Bankruptcy - Your Fresh Start

Most American consumers are living too close to the edge. They are carrying too much credit card and mortgage debt and have too little in the way of savings. When the inevitable unexpected crisis comes along, they have little left to handle it and quickly slip into a critical financial state.

According to many bankruptcy experts, most people file for bankruptcy due to life-changing experiences, such as a job loss, divorce or serious illness. Uninsured medical expenses are supposedly the cause of about 20% of bankruptcy filings. But excessive debt also plays a very large role.

If you are drowning in debt with little realistic hope of paying off your bills, bankruptcy is your only real option. Although far from pleasant, bankruptcy can be easier to handle than the constant pressure put on a debtor by lenders and collection agencies. You can immediately stop all harassment and legal actions, wipe out a good deal of your debt and get a new start on life.

The anomalies of credit scoring also work against debtors struggling to pay off debt. Your score will be low because of excessive use of debt and missed payments. You're unlikely to get new credit and the interest rates on your credit cards might be raised to usurious levels. You are likely to have a better credit score and find it easier to get credit - very expensive credit - after bankruptcy than before.

Also the stigma and embarrassment that used to accompany bankruptcy has largely disappeared. To many, it has become just another financial planning tool.

The Bankruptcy Procedure

Bankruptcy courts are part of the Federal court system. The bankruptcy law itself is a Federal law, although the states can have their own laws, which govern such things as exemptions. Federal bankruptcy judges apply both the Federal and state laws in the jurisdiction where they sit. Debtors sometimes have a choice of which law should apply.

Bankruptcy proceedings are commenced by filing certain required forms and paying a fee. Filling automatically stays all legal proceedings against you as well as all debt collection actions. Fees can be paid in installments, but must be completely paid before the dischare will be granted.

A trustee will be appointed. His job is to review your financial affairs, collect and sell assets, if necessary, and distribute the proceeds to your creditors. If you are setting up a repayment plan, he will be responsible for seeing it implemented. He will even pursue your debtors to collect money owed you that can be used to pay off your creditors.

The trustee's powers include the power to set aside preferential transfers made to creditors within 90 days before the filing of the bankruptcy petition, the power to undo security interests and other transfersof property that were not properly recorded under non-bankruptcy law at the time the petition was filed and the power to pursue claims such as fraudulent conveyance and bulk transfer remedies available under state law.

He also holds meetings which are attended by the debtor filing for bankruptcy and his creditors. This is probably the hardest part of the whole proceedure for most people.

The trustee will question the debtor about his financial affairs and go over his financial records to determine that all assets have been disclosed and that no fraud is being perpetrated on the court.

Attorneys for the creditors are also allowed to ask questions about your expenses and assets.

The trustee will also instruct you on other alternatives and lecture you on the proper use of credit.

He will then issue a report the bankruptcy judge will use in deciding whether to dicharge your debts and which debts are to be included.

A debtor is unlikely to ever meet the judge. In a Chapter 7 case, the debtor will not appear in court unless an objection is made. In a Chapter 13 case, the debtor might have to appear at a hearing approving his repayment plan.

Most of the work will be done in the trustee's office.

What Debt Can Be Discharged?

Not all debt can be discharged by a bankruptcy court.

A bankrupcy court cannot discharge debts arising from alimony, child maintenance and support obligations; certain taxes (including the last three years income taxes); debts for educational benefit overpayments or federal student loans; debts for willful and malicious injury; debts for death or personal injury caused by the driving while intoxicated from alcohol or other substances; and debts from criminal restitution orders.

To the extent that these types of debts are not fully paid by the sale of assets during during a Chapter Seven case or not fully repaid during a Chapter Thirteen case, the debtor is still responsible for them after the bankruptcy case has been concluded.

Other debts may or may not be discharged. Debts for money or property obtained by false pretenses, through fraud, embezzlement or misuse of funds while acting as a fiduciary; debts for willful and malicious injury to another entity or to the property of another entity; and debts arising from a property settlement agreement incurred in connection wth a divorce or separation are discharged, unless a creditor convinces the court to have such debts declared exempt from discharge.

If you can't get at least half of your debts discharged, it's not worth the effort.

Chris Cooper is a retired attorney who has spent several periods of his life deep in debt. At http://www.credit-yourself.com he tries to pass on some of the knowledge he picked up in his journey to become debt free.

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Credit Repair - Understanding The Basics


What is Credit?

Credit means that you are using someone else's money topay for things. It also means that you are making a promiseto repay the money to the person or company that loaned youthe money.

Whenever a person applies for a loan, mortgage, a creditcard or for any other purpose for which he needs to borrowfunds from a lending agency, the agency will check thefinancial credit-worthiness of the person and based uponits assessment of the financial risk involved in the deal,the agency will decide upon the terms and conditions ofgranting credit. A positive assessment necessitates a soundfinancial background and a credit history with no badremarks.

What is Credit Repair?

'Credit repair' is a process in which consumers withunfavorable credit histories attempt to re-establish theircredit-worthiness. The process usually involves procuring acredit report from the rating agencies and then takingappropriate steps to address any apparent issues such aserrors, omissions, misinformation, misreporting ormisinterpretation. A consumer can then formally disputethose errors or issues which unjustly distort their financialhealthiness and credit-worthiness. Various laws andregulations designed to ensure legal and fair undertakingof the credit repair process can then be utilized toformally and legally start the credit repair process.

Consumers are entitled to a copy of their credit reportlegally, if they have been denied a credit card or loan andif the information provided on the report is inaccurate, aninvestigation relating to true facts is necessary for acredit repair.

Why Repair Credit?

A consumer's credit record significantly influences hisfuture purchasing power and his eligibility of availing anycredit facilities in the future. A good rating, or score,can insure a low interest rate and loans for longer termfor various purposes like credit card balances, car or homeloans. A poor rating makes a consumer vulnerable to financecompanies charging exorbitant interest rates and imposingvarious unnecessary repayment and loan terms. Consideringthe stakes and the consequences involved, it is absolutelyimperative for consumers to understand the importance ofrepairing their bad or low credit ratings.

The Safe and Legitimate Way to Repair Credit

Credit repair can only be achieved through financialdiscipline and hard work. Any easy way out of a poor credithistory is undoubtedly tempting, but it may lead to furtherfinancial difficulties in the future.

If a poor credit history is due to circumstances beyond aconsumer's control, and they are able to somewhat make amendsto their credit records after that time, then a creditor canbe requested to upgrade credit rating because of a sense ofcustomer loyalty.

Most creditors don't trust the customers defaulting ontheir debts, so it may be very difficult to obtain newcredit. But once a person is able to demonstrate continuingincome stability and prompt payment patterns, his situationcan improve in a period of two to three years. This way,even in the case of bankruptcy, a consumer is likely to beoffered charge and credit cards within a year or two ifmaintaining a steady income.

What is most important is evaluating the financialsituation. If one finds that they are unable to make at leastthe minimum payment on outstanding accounts, a contactshould be made with the creditors. Many creditors willappreciate the willingness to pay and are most likely tohelp set up plans for repayment. Avoid making promiseswhich cannot be kept as a small payment is preferable to alarge payment that never arrives. Sometimes a small contactcan be enough to reduce payments and forestall more severemeasures.

The next step is consulting a credit counseling agency.These organizations are staffed with trained individualsexperienced in the credit field. A distinction needs to bemade between these and the commercial "credit repair"companies who claim that, for a fee, they will undertakecredit repair.

No one can legally remove accurate and timely negativeinformation from a credit report. But the law does allowone to request a reinvestigation of information in their filethat may be inaccurate or incomplete. There is no chargefor this. Everything a credit repair clinic will do can bedone by a consumer themselves at little or no cost.

The most important factor in credit repair is recognizingthe legitimate and viable options available, recognizingwhat the scams are, and differentiating between the two. Apoor credit history can make it difficult to obtainadditional lines of credit making consumers fall prey tomany unethical programs that target consumers with less-than-perfect credit. There are no quick fixes in creditrepair. Common sense tells you that a third party doesn'tknow your credit history better than you. Throughcontacting credit bureaus, making your own corrections,consolidating your debts and budgeting, you can improveyour own score. You don't need to pay someone to fix it foryou. It's better to apply that money towards dischargingyour debt.

Summary

Understanding the basics of credit repair and knowing what exactly is needed in order to rebuild your credit history goes a long way to getting it resolved. However, you must be disciplined, find the right credit repair solution for you and not be tempted to fall back into debt.

Claire Bowes is a successful freelance writer and owner of http://www.uk-secured-loans-centre.co.uk where you will find further advice and information on all aspects of secured loans for debt consolidation, car loans and home improvement loans.


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