How to Legally Get Out of Debt

A number of people have an excessive amount of consumer debt, including credit cards, lines of credit, automobile loans, home equity loans and mortgages. Having too much debt can be painful and create a life of stress and anxiety. You can, however, get out of debt legally and start all over again with a clean slate. There are several methods you can use---some are faster, more efficient and more effective than others. When you're faced with several debt-reduction plans, choose the one that best helps you achieve your goals and objectives.

Instructions

1

Contact a bankruptcy attorney and file a chapter 7 bankruptcy. Once you've filed, your attorney will let you know which personal items and property are exempt and don't have to be included in the bankruptcy. All of your unsecured debt will be wiped out. If you have any debts that are secured, such as an automobile or a home, a bankruptcy will not erase the liens. You can still get out of this debt by surrendering the property to the auto lender and the mortgage company. They'll sell the items and apply the proceeds to your debt. Any balance remaining will be discharged through the bankruptcy court and you won't be responsible for paying it. This will complete the process.

2

Make a note of those items that can't be discharged through bankruptcy such as taxes, child support, alimony, loans obtained through fraudulent measures, condominium and association fees, tax liens, debts incurred due to malicious injury, student loans, fines and penalties owed to government entities, and debts and judgments you incurred while driving a motor vehicle or aircraft while you were under the influence of drugs or alcohol. Check with your attorney for a full list.

3

Settle your debts (you may be able to settle your debts with your creditors). If you can arrange to settle for 20 to 40 percent of the balance, this will help you get out of debt very quickly. Be aware, however, that debt settlements can remain on your credit file for seven years and negatively affect your credit score.

4

Don't pay your debts. This measure is extreme because of its consequences. First, your credit will be ruined and it will be difficult to purchase an auto, another home or any other credit-based products. You may find that some creditors will start legal action and seek a judgment. Once a judgment is obtained, a creditor can garnish your wages, levy your bank account, and, in some cases, file a lien on your property. On the other hand, if you have no assets, no money, no home, car and no banking account, creditors won't be able to get anything from you.

5

Wait for the statute of limitations to pass. Each state has a different time frame for statute of limitations. Once the statute of limitations has passed, a creditor can still attempt to take you to court, but if you show up for court and show proof that the statute of limitations has passed, the creditor cannot win a judgment against you (the court will not rule in the creditor's favor). If you miss the court date, the creditor will win a default judgment even though the statute of limitations has passed (the creditor can send letters and make phone calls to you). If the seven-year time frame has not passed, this debt will still appear on your credit report.