The Federal Trade Commission and other government agencies recognize problems created by excessive personal debt. Credit card debt and other credit obligations sometimes lead to poor credit scores and high interest rates on loans, making it tougher for people to afford needed goods and services. There are some government-sponsored programs to help with credit debt, but no direct cash handouts are available. As of 2011, the government does not offer grants, tax-free loans or bailouts for personal debt.
Chapter 7 Bankruptcy
Bankruptcy is an effective government program for resolving debts. Chapter 7 bankruptcy wipes out all credit card debt and other secured debt within three or four months. Non-exempt assets are sold during Chapter 7 to pay debts. Luxury boats and expensive jewelry are examples of non-exempt debts. Most people in Chapter 7 keep their primary residence and cards below a certain value. It's possible to not lose any assets at all in Chapter 7. The bank trustee pays as many creditors as possible after liquidation with any remaining debt discharged, or eliminated. With the help of an attorney, Chapter 7 bankruptcy is an easy process to navigate, and it offers a streamlined application process for people needing a same-day emergency filing because of bank or wage garnishment stemming from unpaid debts. The disadvantage of Chapter 7 is its income limits: The limits are set by individual states, and generally only people with low incomes qualify.
Chapter 13 Bankruptcy
The government offers Chapter 13 bankruptcy for those who cannot qualify for Chapter 7. Chapter 13 does not have income limits but does require a payment plan lasting three to five years. The court establishes a strict budget for Chapter 13 participants, with allowances for reasonable living expenses and payments on secured debts such as cars and mortgages. Money remaining is considered disposable income and is paid into a court-ordered payment plan. Unsecured creditors, such as credit card issuers, receive payments from the plan. Some people in Chapter 13 spend all their money on living expenses and secured debt, leaving nothing for unsecured creditors over the three to five years. The bankruptcy court can discharge, or eliminate, remaining unsecured debt at the end of the bankruptcy period.
Debt Management Plans
The government offers trained credit counselors to help people manage budgets and pay their debts. The U.S. Department of Housing and Urban Development maintains a nationwide network of government-approved counselors. The counselors offer special debt management plans, which allow counselors to take full control of a person's budget over a four-year period. Once a person signs up, a counselor calls the person's unsecured creditors to negotiate lower monthly payments, lower interest rates and the elimination of some finance fees. The goal is to eliminate as much debt as possible over four years. The participant in the plan sends a lump-sum check to the counseling agency each month, with the counselor making direct payments to creditors. The agencies charge a monthly management fee.
Debt Settlement
The government endorses debt settlement plans as an alternative to bankruptcy. Debt settlement allows significant savings on delinquent credit card bills and other unsecured debt. It is possible to pay off credit card bills for as little as 20 percent of the balance, although settlements of around 50 percent are more likely. The Federal Trade Commission recommends people manage their own debt settlement after instruction by credit counselors.
0 comments:
Post a Comment