Debt relief programs can range from bankruptcy assistance to credit counseling services, notes the California Department of Justice. Before filing bankruptcy or signing up for a debt management plan, Golden State residents should carefully evaluate all possible financial and emotional implications. Some types of debt relief, including bankruptcy, can damage credit ratings for seven to 10 years.
Debt Management Plans
Be careful before signing up for a debt management plan through a credit counseling agency, advises the California Department of Justice. Debt management plans typically enable consumers to repay their credit card debts at reduced interest rates, but some credit counseling agencies allegedly mishandle payments. Before working with any credit counselor, you should check their standing with the state's Office of the Attorney General.
Bankruptcy and Your Assets
Before filing bankruptcy, consider the fate of your assets. If you have lived in California for at least two years, you can keep some of your property under state asset exemption laws. As of 2011, the Golden State has two sets of asset exemption laws, notes Bankruptcy Action. Under the first system, you can retain up to $75,000 in personal property if you are single; the figure is $100,000 if you are married, elderly or disabled. The second system enables you to keep up to $20,275 of real estate equity and personal injury awards up to $20,275.
Chapter 7 Basics
Chapter 7 bankruptcy enables income-eligible Californians to permanently discharge their obligations to repay most pre-existing debts. As of 2011, single residents earning less than $48,009 automatically qualified to file Chapter 7, according to the U.S. Trustee Program. Two-member households could earn up to $62,970, while families of four could bring in up to $78,869. Families earning more money can only file Chapter 7 if they prove through a federally derived means testing formula that partially repaying creditors is an undue financial hardship.
Chapter 13 Basics
People who earned too much money to file Chapter 7 or simply wanted to partially repay their debts can file Chapter 13 bankruptcy. It takes three to five years to finish repaying a Chapter 13 plan. Debts such as child support, alimony, recent taxes, court fines and most federal student loans are ineligible for any type of bankruptcy relief. During a Chapter 13 plan, a California resident must ask a bankruptcy judge for permission before getting any new credit accounts.
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