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Alternatives to Bankruptcy
Tuesday, 03 August 2010 03:00
With the downturn of our economy, many Americans are finding themselves in a constant battle with a never-ending mound of debt. Pay cuts, reduced hours, lay-offs, medical bills these are just a few reasons why many Americans have turned to rely on credit cards to make ends meet.Drowning in a pool of late payments, increasing interest rates, penalty fees, and increasing balances, many consumers begin to consider drastic solutions like filing for bankruptcy.
However, filing for bankruptcy can be an emotionally tolling process and is often considered the option of last resort, thus an alternative to bankruptcy should be explored before choosing to file for bankruptcy.
There are two kinds of bankruptcy that are available for consumers to file for: Chapter 7 and Chapter 13. Chapter 7 bankruptcy protection eliminates an individual’s debt completely, although it is difficult to qualify for and can require a consumer to divest some or all of their assets to pay off creditors. Chapter 13 bankruptcy requires an individual to pay back a percentage of their debts, typically over a 3 or 5 year repayment plan, and a trustee distributes those payments back to the individuals creditors. Both of these bankruptcy types can seriously impair an individual’s credit score and credit profile, and make it extremely challenging for an individual to secure any kind of favorable loan for years.
But what some consumers may not know is that there are alternatives to bankruptcy. One of the most common is debt settlement, also known as debt negotiation. Debt settlement will not only get consumers out of debt quickly, but it can reduce balances by as much as 40 to 60 percent within an average time frame of 24 – 36 months. Consumers in debt might seek out a debt settlement or debt negotiation company that will work with their creditors to structure settlements at a reduced balance. While creditors may not normally consider settling if a consumer inquired directly, debt negotiation firms have relationships with the lenders to help structure these reduced settlements.
Another alternative to bankruptcy is debt consolidation. Under this method, a lender will issue a new loan that pays off all the consumer’s individual debts. This process is effective because while it doesn't reduce the debt, it consolidates the number of payments a consumer has to make per month to just one, and typically carries a much lower interest rate than credit cards or other types of debt. One drawback of this solution is that these loans are often difficult to qualify for due to a high credit score requirement.
Although having the security of credit to fall back on in dire times can be helpful, it can also be detrimental when consumers use the credit to spend more money than they can afford. With interest added onto the increasing balances every month, many consumers end up barely having enough to make minimum payments each month, thus leading them to consider bankruptcy as solution to get out of debt. But an alternative to bankruptcy is usually attainable as long as the consumer does their homework to choose a good company to work with and stays committed to the program.
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About Debtmerica
Debtmerica is a leading debt settlement company that offers assistance to individuals and families who are experiencing financial difficulties and hardship.
We offer debt resolution programs that specialize in negotiated debt settlement that assists clients by reducing debt balances while providing an affordable monthly payment.
Our professional and knowledgeable staff has helped thousands of consumers get back on their feet financially.
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Debtmerica has had one vision since inception - to help Americans nationwide attain financial independence. At Debtmerica, we're proud of our achievements and honors. They represent our commitment to our vision and clients. |
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Top Articles to Help You Lead A Debt-Free Life
- Debt Consolidation: “Debt Consolidation” is one of the most commonly misunderstood and misinterpreted personal finance strategies that consumers inquire about all the time. While some view it as a method of taking on new loans, others see it as a debt relief alternative. It is more important than ever for inquisitive consumers to have a very strong understanding of exactly what debt consolidation entails, and the impacts it can have on personal finances.
- Debt Relief: Debt relief is defined as a partial or total forgiveness of debt. When the term is used by the government, it usually refers to the forgiveness of debt to underdeveloped countries. Recently, it has begun to refer to the millions of consumers who are overwhelmed with debt seeking financial relief from their unsecured debt.
- Credit Card Debt: Credit card debt is an example of unsecured consumer debt, accessed through credit cards. Debt results when a client of a credit card company purchases an item or service through the card system. Debt accumulates and increases via interest and penalties when the consumer does not pay the company for the money he or she has spent.
- Debt Settlement: Debt settlement programs use a third party to negotiate lower balances and interest rates on unsecured debt. This type of debt management plan helps provide consumers an alternative to bankruptcy while reducing your outstanding debt.
- Credit Counseling: There are a numerous options for consumers who want to start getting their finances under control after accumulating large amounts of debt, which could inevitably lead to credit problems further down the road. Consumers who are in control of most aspects of their finances, but still feel like they could use additional help managing their debt burden, could certainly benefit from the assistance of a consumer credit counseling service.
- How Do I Get Out of Debt?: Now that the national economy is beginning to recover and people are having a better time dealing with their personal finances, many consumers who found themselves sunk deep in debt over the last few years may be asking themselves the question, “How do I get out of debt?” Fortunately, there are a number of avenues consumers can take to get out of debt, each with benefits and drawbacks depending on how quickly people need to fix their financial problems.
- 10 Tips to Avoid the Debt Trap: Have you ever thought about why so many of the people you know are struggling with debt? Do you ever wonder why banks keep lending to certain individuals, even when they are falling behind on their payments? Did you know that debt problems are a leading cause of major societal problems, such as stress, divorce and alcoholism?
- Credit Management: Many consumers are finding themselves buried under a pile of mounting debt. With interest accumulating month after month in addition to late fees being charged, many consumers are finding it difficult to make just the minimum payments on their credit cards. Although this may seem like an endless battle, with a strict budget and some discipline there are credit management strategies and solutions that will allow consumers to reduce or even eliminate their debt.
- Credit Card Debt Reduction: In recent months, many Americans have made a greater effort to seek credit card debt reduction and reduce the balances they owe, but some may not know where to start. Fortunately, there are several options available for consumers thathave a financial goal to achieve credit card debt reduction.
- Credit problems: Paying down high levels of debt is one of the best ways to improve credit problems and increase one’s credit standing. But many people cannot do that so quickly, especially in this economy. About one-third of a credit score is based off of a credit utilization ratio, which is the total creditbalances divided by the total credit limits. A great target is to use no more than 30% of one’s available credit.
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