Bankruptcy is the most effective government program for reducing credit card debt. It is also the worst possible program for your credit rating. Bankruptcy is listed on credit reports for 10 years, making it tough to qualify for new credit at competitive rates for at least a few years after bankruptcy. Also, bankruptcy listings are available for anyone to view in public records, and potential employers may see the listing during standard background and credit checks. The government offers other assistance through government-certified credit counselors.
Bailouts
As of 2011 the government does not offer bailout programs for consumer credit card debt. There are no credit card debt forgiveness laws, grants, tax breaks or taxpayer-paid debt consolidation loans. The government insists that people handle credit card debt on their own or choose bankruptcy as an option of last resort.
Chapter 7 Bankruptcy
Chapter 7 Bankruptcy requires a $299 filing fee as of 2011, and people who cannot afford the cost can request a waiver. It is also possible to file without an attorney, making the process free for some. Chapter 7 is arguably the most effective bankruptcy program for eliminating credit card debt. It completely wipes out credit card debt in only a few months. Chapter 7 liquidates assets to pay creditors, but many people keep all of their assets because of exemptions. Exemptions prevent the liquidation of certain assets such as cars below a certain value or a primary residence. Not everyone qualifies for Chapter 7 because of low income limits that are set by the individual states.
Chapter 13 Bankruptcy
Chapter 13 does not have income limits but requires a payment plan of three to five years. BCS Alliance reports that people should choose Chapter 7 instead of Chapter 13, if at all possible. Chapter 13 is tough because of the lengthy process. The bankruptcy court completely controls the participant's finances during the three to five years, with a goal of steering as much money as possible to creditors during the period. That makes it tough for participants to afford simple expenses such as vacations -- or even to pay for emergencies. However, Chapter 13 does reduce credit card debt. The bankruptcy court eliminates any credit card debt remaining at the end of the three to five years.
Debt Settlement
The government is not directly involved in debt settlement but recommends it as an alternative to bankruptcy. Government-approved credit counselors, such as those affiliated with Consumer Credit Counseling Service, teach people how to negotiate credit card payoffs for around half the balance and sometimes less. People can find nonprofit credit counselors in their area by contacting a charitable agency such as the the Salvation Army or a local chapter of The National Urban League.
Debt Management Plans
Counselors also offer fee-based, debt management plans. The plans are somewhat similar to Chapter 13 bankruptcy programs, with the counseling agency paying all unsecured debt for the participant. The participant makes a lump-sum payment to the agency each month along with a management fee. The agency then makes direct payments to credit card companies and others, and also negotiates regularly with the companies for lower monthly payments, lower interest rates and a reversal of some finances charges. The programs typically require a four-year commitment and focus on eliminating all or most unsecured debt during the period.
0 comments:
Post a Comment