The best way to avoid a bankruptcy is not to get into debt trouble in the first place. Don’t overspend, especially on credit cards, and pay all of your bills on time. Also, try to build up an emergency savings fund so you have a bit of a financial cushion if you lose your job or have a medical crisis.

If you do fall behind on your debt payments, there are things you can do to avoid bankruptcy. Debt consolidation is a process by which you roll most or all of your debt into one loan that presumably has a lower interest rate and a lower monthly payment. If you have good credit, you may be able to do this on your own by transferring all your balances to one low-rate credit card or taking out a second mortgage or home equity loan. If these aren’t an option, you can work with a non-profit credit counseling firm to consolidate your debt.

Debt settlement is another option to avoid bankruptcy. In debt settlement, you negotiate with your creditors to accept less than they are owed. For example, if you have $20,000 in debt, and can pay off half of that, you may be able to get your creditors to accept $10,000. Debt settlement is not ideal, as it will hurt your credit score, but it is a better alternative than bankruptcy.

If you do wind up declaring bankruptcy, don’t go it alone. There are bankruptcy attorneys who specialize in the process.

However, changes made to the bankruptcy laws in 2005 did not make the indebted people happy. The modified bankruptcy laws made it difficult for debtors to file bankruptcy. Nonetheless, the credit card companies were happy with the development because they incur loses when people file bankruptcy. Credit card debt is essentially unsecured debt. Therefore, these companies cannot recover their money if the debtors file Chapter 7 bankruptcy.

Let us have a look the changes made to the bankruptcy laws.

Major changes

Qualification for Chapter 7 bankruptcy

If your income is above the state median then you are no longer eligible to file Chapter 7 bankruptcy. Also, you cannot opt for Chapter 7 bankruptcy if you can afford to pay more than $100 per month towards your debts. The above criteria prohibit a lot of people to file bankruptcy. It is to be understood that bankruptcy is an option for people with decent income as well. Many debtors with good enough salaries are forced to file bankruptcy due to heavy expenses like very high mortgage payments. With the above changes in bankruptcy laws, Chapter 7 is no longer an option for these people.

Changes to chapter 13 bankruptcy law

With Chapter 13 bankruptcy, a debtor has to use his disposable income to pay off his debts. Another clause has been added to the existing law. If a debtor’s income is higher than the median income in his state, then his disposable income will be calculated by subtracting the allowed expense amounts from his current monthly income. The IRS will decide the allowed expense amounts.

Credit counseling session mandatory before bankruptcy

The new law requires the debtors to take a credit counseling session before filing bankruptcy. Also, the credit counseling agency must be approved by the government. With this change, the government wants to impart financial education to the debtors. The credit counseling session will cover personal finance and budgeting lessons. It will also help the debtors to understand whether bankruptcy is the right solution for them or not.

Child support and Alimony

Chapter 13 bankruptcy involves a new repayment plan. The new changes in the bankruptcy law ensure that your family gets priority before the creditors while preparing the restructured payment plan. Child support and alimony are now topmost priorities. So money will be allotted for your family before anyone else.

Minor changes

• The bankruptcy attorneys are now required to vouch for the information provided by their clients.
• Federal tax returns will be used as proof of income.
• Property will be valued at replacement cost instead of at auction value.
• Certain pension plans (for instance, IRA) are exempt from a bankruptcy filing.

The changes made to bankruptcy laws will compel many people to think about other debt relief programs. However, these changes do attempt to raise the level of financial awareness among the debtors and extend support to a debtor’s family.

Protect your family — let a bankruptcy lawyer help you explore whether Chapter 7 bankruptcy or Chapter 13 bankruptcy will offer you the most financial clarity. The first step to financial renewal is completing this free evaluation form.

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When all the money you make each month isn’t enough to pay your minimum payments it can be quite disheartening. Your thoughts may drift into the worlds of bankruptcy and debt settlement. I remember in the summer of 2005 not being able to make ends meet and not sleeping well. My phone was ringing off the hook from bill collectors and I was extremely stressed out. It really seemed as though there was no way out. The real problem was that I didn’t know what my options were. This article is full of useful information about the consequences of defaulting on your creditors.  So take your time to review this post and feel free to add your comments at the end. See also DebtPrison related article How to settle your debts on your own.

Bankruptcy is a permanent negative mark on your credit file

Bankruptcy is bad for a variety of reasons. First and foremost, it means your going back on your word. If you aren’t the type of person that is interested in honoring your commitments then this article isn’t for you. By all means – go ahead and give your money to some lawyers. But if honoring your word means something to you, then relax and take a deep breath, everything is going to be O.K.

If you need immediate advice on bankruptcy or debt settlement, then please call 877-231-4384. This is a toll-free number. A representative will help evaluate your financial problems for free and can even connect you with a local attorney. You can also fill out our free bankruptcy evaluation form by clicking here.

Bankruptcy is a life changing experience. You’ve seen the loan applications that have that question ‘Have you ever filed bankruptcy?’ It doesn’t specify in the last seven years. So once you go down that road, you’re branded as untrustworthy or High Risk. Don’t get me wrong. Eventually your credit score will improve and you’ll be able to borrow money again. But bankruptcy should be the last option – only after you’ve honestly tried every other avenue and failed.

Bankruptcy lawyers represent you in bankruptcy court. Since these lawyers make a profit off your financial crisis, I would recommend speaking to them last.

A judge could very well confiscate all your assets and sell them, giving the cash to your debtors. If you stopped frivolous spending, worked two jobs, and sold everything you didn’t need – could you avoid bankruptcy? If the answer is yes then it’s time to put together a plan. Becoming financially disciplined is a skill that once mastered, keeps your life on the right financial track. Avoiding bankruptcy and working hard to overcome your debt will have a positive effect on your life, financially and emotionally. See also DebtPrison related article How to deal with collection agencies.

Debt settlement strategy – avoid third parties

Perhaps you’ve seen the commercials on television. Some nice financial do-gooders who are going to help you lower your monthly note while at the same time settling your credit card debts for a fraction of what you owe. It seems like such a wonderful idea. Basic premise: you save money while sticking it to those BMW driving Bank CEO’s. I have to give this subject some extra attention. Bankruptcy and settling your credit card debt is a large part of the problem driving today’s high credit card rates. After I failed to pay Bank of America and Citibank for three consecutive months my interest rate went from 21% up to 32.6%. This is called the default rate and is applied to a customer when they become High Risk.

Believe me I was angry and wrote them letters requesting it be lowered. Of course they didn’t and looking back I don’t blame them. Basically the Bank is using me to settle the score against the people that do in fact file bankruptcy or settle their accounts. Since they are losing money by loaning to those High Risk customers they need to recoup it from others. Hence 32.6% default rate.

The Banking sector in today’s market is without a doubt one of the most profitable endeavors. American culture has convinced everyone that they need anything they want and now (when they can’t afford it) instead of later (when they could afford it). Banks are not all bad. They keep this monster machine rolling. People can build houses and buy cars because of banks. Our economy is dependent upon them and they should be profitable. This doesn’t make me feel all good inside either but it’s still what makes the cookie crumble. The point is that this default rate is necessary. Not to mention that it wouldn’t be my problem if I had been more responsible in the first place.

The problem with using the financial do-gooders is that they fail to mention the negative consequences of using their service. Back in the summer of 2005 I called one of these companies I had seen advertised. A person answered the phone and asked me some questions about my income and my bills. In three minutes she had concluded that I was eligible to be in their program. It happened so fast I felt like I was another victim of a high pressure sales presentation.

Under the guidance of their opportunistic lawyers I would pay their company $600 per month. Of this $600 they would keep $60 for themselves (handling fees?) and the rest would go into an account which they would watch over for me. When this account had reached a certain amount, they would make the first Bank an offer. For example, I owed Bank of America $6,800. Once my account has about $3,500 they make Bank of America an offer to settle at roughly 50%. It becomes a bargaining game as Bank of America shoots for a higher percentage.

These lawyers (negotiating on my behalf), tell Bank of America that if they don’t take the offer then this money will be offered to Citibank as a settlement and they might accept it. This means that Bank of America may be looking at another year or two before they get another offer from me the client! If you are like me then you’re probably asking yourself Why can’t I just do this myself and keep my money? You can.

What’s bad about this is that you’re now giving money to a third party that could be applied to your debts. And this third party now has ALL of your money. Does that sound like a good idea to you – someone else having all your money? In the package that these lawyers sent to me, it described the manner in which I could confiscate my funds away from them, if in the course of things, I changed my mind and wanted my money back. From what I can remember reading it didn’t sound like fun.

Also, while all of this is going on, your credit history and score suffers. And even once the balances are settled, you’re still left with a gaping hole in your credit report. This means that on future loans you’ll pay a higher interest rate. Paying a higher interest rate on future loans will prove more costly than paying what you owe and salvaging your credit now. Not to mention, while your money is growing in their account the interest and fees are still being charged to the money you owe Bank of America.

So what started out as $6,800 one year later is now $10,220! Once I received this packet of information (which I paid $50.00 for) I realized there was even more for me to worry about. It stated that monies I owed Citibank could not be settled – so I would still owe Citibank the full amount. It was actually an AT&T Universal credit card. But as it turns out, Citibank had bought them out some time ago. These professors of law and good will didn’t tell me this – I found out about it on my own.

That was enough for me! No third parties. They make your life worse while profiting off your ignorance. My advice is to fight for your credit. Don’t take the easy way out. Busting your tail to pay off ALL of your debts might be tough, but you’ll salvage your integrity and your credit report. Hope this article helped.

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