Though some people successfully renegotiate their credit cards and medical debts without assistance, many financially struggling people usually need some type of professional help to get out of debt. Nonprofit credit counseling services and local branches of the United States Bankruptcy Court offer several types of debt reduction assistance.
(References 1, 2, and 4)
Credit Counseling Basics
Debtors should start with a credit counseling session to discover their options. All people planning to file bankruptcy must attend a credit counseling session anyway, and this session can help debtors ensure they have exhausted all other financial options.
Debt Management Plans
Nonprofit credit counselors can negotiate debt management plans with your creditors. You must have steady income to participate in such plans and be willing to pay a nominal monthly service fee. Your credit counselor will negotiate the terms of your debts with your creditors and can sometimes reduce the balance owed and the interest rate. You then make one lump sum monthly payment, which is distributed to your creditors. However, some debts like child support cannot be reduced in this way and you also cannot legally get any new credit while in a debt management plan.
Chapter 7 Bankruptcy
If you earn less than your state's annual median income, you economically qualify to file Chapter 7 bankruptcy. This type of bankruptcy discharges your obligation to repay most debts, but does harm your credit rating for 10 years from the date of filing. If you earn more than your state's annual median income level, you must request special permission to file Chapter 7 bankruptcy. As of 2011, the yearly median income for a single Michigan resident was $42,562, while the annual level for a family of four in New Jersey was $101,106, according to the U.S. Trustee Program.
Chapter 13 Bankruptcy
If you have steady income and want to partially repay your debts, Chapter 13 might be a good option. It takes three to five years to finish a Chapter 13 plan; during this time you cannot legally get any new credit without a judge's permission. Some debts are not eligible for Chapter 13 or any other type of bankruptcy, including recent tax bills, child support, alimony, court fines and debts charged right before filing a case. The fact that you filed Chapter 13 will harm your credit rating for seven years from the date of case filing.
0 comments:
Post a Comment