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The Bankruptcy Process Explained

Thursday, January 28th

The Bankruptcy Process Explained

All it takes is one lost job, one serious medical condition or one unforeseen tragedy to plunge someone into the depths of debt.

Figures provided by the United States Census Bureau indicate that over 1.5 million Americans file for bankruptcy each year. Of those who file, over 60 percent of them have found themselves in dire financial straits due to medical bills.

Consumers have a variety of options available to them when they reach a point where their debt is weighing them down.

Debt negotiation, debt consolidation and debt settlement are a few of the solutions consumers may be exposed to if they listen to the many ads on the television and radio for debt solutions. Debt solution companies are a dime a dozen in this country. A simple search of the internet will turn up more choices than a consumer can reasonably sort through.

And not all debt solution companies are created equal. Most for-profit agencies make promises they have no intention of keeping, which ends up costing a consumer even more money than they already owe. There are a few non-profit agencies which are able to help and do not charge consumers for their services. So if you are one of the 69 percent of Americans who are swimming in debt, a non-profit credit counseling agency would be a good place to start.

For some consumers, their amassed debt may be so great that they need to resort to what should always be the final solution for ridding oneself of debt - bankruptcy.

There are two classifications of bankruptcy in the United States: Chapter 13 and Chapter 7.

Chapter 13 bankruptcy, also known as "reorganization bankruptcy," allows a consumer to pay creditors either all of their debts, or a portion of what they owe. Consumers usually have a three to five year window by which to complete the repayment process. In Chapter 13 bankruptcy, the debtor gets to keep their assets because they have agreed to work out a repayment schedule for creditors.

In order to qualify for Chapter 13 bankruptcy, an individual must be able to prove that they earn enough money to be able to repay their creditors during the length of the repayment process. Those who cannot prove they have enough income to do so will not be permitted to file for Chapter 13 bankruptcy.

The other kind of bankruptcy is known as Chapter 7, which involves full liquidation of a consumer's assets in order to repay their debts. All or some of a person's property may be sold in order to settle their debts. Some property, such as clothing, vehicles and furniture, is considered exempt and cannot be liquidated during Chapter 7 bankruptcy.

Prior to being able to file for either Chapter 13 or Chapter 7 bankruptcy, consumers must first complete credit counseling through a legitimate consumer credit counseling agency. Credit counseling agencies may be able to assist the consumer in repaying their debt without actually filing for bankruptcy. Only if the credit counselor determines that all other options have been exhausted will bankruptcy proceedings be permitted. As part of the counseling process, consumers will learn how to better manage their finances so they are not repeat filers for bankruptcy.

It is also important to note that those who successfully file for bankruptcy can expect it to have a negative effect on their credit report for seven to 10 years. It will lower your credit score, making it harder to secure new lines of credit. Debt consolidation and debt settlement are two options which consumers should consider before declaring bankruptcy. Finding a quality debt relief service that can tailor a financial plan to a customer's needs should be pursued first.

The Best Debt Relief Companies Compare Debt Relief Companies Compare Debt Relief Company Reviews What are the best Debt Relief Companies Best Debt Relief Company Reviews

Debt Relief Company FAQ

Debt relief is a process that helps people get out from under their ever-mounting financial obligations. This can be accomplished through Debt Negotiation, Debt Settlement, Debt Consolidation or Repayment Plans, among other strategies.
You'll need to have a certain amount of debt to be eligible for debt relief, which varies according to which relief service you choose. Some require a minimum unsecured debt of $7500, while others specify that you need to owe at least $10,000. Also, some debt relief providers aren't licensed in all 50 states - so you may be eligible for debt relief but the service you're considering isn't available in your state.
Believe it or not, many debt relief services are free! Most providers give you a no-cost consultation, analyzing your financial situation and making recommendations tailored to your needs. But, there are some fee-based services, especially if you want someone to negotiate with creditors on your behalf.
Many of the strategies used by debt relief providers can be done on your own, yes. But, in the amount of time it would take you to get up to speed and learn what those strategies are, you could be paying hundreds (or thousands!) of dollars in interest. It's almost always a smarter financial move to have the experts do the work for you.
The first step is usually the complimentary consultation, where a representative will go over your debt situation and find out your goals, needs and timeframe. From there, it will depend on which approach you decide to take - but, for the most part, the debt relief service will be in charge of contacting your creditors and working out the details for reducing what you owe.
No two consumers are alike - and debt relief strategies vary as well. Some services offer relief through a personal loan, allowing you to pay off high-interest debt with a lower-interest arrangement, so naturally your situation will change as soon as your loan is funded and used to reduce your monthly payments. On the other hand, if your service is negotiating with your creditors to reduce or eliminate what you owe, that can take several weeks to months.
Most of the time, there isn't. A few debt relief services offer a 100% customer satisfaction guarantee, allowing you to cancel your plan without fees or penalties. Read the fine print of any contract before you sign up, so you'll know exactly what's promised - and what isn't.
Debt relief may sound too good to be true, but it's a legal, well-known method for reducing the debt burden faced by many consumers. Although some fly-by-night services pop up from time to time, most companies offering debt relief have been in business for a decade or longer. You can always check for a company's listing with the Better Business Bureau for further confirmation that it's a trustworthy option for debt relief.

Compare Debt Relief Companies

Select any 2 Debt Relief Companies to compare them head to head

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  • National Debt Relief
  • Credit.org
  • Curadebt
  • SoFi
  • Upstart
  • LendingTree
  • CareOne Debt Relief Services
  • LendingClub
  • American Debt Enders
  • Accredited Debt Relief
  • OneMain Financial
  • Savvy Money
  • Debt Consolidation Care
  • Fast Track Debt Relief
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