Declaring Bankruptcy as a Last Resort to Deal With Creditors

Declaring bankruptcy is not at all recommended in most circumstances, it should be a last resort, and a last ditch effort to keep creditors at bay and fend off foreclosures, repossessions, garnishments, debt collection agencies, and in some cases utility shutoffs. The downside of bankruptcy is it will upset anyone’s life down the road, because it will stay on the record for more than ten years.

It will absolutely become difficult to get loans at the normal interest rates, and such loans as mortgage or car loans will be out of the reach of anyone who had declared bankruptcy and the acceptance rate will get better after the ten years had lapsed. This also brings to light the fact that it is wise to consider one’s age at the time of declaring bankruptcy.

The recommended things to do when one starts to feel that it is no more possible to stretch whatever money is being generated to meet bill payments is; first to let go the luxury items because it is possible to go without them, and those items could differ depending on the amount of income generated. On top of that introducing a strict frugal lifestyle is the way to go until paying the debt is possible or until it is back to a manageable level.

If that does not make much difference, the second thing to consider is consolidating debt, and this can be done through many financial institutions where a financial company will agree to pay off the loans and will give out another loan that is geared to the debtors ability to make monthly payments. Companies like this usually charge a little bit more interest, but will definitely save anyone from declaring bankruptcy, and within two to three years time debtors could bring their book in order without feeling the financial stress.

There are also a less expensive credit counseling agencies in almost all localities that can deal with the creditors or their designated collectors on behalf of debtors to have the debt or the interest reduced. There are also similar companies that will negotiate with the creditors to let the debtors pay a reduced lump sum and will make the debtors put money into an escrow account according to what they can afford.

If debtors own their own house, it will be much better to use the equity on the house to settle all the outstanding debts, and continue to adhere to a frugal life style until all financial problems are straightened out instead of declaring bankruptcy. Because, even if the bankruptcy could be erased from record after ten years, it will not leave a clean slate as it will go as far as affecting one’s career as there are jobs a bankrupt individual will not be allowed to do, and many employers could avoid hiring such individuals because they will be considered as a risk.

After considering all these options if the individual is convinced that the better way out is to declare bankruptcy to deal with creditors, there are two known options to consider for personal bankruptcies. The first one is Chapter 13, which will allow debtors to make arrangement with the various creditors through a court to make a repayment plan. It will prevent creditors from foreclosing a house whether it is mortgaged or not, or repossessing cars and the like, and the plan will be worked out in such a way that all the loans will be paid back within three to five years time.

The other kind of bankruptcy is Chapter 7 and this one involves liquidating assets deemed for liquidation by law. This law differs from one state to the other, and there will be some items that are exempt from liquidation. There are states that allow exemption for a first home, car, work tools, or even furniture depending on the situation.

And after the evaluation is made on what are exempted and are not, from the money generated after the liquidation that will be conducted through court appointed trustees, the creditors are paid off, and the case will be closed for good. Except it remains on the record for the ten years period, it will usually give a fresh start to debtors with some of the mentioned disadvantages still lingering, and it is here the debtors will have to weigh the merits and demerits.

No matter what kinds of measures are taken, discharging certain financial obligations is not possible. The category includes fines, taxes, student loans, child support, and alimony that declaring personal bankruptcy will not erase unless the debtor becomes incapacitated to earn a living.

If what is involved is business, there is what is known as Chapter 11, which is similar to the Chapter 13 bankruptcy declaration, where the business owner will be allowed to reorganize the business without being bothered by creditors who want to collect what they are owed. Usually after a given period of time, the company will come out of the bankruptcy with a worked out plan how to deal with the various creditors, and a court will observe all the arrangements.

All in all, except availing a clean start from a financial quagmire that had gone awry in the case of the chapter 7 bankruptcy, and the respite the other two bankruptcies avail to debtors, the blemish they create on debtors credit history could go for more than ten years. Luckily, the aggressive competition that is out there among financial establishments to attract business might force them to keep a closed eye as long as debtors met the primary requirements.

There are credit card companies that focus only on the ability of a debtor to pay back, that is, the only requirement a would be debtor will have to meet is being employed to get a quick approval for a limit that could stretch more than $10,000. Nevertheless, if there is a downside to it, the interest rate could be exorbitant, close to 29 percent, which means there might not be going without credit, although all the available loans could be expensive.

Getting some of the advantages of the law interest rates from most of the conservative financial establishments could be affected for a long time to come, because they insist for the most part that the books should be in order. Consequently, bankruptcy is something that will require looking at squarely before making it a choice to find a financial respite.

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