| Getting out of Debt
Getting into debt is easy; it is getting back out of debt that is hard.
This section is going to try to give you alternatives to filing for
bankruptcy. There are some steps that you should try before filing for
bankruptcy. This section will show you the top ways to get out of debt
before bankruptcy is necessary.
1) Take Advantage of your Assets
If you have assets that offer you some significant equity, such as a
home or a car you may be able to use these as a way to deal with your
debt. For example, you could get a loan on your home that is big enough
to pay off your debts. You could be saving a great deal of money on
interest if you pay off high interest credit card debt in return for
lowering your debt cost. If you have a car, you should think of selling
it, paying off your debts and buying a used car.
2) Increase your Income
Try getting another job and use the money from this job to only pay off
your debts. You can make a list of your debts and interest rates. Pay
off the debts with the highest rates first and work your way down. This
may sound tedious, but sometimes it is necessary.
3) Put a hold on your credit cards
One of the best steps you can take to get out of debt is to stop adding
to them. Credit cards are an amazingly easy way to add to your debts, as
most of us don’t see them for the problems that they are. I would
suggest keeping only one card for emergencies, and throwing the rest of
them away.
4) Set up a Repayment Plan
Cut back on your expenses as much as possible and try to use the extra
cash for repaying your debts. Pay off the debts with the highest rates
first and work your way down the list.
5) Consolidation Loan
A consolidation loan can seriously help you out of debt without
declaring bankruptcy. This is when you get a loan to pay off all your
debts and have just one payment to make. The new loan usually has a
smaller repayment and a lower interest rate. If you can do this, you
should.
6) Get a Credit Counselor
Be careful when you are thinking of using a credit counselor. Some of
these so called credit counselors will just rip you off.
There are basically 2 types of credit counselors out there to help you,
and they are for profit and "nonprofit". They are both the same and do
the same job and both charge a fee. Credit counselors can help you in
teaching you how to get control of your debt.
But I must warn you that many people do not fully understand all the
ramifications involved in turning to them, such as:
How it will affect your credit rating.
The credit bureau will record that a plan is in place.
Are your payments too high?
Your payments should be high enough helping you reduce your debt your
debt but not so high that you have nothing left over. If you do not have
money left over at the end of the month to pay for anything else you may
find that you end up defaulting on your payments.
Most people agree that your repayment term should be three to four
years. It is a stipulation in the new Bankruptcy Reform Bills that the
term be 3-5 years. Any time longer than this is proven to have a very
high failure rate, because people cannot see their debts ever being gone
and just skip it.
7) Informal Agreements- Timely Payment Agreement.
In some cases you can make a payment agreement with your creditors to
set up a payment plan that will allow you to pay them back. This will
help preserve your credit rating. This is a lot like getting a debt
consolidation loan except you do not borrow the money to pay them off.
8) Informal Lump sum Agreement.
You may be able to pay less than 100 cents on the dollar if you choose
to take this route. For example, you may be willing to pay a lump sum to
the creditor of say 50% of the amount owed in order for the balance of
the debt to be written off. This method is best if you have only a small
amount of creditors.
9) Chapter 13 Bankruptcy
You are probably a good candidate for Chapter 13 bankruptcy if you are
in any of the following situations:
1. You have a real and sincere desire to repay your debts, but you need
the protection of the bankruptcy court to do so.
2. You are behind on your mortgage or car loan, and want to make up the
missed payments over time. Chapter 7 bankruptcy doesn’t let you do this.
You can make up missed payments only in Chapter 13 bankruptcy.
3. You need help repaying your debts now, but want to be able to file
for Chapter 7 bankruptcy in the future. This would be the case if for
some reason you can't stop adding to the debt.
4. You are a family farmer who wants to pay off your debts, but you do
not qualify for a Chapter 12 family farming bankruptcy because you have
a large debt unrelated to farming.
5. You have valuable property that is not exempt. When you file for
Chapter 7 bankruptcy, some of your property is exempt from collection.
If you have a lot of nonexempt property, Chapter 13 bankruptcy may be
the better option.
6. You received a Chapter 7 discharge within the previous six years.
7. You have someone who is in debt with you. If you file for Chapter 7
bankruptcy, your creditor will go after the co-debtor for payment should
you not be able to pay. This happens should you get credit with a
co-signer.
8. You have a tax debt. If a large part of your debt consists of federal
taxes, what happens to your tax debts may determine which type of
bankruptcy is best for you.
9. If all else fails, you will have to file for Bankruptcy.
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