Reasons Why You Need To Avoid Bankruptcy

Bankruptcy, although it is a legal and effective way to get out of debt, should always be your last option. It will leave your finances with so much credit damage that it is sometimes not worth it - especially when you have another option that can help with your credit situation.

There are many reasons why you need to avoid bankruptcy even if you have the debt relief qualifications to file a petition. Here are some of them.

• It can ruin your credit score. First and probably the most important reasons to stay out of this debt solution is the fact that it can lower your credit score by an average of 200 points. It will be really bad for the next couple of months. While you can improve your credit ranking slowly but surely, the taint of bankruptcy will stay with you for the next 7 to 10 years. That can keep you from some important financial opportunities in the future.
• It will be difficult to get credit approval. When you file for bankruptcy, lenders will stay away from you - at least for the next two years. If you need to get a personal loan to help with an emergency situation, you will find a hard time to find someone to lend you money. Bankruptcy tells them that you are not responsible with your money. Even if you filed because of a sickness or something that was beyond your control, financial irresponsibility will be the first thing they will associate with this credit record.
• It will be in the public records. The thing about bankruptcy is it will be placed in the public records. Anyone can learn about this embarrassing financial situation in your life. This is one debt solution that will be very difficult to keep from the people around you.
• It can cost you every asset that you have acquired. If you file for bankruptcy and you are qualified for Chapter 7, your assets will be liquidated. That means, they will be taken from you, sold and the proceeds with go to your creditors. While you will not pay them anything because what is not paid with your assets will be discharged, you will have nothing left to your name.
• It can still make you go through a repayment plan. Another reason why you want to avoid bankruptcy is because if you end up with a Chapter 13 filing, you will still go through a repayment plan. You will be left with a ruined credit score, have a hard time getting financial aid and will have it displayed in public records, and still pay your creditors a portion of your debt.

If you want to avoid bankruptcy, you have the option to go for debt settlement - especially when you think that you will be qualified to file for Chapter 13. Settling your debt will result in debt reduction - at least, if you do it correctly. Find out about your options before you finalize your decision to declare yourself bankrupt. You might find it to be more fulfilling to get out of debt without ruining your credit too much.

Signs That Chapter 7 Bankruptcy Is The Right Debt Relief

When you are thinking about getting out of debt, one of the first things that may come to mind is to file for bankruptcy. This is the hands down, the fastest and easiest way to get rid of your credit obligations. However, it is also the one that leaves so much mess that if could take a decade to completely remove the stain on your credit report.

In the past, bankruptcy meant liquidating your assets, distributing the proceeds to your different creditors and being free of debt in a matter of months. While that is still true, this is only applicable to Chapter 7. A means test was put into place to separate those who has a salary that is within or higher than the average median income of the State where they chose to file bankruptcy. If they have a high salary, they will be asked to file for a Chapter 13 bankruptcy which usually involves a repayment plan that is similar to debt settlement. You are tasked by the court to pay a percentage of your debt and once you have completed the payment, the rest of what you owe will be forgiven.

Between the two options, Chapter 7 seems like the better choice. If you have to deal with the dreaded stain on bankruptcy, then you may want to stay away from the one that requires you to shell out an amount via the repayment plan. You want to be free from your debt with the least amount of money spent on payments.

However, you need to consider first if it is really the only option that you have. There are bankruptcy alternatives that does not have the same credit damaging effects but can still help you get out of debt easily.

To help you decide, here are the signs that Chapter 7 is the best alternative.

First of all, you should have a very small income. If you want to enjoy the no debt payment benefit of Chapter 7, then you need to have no or very little income every month. If your salary is within the median range, then you may be subjected to the payment plan. If that is the case, you may be better off with debt settlement.

Another sign to proceed with bankruptcy is when you do not have assets to liquidate. Unless it is okay with you to lose the expensive assets that you have, you may be better off to aim for debt settlement or even Chapter 13 bankruptcy. Because of the repayment plan, Chapter 13 does not require asset liquidation.

Chapter 7 is also great for unsecured debts. These could be medical bills, personal loans and credit card debt. It cannot cover student loans, tax related debts and child support.

Ideally, a bankruptcy lawyer should be consulted to see if this is really the right path for you to get rid of your debts. The main basis is your finances - especially your debt payment capabilities. Listen to the expert and trust your gut instinct. More importantly, you have to make the commitment to finish your chosen debt relief program.

Difference Between Bankruptcy and Debt Settlement

If you are looking for a debt relief program that will provide the most reduction on your debt, your options include debt settlement and bankruptcy. Both of them are effective in their own right. The thing about any type of debt relief program is you have to know our financial capabilities first before you opt for any of them. Believe it or not, there is a program for your unique situation.

Assuming that you want most of your debt forgiven, let us analyze bankruptcy and debt settlement so you can determine which one is best for your specific debt condition.

Bankruptcy is something that you file in a bankruptcy court. When your expenses is bigger than your income and you have nothing to pay for your debts, then this is an option that you can take. It used to be just Chapter 7 - wherein your debts are discharged after qualified assets are liquidated. Now, Chapter 13 is what scares a lot of debtors because it involves a repayment plan that the court will impose and make sure that you comply.

These two options implies that you can’t just file for bankruptcy now. You need to be eligible for it. The means test will help the courts determine which chapter you fall into. If your income is not lower than the median salary of the state where you filed, you will automatically be considered for Chapter 13 bankruptcy. But if you are proven to have lower financial capabilities and a salary that is below the median range of the state, then you may be eligible for Chapter 7.

Chapter 13 is the reason why debt settlement became a better option for some people. It may involve a higher repayment plan but the credit score effects will not be as severe.

Both of them will have drastic effects on your credit score but bankruptcy will give the most damage. The minimum effect of bankruptcy is estimated at 200 to 250. So if your score started at 600, that can go down immediately to 350. In debt settlement, it can be as low as 50 points.

Debt settlement involves a process wherein the debtor will negotiate with the creditor for a lower payment plan. It is usually a lower amount than the outstanding balance. The idea is, when you have paid for the agreed settlement amount, the rest of your debt will be forgiven.

Ultimately, you will know the right option if you know how much you are capable of paying for. If you wish to pursue bankruptcy, make sure you are ready for the repayment plan that may be imposed on you based on the requirements of Chapter 13.

If not, know that debt settlement can effectively get you out of debt. Whether you decide to work with a professional or not, National Debt Relief can assist you with any questions that you may have about this type of debt relief. Know if debt settlement is the answer to your credit problems here: http://www.nationaldebtrelief.com/debtsettlement/.