Finances

Bankruptcy laws give debtors a way to resolve debt by dividing their assets among their various creditors and in some cases will allow debtors to be freed of outstanding debts that cannot be paid, even after the division of assets. For individuals who find themselves unable to pay their debts, bankruptcy can be a viable option. As a debtor, you are entitled to file for bankruptcy. There have been recent changes to bankruptcy laws that may affect your ability to discharge your debts without credit counseling, but individuals who have found themselves unable to pay their debts can still file bankruptcy and be freed of outstanding debts.

Chapter 7 bankruptcy is normally used by individuals wanting to rid themselves of all accumulated debt, and is the most frequently used method of filing bankruptcy. Businesses who wish to completely liquidate assets and close permanently can also file Chapter 7 bankruptcy. Under Chapter 7, individuals are allowed to keep certain property such as their home and perhaps their vehicle, but may still lose some property in the proceedings. During the course of the bankruptcy proceedings, the debtor’s assets are controlled by a trustee and will be divided among the various creditors as the trustee sees fit. After the bankruptcy has been discharged, control of any remaining property is placed back in the hands of the debtor and all outstanding debts will have been removed.

On April 20 of this year, President Bush signed a bankruptcy reform law. When this law goes into effect in October of this year, it will be much more difficult for Americans to use Chapter 7 bankruptcy to get a fresh start on their financial lives.

Under current law, you can choose to file either a Chapter 7 or Chapter 13 Bankruptcy. In a Chapter 7 proceeding, you are allowed to keep your exempt property, such as much of the equity in your home. Most of your other debts, such as money owed on credit cards, are discharged.

In comparison, a Chapter 13 Bankruptcy is a reorganization bankruptcy. In this type of proceeding you agree to pay off your debts over a period of three to five years.

The result of the new law is that fewer people will be able to file for Chapter 7 Bankruptcies and will be forced to file for Chapter 13 Bankruptcies, instead.

Major Changes

Possibly the biggest change to bankruptcy law is that there will now be a qualifying test. Under this two-part test, you will first be required to apply a formula that exempts certain expenses such as food, rent, etc., to see if you can afford to pay 25 percent of your "non-priority unsecured debt" (credit cards, medical bills and the like). Second, your income will be compared to your state’s median income.

While driving around your community, you may have seen signs posted on telephone poles that offer "foreclosure help." These seemingly generous offers to help financially troubled homeowners who are in danger of losing their homes to foreclosure are actually scams. Typically, the "help" comes in the form of an offer to buy the home for a reduced price from the homeowner. The scammer offers to pay off the homeowner’s existing debt and to rent the home back to the homeowner until they can afford to buy the home back. The scam comes after the owner signs the paperwork and the offer to rent the home to them abruptly disappears, leaving the scammer with an inexpensive house and the homeowner without a house or a place to live. Fortunately, the current booming real estate market has made it possible for financially troubled homeowners to avoid foreclosure on their home and the scammers.

If you are in debt, well over your head in debt that is, there are options to help you overcome this situation. Let’s examine five possible responses and uncover which ones lead to true debt relief.

1. Declare bankruptcy. Not as easy as it used to be especially since Congress passed and the president signed into law legislation to toughen personal bankruptcy laws earlier this year. Still, it is an option for some. Just remember: depending on which course of action you take, Chapter 7 or Chapter 13, it can have a long term impact on your credit standing.

2. Consolidate your debt through a consumer credit counseling service. Be careful as often all these companies do is get your interest rates reduced for a period of time, earn money off of your payments, and sink your credit rating! You can probably negotiate directly with your creditors for relief and save yourself money as well as your good name.

3. Get a consolidation loan. Watch out as this means borrowing from the equity you have in your house [secured credit] to pay off debt that is unsecured. Do you really want to expose your most valuable asset in that way?

If you have incurred substantial personal debt, consider these options: budgeting, debt consolidation, credit counselling from a reputable organization and working with your creditors. You will need to choose a debt reduction method that will work best for you? The method you use will depend on your level of debt, how much spare money you have, your level of discipline, and how quickly you want to get out of debt.

1. REALISTIC BUDGETING

The first step towards taking control of your financial situation is to do a realistic assessment of your income and expenditure. Work out how much you earn (your total income) and write this figure down. Then total your expenses. This is how much you spend each month for rent, fuel, food, clothing, heating, water, electricity and other bills. The difference between your total income and your total expenses is the amount of money available to pay your creditors or lenders.

Decide if there are any monthly expenses that you can reduce or live without. Focus on lowering your expenses so that you can increase your income. You’ll be amazed at how many things you can do without.

a) Debt Reduction Methods

Debt Help is the stepping stone to debt elimination and financial recovery. Debt help analysis guides you to save thousands of dollars in interest charges. Consolidation of your credit card debts and other unsecured bills will allow you to get out of debt as quickly as possible, save money on interest and late fees, stop creditor harassment, save your good credit rating or begin immediately to repair bad credit or negatives on your credit report.

In a recent survey it was reported that almost 58% clients vouched for Debt Management Plan as the best way to settle their debts. Another 42% client had filed bankruptcy since dropping off a Debt Management Plan or DMP.

Debt Management plans can reduce your monthly payments, interest charges, penalties and some times even the repayment period. Even if bankruptcy seems like your only solution, it may not be the right debt help solution and may cost you for many years to come. The loss of a job, divorce, credit card spending and family medical emergencies among other life style matters can cause negative money issues. Statistics released by the administrative office of U.S. Courts show that a total of 388,864 new non-business bankruptcy filing in the United States during the quarter, ended on September 30, 2004. This included 274,196 chapter 7 filings and 114,454 chapter 13 filings.

How do I lower my debts?

There are several ways of improving your credit status. If you have decided upon taking up firm steps to decrease your debts, then you may consider these few ways for dealing with the situation.

1. Debt Relief:

Try to negotiate with your creditor to come to an agreement by which a part or the whole debt will be forgiven. This will be a mutual agreement between the creditor and the debtor, where the debtor requests the lender to waive off at least a portion of the debt owed to him. Debt relief has been variously named as debt reduction, debt workout, debt settlement, debt negotiation or debt management.

This is however, a risky process, as you may not be able to handle the situation well. In that case, the complete endeavor may not only go in vain, but also go against your cause.

2. Take a Home Equity Loan:

If you have assets such as your own house, you may consider taking a home equity loan or a home equity line of credit. Such a loan generally has lesser interest rates. However, if you are unable to pay-off your home equity loan, you may risk losing your home altogether.

Happy Independence Day from The Money Motivator!

If you don’t celebrate “The 4th of July” like we do in the United States, today still presents you with an awesome opportunity to examine your independence.

Independence means the quality or state of being dependent. The word dependent means not subject to control by others, according to Merriam-Webster Online Dictionary.

A full 95% of the world will NEVER know what it feels like to have true independence. True independence involves being free from debt, which is a form of control. I have seen debt destroy far too many relationships, including mine. It was not until I decided to stop the cycle of debt that I was able to begin to enjoy life.

Today can mark your first step in gaining true independence. You must complete one simple action. The first step is simple, yet it can be so powerful that it can set off a firestorm of ideas to end your finance problems.

What is the first step? It is simply to DECIDE to eliminate debt wherever possible. For now do not concern yourself with how this will happen, just make the decision and in due time you will find the solutions.

You go to the mail box and scan - a couple fliers (nah), your magazine subscription (yes!) and bills (groan). Every month the bills show up and as you sigh and take out your check book you wonder if you will ever be free.

Each month you pay the minimums and although you KNOW you’ve got a handle on it - you are not charging your credit card or accumulating new debts anymore - it seems that you will be paying the minimum fees forever.

Did you know that HOW you pay your debts can affect how soon you will finishing paying them off - even if you keep paying the same amount for debt every month? Of course you might be able to get a consolidation loan, but if you’re not eligible or are not interested then there are several other things you can do.

It’s not always the easiest to figure out the mathematics, but there are three steps to quicker debt relief - guaranteed.

STEP ONE - Create a list.

List your smallest debts first followed by your largest high-interest debts (credit card) and then your largest low-interest debts (Lines of credit and taxes).

Sometimes debt can seem overwhelming. In those instances, or even before things get that far out of hand, get back to basics and try some of these debt handling solutions.

BASICS ? Lower insurance deductibles for your homeowners, renters and vehicles policies where appropriate and save money. Don’t take chances on bouncing checks; instead get covered with overdraft protection and pay about the same as what it would cost for one bounced check to cover our account for an entire year. Ask your banker about packaged account services. Many offer free savings and checking accounts with free overdraft protection and checks, free online bill paying and more. When you shop, check your receipts, even for groceries. Many times items ring up at incorrect prices. Sometimes store policy allows for no errors, meaning you get the items free if it wrings up wrong. So carry along a handheld calculator or pencil with small notepad to tally up your charges.