Americans overwhelmed by too much consumer debt can take advantage of several types of debt relief options. The first step to getting out of debt is admitting the problem and seeking some type of financial counseling for it. Drastic cases of debt may require formal legal intervention through the national bankruptcy system.
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Financial Counseling
Even if you feel hopeless about your financial situation and want to file bankruptcy, you still have to get credit counseling first, warns the book "How to File for Chapter 7 Bankruptcy." Financial counseling can help you prevent bankruptcy by rearranging your budget. Some credit counseling services also offer assistance with getting out of financial problems related to mortgages.
Debt Management Plans
Many credit counselors, including the Consumer Credit Counseling Service of Greater Dallas, offer debt management plans for eligible clients. A debt management plan allows consumers to partially repay their debts. The credit counselor renegotiates debts like credit card and medical bills with the lender. The client pays one monthly payment to the credit counseling service plus an administrative fee. The credit counselor then distributes the payment as agreed to creditors. But consumers cannot get new credit while repaying their obligations through a debt management plan.
Chapter 7 Bankruptcy
If you earn less than your state's annual median income level and cannot pay your bills, you can file for full bankruptcy under Chapter 7. As of 2011, the annual median income figure for a single Tennessee resident was $38,144, while a family of four in Michigan could earn up to $71,758, according to the U.S. Trustee Program. People who earn more money can only receive Chapter 7 debt relief if they prove through a means testing formula that they cannot partially repay creditors and support their families. Chapter 7 bankruptcy filings harm credit ratings for 10 years and do not cover every single debt.
Chapter 13 Bankruptcy
Chapter 13 allows a partial debt repayment plan, which usually takes three to five years to complete. No type of bankruptcy covers recent tax bills, future debts, child support, alimony, court fines or debts related to a crime, according to the book "How to File for Chapter 7 Bankruptcy." Unless you are seriously disabled or an unavoidable situation occurred such as your college going out of business, you cannot include federally-issued student loans in your bankruptcy case. A Chapter 13 case harms your credit ratings for seven years from the date of filing.
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