderful solution for people who are not able to afford all the Attorney fees!
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02-07-2008, 09:25 AM
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I could be wrong but I think it is too good to be true. At least here in Ohio you are required to go to court..............if they are legit, less than $200 is a heck of a deal though!
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02-07-2008, 09:53 AM
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I'm a little skeptical myself, but, I hope it's for real!
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05-27-2008, 02:57 PM
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That maybe less then $200 to do the papers - Which is about the same price as any online bankruptcy mill/preparer.
You still have to pay the filing fee of $300, and the counseling classes $100, so your total would still be at least $600. Also, you are not required to go to court for a chapter 7, you only have to go to the meeting of creditors, which is what the OP described above. __________________
How I make some extra cash I earn at least $20 extra every month doing offers. And you don't have to pay a cent.
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05-31-2008, 05:35 AM
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It definately seems a little shady. As far as I know you do have to pay filing fees but I guess those are actually atty fees which could be avoided if you filed your own bankruptcy. But what about the classes. According to the new bankruptcy laws I thought that the only way that you could file for a bankruptcy is if you agreed to take counseling classes.
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06-03-2008, 03:33 PM
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The filing fees are what you pay to the BK court to file the paperwork - Not avoidable.
The counseling classes cost $100 total - Not avoidable. At best, it would cost you $400 to file for Chapter 7, and that is doing everything yourself. Any cost would start with that and then add on what you are paying someone else to do it. __________________
How I make some extra cash I earn at least $20 extra every month doing offers. And you don't have to pay a cent.
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06-03-2008, 09:57 PM
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 Moderator Join Date: May 2008
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Dear Garogarov,
I am giving the steps involved in filing chapter 7 bankruptcy: - 1. List the details (Name, Address, Debt amount) of all your lenders 2. Make a list of your properties 3. Take a detailed note of your monthly expenses required for your living 4. Now, fill up the bankruptcy form and submit it in your nearest court 5. After this the court will issue an “automatic stay†order on your accounts. This will bar your creditors from contacting you for debt recovery. In addition, they will also be restricted from filing any lawsuit against you or ask for wage garnishment. 6. 20 to 40 days after your petition filing you have to appear for 341 meeting which usually continues for 15 to 20 mins. In this meeting you have to sit in front of your creditors and explain your inability to payoff their debts. After hearing your point they will, for the last time, insist you to make 50% of their payment. If you are still unable to do that, then your creditors will cease from contacting you further. 7. Your petition will be accepted by the court and the trustees will liquidate your non-exempt assets. 8. Court will accept your discharge (generally takes 2-3 months) by sending an official mail of discharge notice. 9. Discharge notice will officially release you from paying off your past debts and thus restrict your lenders in taking any legal action against you or your property. The costs involved in it include: - • Fee for filing bankruptcy • Surcharge for trustees • Miscellaneous fees The total costing of all the above mentioned fees comes round to $200. The payment of this sum can be made within a time frame of 4 months. But it is always advisable to try and avoid bankruptcy because it will cause mayhem to your credit score and will remain in your credit report for 10 long years, though its intensity decreases with the passage of time. So, before filing for bankruptcy, you should consult a debt counselor for avoiding negative consequences. You can also get a Free Counseling from one of the expert debt counselors of our community through the link: - http://www.debtconsolidationcare.com/debt-solution.html . Regards, Phoenix
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06-04-2008, 04:22 AM
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hi garogarov,
Though you have already received some good advices from the other members of the site, I'm only trying to push my two penny worth of knowledge forward. Its important that you decide first that whether you should file ch-13 or ch-7. Chapter 13 helps you to set-up a repayment plan with your creditors and can help you in protecting some of your assets, while ch-7 is more severe in nature. Hence, you need to decide first which way to choose. If you have a regular income and have assets to protect, I'd rather request to look into the possibility of filing ch-13 instead of ch-7. And as Phoenix has suggested, try to avoid bankruptcy altogether if you can.
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06-04-2008, 07:47 AM
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Phoenix - I think you are thinking of pre 2005 - With the new laws all BK's are federal and there are some very stict laws in place.
The filing fee is $300 - That is for Chapter 7. The counseling costs $100 That is $400 total, that is the least you could possibly pay to file for Chapter 7 bk. I don't know where you got the $200 total fee, but that is very old information. Also, the paperwork to file for BK has increased since pre 2005, and there are pages and pages of papers to fill out. You make it sound very easy, but it is not as simple as listing your creditors and properties and filling out a form. It's actually now a very complicated process. __________________
How I make some extra cash I earn at least $20 extra every month doing offers. And you don't have to pay a cent.
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06-04-2008, 08:06 AM
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exactly goudah,that prevented me from filing.the bankruptcy laws have changed.i filled out about 10 pages at least of info.the fees are right too,plus you have to get a paper stating you went to a debt class,seminar i can't recall what it was,but you had to complete it before the debt test was given to make sure which bk you qualified for.things have changed from when my brother filed 10 yrs ago.
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