Being in debt is a scary experience. When you are faced with financial problems you feel fear, shame, embarrassment, depressed, etc. However it is during these dark hours that you really need to do your homework before you leap toward drastic solutions like bankruptcy as the best solution to your problems.
While bankruptcy is a legal tool and solution you can use to rid yourself of problem debt, there are consequences. If you go bankrupt and have assets like extra cash in the bank, investments, expensive collections, a home with equity, or something else of value, you could loose those things when you go bankrupt.
Basically bankruptcy works like this. When you go bankrupt you are telling the world that you are insolvent, unable to meet your obligations and pay your bills. Any assets you have will need to be disclosed and turned over for the court to dispose of in an effort to generate cash to repay your creditors.
Mistakenly, most people suffering through those the difficult emotions associated with their money troubles fail to actively seek out good advice and possible solutions until the last minute. By that time the number of good options and solutions that people can use to avoid bankruptcy are severely limited.
If you are hesitant to talk to friends or people that you know to openly discuss the extent of your debt situation, then the best advice would be for you to discuss your situation with at least a bankruptcy attorney, credit counseling organization, debt settlement company, lender, etc.
Here is some advice about what to look for when you are evaluating service providers.
Bankruptcy Professional – Bankruptcy is typically an administrative process, more science than art. There are thousands of pages of guidance written that helps to define how 95% of bankruptcy cases should be handled. When trying to decide which bankruptcy professional to use the best screening tool is to evaluate the quality of your relationship with the office.
If you feel that the staff in that bankruptcy office is willing to spend time answering your questions, treats you with care and does not make you feel like a widget being pushed through a bankruptcy factory, this might be the best office for you.
Consumer Credit Counseling Office – Almost most every single office that offers a debt management plan (DMP) to repay your debt is compensated by the creditors based on how much money they collect from you. The danger today is that a credit counselor does not negotiate with your creditors. Credit counselors are told what the formulas are to calculate your payment in a DMP.
Based on the individual creditor criteria your total monthly payment can be the same or higher than it is now, even though the creditor has reduced or waived the interest and fees they are charging you. Credit counseling can also leave a negative mark on your credit report.
Despite all this negative information about credit counseling debt management programs they can serve a useful purpose as a temporary fix which you seek out a more permanent solution.
Debt Settlement – Companies have appeared in different places that promise to eliminate your debt for only a fraction of what you owe by negotiating with your creditors. If you currently have good credit this might not be a good solution for you since a settled debt on your credit report often is a negative mark.
Typically a debt of 10,000 that is settled for 6,000 will show the remaining 4,000 as a write off or loss to the creditor. Additionally, people that do not have the funds at hand right now to settle their debt can only really accumulate the money by not paying their creditors. This typically accelerates the collection process and pressure on you while you are not paying.
Getting a Loan – If you don’t have any collateral or assets you can pledge to secure a loan you will find it difficult or impossible to find a lender. You may also be more likely to be a victim of a loan scam. Some nasty people charge consumers advanced fees for unsecured loans and then never get them the loan. If you do have a house that has equity that you can borrow against you might be able to reduce or eliminate you debt but you have to be very carefully.
It is also quite easy to get yourself overextended and lose the house through foreclosure or repossession if you can’t make the new payments. Don’t rely on the lender to determine if you can afford the new loan payment in addition to your other financial obligations. Lenders do not approve loans because it is a good move for the customer.
Lenders approve loans to make money. If they can originate a loan from you and sell it for a commission, they will. Many people have found themselves overextended and in worse shape by trying to borrow their way out of debt.
Rather than leap at the first possible solution that appears, the best solution is to investigate each option as early as possible and at the end of your investigative period you can then make a rational and informed decision about to best tackle the problem debt.
If you use this approach, you will also then have a good idea on how to best prioritize the other solutions so in case your first choice does not work out you are not left stranded.
There is no perfect or single solution for every debt crisis but by doing your homework and getting as much information as necessary, you’ll be able to make the best choice possible for you.
Steve Rhode
http://www.articlesbase.com/non-fiction-articles/common-mistakes-debtors-make-when-they-have-money-troubles-118929.html
