Filing bankruptcy is not fun! It is a last resort if you are interested in keeping an active and acceptable credit report. Bankruptcy is the condition of bringing all your assets and deficiencies into an insolvent state. It is a state of financial loss, where your debts are canceled and it will remain on you credit report for seven years. A creditor or mortgage company will generally not lend money with an active bankruptcy on your report.
A bankruptcy will pay your secured and unsecured debts; this includes credit cards, car payments, and other payments "on time". It will not pay off Federal or State loans, such as student loans or IRS debts. These will remain on your credit report. Because the bankruptcy is reported to the credit bureaus, any authorized business can see it. Seven years is a long time to be prohibited from making any major purchases on credit! So consider it carefully and try to avoid having to file bankruptcy..
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But, if you evaluate your situation and it does appear that you will need to file bankruptcy - DON'T FEEL GUILTY!
Never forget that bankruptcy is your right as an American citizen, and it may be something worth pursuing.
Chapter 7 and Chapter 13
Chapter 7 bankruptcies allow debtors to eliminate most of their unsecured debt while at the same time protecting their assets. Unsecured debt includes charge card obligations, car payments, signature loans and other similar items for which there is no "security".
A Chapter 13 is an arrangement in which the individual is required to repay debts over time. Under these laws, the majority of bankruptcy filings by individuals are Chapter 7 proceedings.
Try Everything before You File
Evaluate your financial situation. Find out where the debt is coming from and compare it to your present financial income. Put it all down on paper and then make an objective decision based on the results.
If you are having difficulty with charge cards, contact the charge card company to try to work out a solution. Every charge card company has a department dedicated to helping clients with their bills without ever having to file for bankruptcy.
Another option which may well help you is consolidating your debt through a debt consolidation loan and thereby reducing the total payments to a smaller monthly figure. Check the Internet for Credit Counseling Companies. These companies work to combine your debt and reduce the interest on your accounts. A small service fee is added for counseling fees and costs.
Filing for Bankruptcy
The first step to actual bankruptcy is to contact a competent bankruptcy lawyer to file the papers for you. There is really no other choice, unless you know the "language of law" and can file them yourself. Even then, it would be safer to have a lawyer managing the actual filing for you. Bankruptcy appears to be a simple task of liquidation, but if you do not know the rules, laws, terms and deadlines, you will create more unwanted chaos in your life and possibly end up spending more to get yourself out of a situation you could have avoided! In a worst case, your case could be declined after all your work.
If you decide to declare bankruptcy, look at this as a new financial beginning; with new spending habits, and new ways of paying your bills in a timely manner.
Don't stay stuck in your past habits. Create some new habits for a new and improved credit report! Patience is the key word. Your credit didn't go bad in a month, so you're not going to restore your credit in a month either.
If you do not change your bad spending habits, you will find that even after experiencing the trauma of bankruptcy, you end up once again in stressful financial situations. Since you can only file bankruptcy every 10 years, this time there will be no solution! Learning skills to avoid the same financial problems is very important. Budgeting your money is a good place to start.
Budget your Money to Avoid Repeating Financial Mistakes
Let's make restoring credit your new start! The single most important suggestion for restoring your credit history, and your quality of life, is to create a working budget for your household.
Stop that groaning! Budgets are simply a plan that shows the flow of incoming and out going finances in your household. They are realistic and balanced, and they are also flexible in case of unexpected expenditures that will never fail to show up.
Look at a budget as if it were an inventory of your finances. Most people think that they have to have a lot of money to make a budget - but a good budget is going to help you to get that money, and know where it is going! Whatever amount you have coming in can best be spent following a sound budget.
How to Create a Budget
1. Figure out in dollars, the money you expect to have coming in for the next 2 months. The easiest way to do this is to note everything that comes into the household from all sources.
2. Next figure out how you spend that money normally. Do you "scatter" your paycheck away, buying lots of smaller items - could be fast food spending, extras at the check out line, etc. Do you like the electronic or big-ticket items buying, forgetting all about the bills? If your budget is going to be realistic then you'll need to be honest and accurate when recording. You are by now becoming painfully aware of your spending habits concerning your money!
3. Now use the information that you gathered to form two columns. Title one, 'Income' and the other, 'Expenses'. The budget you are making will be for ONE month since that is the cycle for most bills such as housing, telephone, car payments and so forth.
4. List separately, in the appropriate column, the name of the expense.
5. Enter the dollar amount next to the appropriate item on the list for that specific expenditure.
Don't forget to add any goals you may have, such as saving 10%. This would be placed in the 'Expenses' column with an approximate dollar amount - let's say $40.00 a month.
Now comes the hard part! Chances are you found that you are trying to spend more than you have coming in! This is "upside down living"! This cannot happen! You cannot spend more than you make!!
Now you must sit down, with other household members, if applicable, and evaluate what you can live without, and how you can change some habits. Maybe cooking at home more than eating out would save your family money every week. Maybe cutting out the impulse buying, or the video games, or turning down the air conditioning - whatever it takes to make the Income column not exceed the Expenses column so you can begin new spending habits after your bankruptcy.
Restoring your credit is the long-term goal. This will take some control and restraint when something you think you REALLY want is right there - but hang on! Getting accustomed to a budget usually takes 3-4 months. Keep your eyes on your goal!
New Laws:
Legislation is being considered that may make it more difficult to obtain a Chapter 7 bankruptcy. If this occurs, someone filing for Chapter 7 bankruptcy will have to show proof that their income is under their State's median, or average, in order to be eligible. If their income is over, they would be required to file Chapter 13. Chapter 13 makes provisions for all debt to be repaid at agreed upon installments, instead of declaring a complete bankruptcy, or elimination of debts. If you must consider bankruptcy, be certain that you are aware of the ever-changing legislation controlling your specific situation.
Under the new proposed law, credit counseling will be required for anyone filing.
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