Is Bankruptcy Really A Way Out

Bankruptcy used to be the simplest way out of a tough situation. No matter whom it was and how much debt they had, if the judge approved a bankruptcy, the consumer would be free of all of their obligations to repay any debts. Of course, this wouldn't come completely free - liquidating all properties and assets with a seven year blemish on the credit report. But to get rid of a debt ranging from $50,000 to multi-millions, most consumers wouldn't think twice.

That is, until they changed the requirements.

Today, there are two types of bankruptcies for the average consumers. Chapter 7, the one we all know and all, and Chapter 13. This new bankruptcy was enforced during the time our recession was at its worst (about two years ago) because of all the bankruptcy applications across the nation. Our judges were completely swarmed in bankruptcy pleads while banks were losing too much money due to the amount of foreclosures and debt pardons they were issuing.

The law changed the standard of bankruptcy and made Chapter 13 the default one. Today, to be approved for Chapter 7, consumers must take a means test which compares their family's income to the median income in their state for a family of the same size. Then, there's a calculation of disposable income and unsecured debts to see if their creditors can be repaid at all. If not, Chapter 7 would be the appropriate solution. But if consumers do have the necessary means, then they will get a Chapter 13 bankruptcy. They will not be forced to liquidize their assets, but they will be making a structured repayment plan according to how the court arranges it. This type of bankruptcy will also leave a seven year blemish on the credit report and will make applying for credit virtually impossible.

Although bankruptcy used to actually pardon consumers and help them get out of debt, it seems as though it is now just another credit counseling or debt management program. And not only does it cost money to hire a bankruptcy attorney (which doesn't guarantee approval by the judge), but the damage to your credit report is many times worse than what you would get from credit counseling programs.

Debt negotiation or debt settlement programs do not show on consumer's credit reports and are able to relieve consumers within one to three years while paying only fractions of their total debts. This gives consumers another few years to rebuild their credit scores and get back on their feet and never have to worry about long term damage to their credit worthiness.

Bankruptcy used to be the simplest way out of a tough situation. No matter whom it was and how much debt they had, if the judge approved a bankruptcy, the consumer would be free of all of their obligations to repay any debts. Of course, this wouldn't come completely free - liquidating all properties and assets with a seven year blemish on the credit report. But to get rid of a debt ranging from $50,000 to multi-millions, most consumers wouldn't think twice.

That is, until they changed the requirements.

Today, there are two types of bankruptcies for the average consumers. Chapter 7, the one we all know and all, and Chapter 13. This new bankruptcy was enforced during the time our recession was at its worst (about two years ago) because of all the bankruptcy applications across the nation. Our judges were completely swarmed in bankruptcy pleads while banks were losing too much money due to the amount of foreclosures and debt pardons they were issuing.

The law changed the standard of bankruptcy and made Chapter 13 the default one. Today, to be approved for Chapter 7, consumers must take a means test which compares their family's income to the median income in their state for a family of the same size. Then, there's a calculation of disposable income and unsecured debts to see if their creditors can be repaid at all. If not, Chapter 7 would be the appropriate solution. But if consumers do have the necessary means, then they will get a Chapter 13 bankruptcy. They will not be forced to liquidize their assets, but they will be making a structured repayment plan according to how the court arranges it. This type of bankruptcy will also leave a seven year blemish on the credit report and will make applying for credit virtually impossible.

Although bankruptcy used to actually pardon consumers and help them get out of debt, it seems as though it is now just another credit counseling or debt management program. And not only does it cost money to hire a bankruptcy attorney (which doesn't guarantee approval by the judge), but the damage to your credit report is many times worse than what you would get from credit counseling programs.

Debt negotiation or debt settlement programs do not show on consumer's credit reports and are able to relieve consumers within one to three years while paying only fractions of their total debts. This gives consumers another few years to rebuild their credit scores and get back on their feet and never have to worry about long term damage to their credit worthiness.

Get Out of Debt Don't Cut Up Your Credit Cards

You heard me right... Don't cut up that credit card if you want to get out of debt. I know that a lot of experts suggest that you cut up and throw away your credit cards as a deterrent to using them and as a manifestation of your desire to get out of debt, but don't you do it. There is nothing that the credit card companies would like more than for you to cut up your credit cards before you pay them off.

The problem is that most people wait until they have maxed out their cards before they decide they need to get out of debt. Then they cut up their cards and say they will never use than again. Well the fact is that the cards are maxed out and they really can't use them unless they up their maximum or pay down the card. Banks absolutely love people who have maxed out their cards and pay the minimum payment for the life of the card. This maximizes the return on the banks investment.

Your Debt Doesn't Disappear With The Card

The fact is, cutting up your card doesn't mean the debt goes away. A few years ago I remember looking at a bill from a major department store that I hadn't shopped at for more than a decade and I remember destroying my card right after using it, thinking what a mistake that was. Looking at the bill, I was surprised when I saw that the balance was still in the hundreds of dollars. Whats worse is I am sure that I had never put more than a couple of hundred dollars on the card in the first place. I had paid the minimum payment for more than 10 years and literally had paid nothing toward my debt.I had simply made an automatic payment for the minimum and forgot about it.

Is Auto Pay Such A Good Idea

Ok so now I am taking on another sacred cow, Auto payment. For your convenience, most banks now provide you the ability to set and forget payments to your creditors. This is a great idea... right? Well, that depends. Set and forget is great when you leverage it to get out of debt, but if you pay just the minimum it is keeping you in debt and the only benefit is to avoid late fees and make sure the banks get their money on time. Remember, forgetting about your debts works only in the bank's favor.

Don't Forget

The only way to get out of debt is to be mindful of it. If you ignore it you will, at best, find it hasn't changed after decades of paying on it. At worst, you will find your debt has increased beyond anything you could have imagined.

Keep the Card

Don't play into the bank's hands by cutting up your cards. Instead, try punching a hole in it and nailing it to your wall in a prominent place where you can see it every day. This way it can remind you that you are still in debt. The idea is to use it to motivate yourself to pay it off. When you have paid off the card, then you can celebrate and destroy it as a gift to yourself.