Monday, May 27, 2019

Getting Out of Financial Trouble: Steps You Can Take

If like thousands of others, you are having trouble paying your debts, it is important to take action. Doing nothing can lead to much larger problems in the future--and even bigger debts, such as the loss of assets such as your house, and a bad credit record. This Financial Guide suggests how you can help improve your relationships with creditors, reduce your debts, better manage your money and get a fresh start.


Credit Counseling Agencies

If you are unable to make satisfactory arrangements with your creditors, there are organizations to help you accomplish this. For instance, National Foundation for Consumer Credit (NFCC) member agencies provide education and counseling to families and individuals. For consumers who want individual help, counselors with professional backgrounds in money management and counseling are available to provide support.
To promote high standards, the NFCC has developed a certification program for these counselors known as Certified Consumer Credit Counselors (CCCS). A counselor will work with you to develop a budget to maintain your basic living expenses and outline options for addressing your total financial situation.
If creditors are pressing you, a CCCS counselor can also negotiate with these creditors to repay your debts through a financial management plan. Under this plan, creditors often agree to reduce payments or drop interest and finance charges and waive late fees and over-the-limit fees. After starting the plan, you will deposit money with CCCS each month to cover these newly negotiated payment amounts. Then CCCS will distribute this money to your creditors to repay your debts.
With more than 1,100 locations nationwide, CCCS agencies are available to nearly all consumers. Supported mainly by contributions from community organizations, financial institutions, and merchants, CCCS provides services free or at a low cost to individuals seeking help.


Personal Bankruptcy

Bankruptcy is a legal proceeding that is intended to give people who cannot pay their bills a fresh start.
Tip: A decision to file for bankruptcy is a serious step, which should be taken only if it is the best way to deal with financial problems.
There are two types of bankruptcy available to most individuals:
  • Chapter 13 bankruptcy allows debtors to keep property which they might otherwise lose, such as a mortgaged house or car. Reorganizations may allow debtors to pay off or cure a default over a period of three to five years, rather than surrender property.
  • Chapter 7 or "straight bankruptcy" involves liquidation of all assets that are not exempt in your state. The exempt property may include items such as work-related tools and basic household furnishings, among others. Some of your property may be sold by a court-appointed official or turned over to your creditors. You can file for Chapter 7 only once every eight years.
Both types of bankruptcy may get rid of unsecured debts (those where creditors have no rights to specific property), and stop foreclosures, repossessions, garnishments, utility shut-offs and debt collection activities. Both types also provide exemptions that permit most individual debtors to keep most of their assets, though these "exemption" amounts vary greatly from state to state.
Bankruptcy cannot clean up a bad credit record and will be part of this record for up to ten years. Thus, filing bankruptcy will make it more difficult to get a mortgage to buy a house. It usually does not wipe out child support, alimony, fines, taxes, and some student loan obligations. Also, under Chapter 13, unless you have an acceptable plan to catch up on your debt, bankruptcy usually does not permit you to keep property when the creditor has an unpaid mortgage or lien on it. Bankruptcy cases must be filed in federal court.
Tip: Be cautious when choosing a bankruptcy lawyer. Some of the less reputable lawyers make easy money by handling hundreds of bankruptcy cases without adequately considering individual needs and alternative solutions. Get recommendations from people you know and trust, and from employee assistance programs.
Related Guide: For information on making sure you pick the right lawyer, please see the Financial Guide: LAWYERS: How To Choose The Right One.
Some public-funded legal services programs handle bankruptcy cases without charging attorney fees. Or these programs may provide referrals to private bankruptcy lawyers. Keep in mind that the fees of these attorneys may vary widely.

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