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Austin Bankruptcy Law Blog

The good, the bad and the ugly of debt relief programs

If you are like many other Texas residents, your financial situation needs help. You may be behind on several of your financial obligations and struggle just to make ends meet. While you did some research about ways to handle your debts, you either heard from someone you know or viewed numerous advertisements in print or on the internet about debt relief programs.

Before you put your trust in one of these companies, you need to understand the difference between debt consolidation and debt settlement, along with the pros and cons of each. In addition, you may consider learning some of the basics of bankruptcy, which is often a viable option that may come with fewer risks.

Why you should be cautious of high interest credit cards

Millions of people rely on credit cards to pay their bills, make expensive purchases and help them make ends meet. The problem lies in the fact that credit cards can bring more problems to those who are trying to free themselves of debt. In some cases, credit cards are great ways to build your credit, if you are careful to pay off your complete balance every month and to never charge more than you can afford. Trouble comes when people begin to charge excessive amounts that they are unable to pay at the end of each month. From there, a balance accumulates. Not only are you responsible for paying the balance of the card, but you also now have interest fees that stack up on top of the original amount.

This is especially dangerous for people who are trying to repair their credit score following a bankruptcy. People who have bad credit scores may apply for a credit card in an attempt to rebuild their financial report. However, the cards that are offered to people with poor credit often come with high interest rates and fees, including annual fees, authorized user fees, processing fees and maintenance fees. Subprime credit cards target 48 million people across the United States who have credit scores that fall below 600.

What happens when companies go bankrupt?

You may see that companies in Texas and throughout the nation are filing for bankruptcy, as reports are published in the news on a daily basis. From small businesses to large corporations, some companies can no longer take the financial burdens of operating and file for bankruptcy as a way to gain freedom from their financial burdens. The result of filing for bankruptcy, however, differs depending on what type of business you have, as well as what Chapter of bankruptcy you file for.

If a company files for Chapter 7 bankruptcy, the business is forced to close its doors, stop operating and essentially goes out of business. The business owners are no longer liable for the debt. However, a trustee appointed to the case will sale off the company’s assets, liquidate their product and distribute the funds to creditors and investors. The money is allocated to certain entities first. Secured creditors, such as banks and investors who have collateral in the company are paid first. Next, unsecured creditors, such as bondholders, suppliers and banks are paid. Finally, stockholders or business owners are the last to receive any money if there is any left over.

Will your daily dose of coffee and donuts lead you to bankruptcy?

You may be among many Texas residents who consider themselves frugal in their spending habits. Perhaps you pride yourself on scouring the marketplace for sales and good deals before making major purchases. Maybe your parents raised you to make do with what you have on hand more often than shopping to get what you need. However, even the most financially cautious people sometimes spend more than they realize, especially if they're not carefully tracking their purchases.

Let's say you enjoy a tiny luxury each morning on the way to work. You and those with whom you share a carpool like to stop in at a local donut shop for a steaming hot cup of Joe and a freshly baked donut. It doesn't seem like much, financially speaking, in comparison to some of the tales of extravagance you hear at work regarding other people's spending habits. When it comes to debt, even the smallest expenditures can quickly add up to disaster.

How to reaffirm debt in Chapter 13

If you have considered filing for bankruptcy, you are not alone. Hundreds of thousands of people file for this form of financial relief every year, in hopes of ridding themselves of debt. Bankruptcy allows people to better manage their debt and, in some cases, become free from their financial burdens. In a Chapter 13 bankruptcy, you will be able to work with creditors, reorganize your debt and make manageable payments over a three to five-year period. After this time, your bankruptcy will be discharged and you can begin with a fresh financial start.

As a part of Chapter 13 bankruptcy, you have the choice to reaffirm debt. This allows you to continue making payments on property that you are in the process of purchasing. For example, if you are making payments on a car at the time you declare bankruptcy, you can reaffirm the loan with the financial institution, continue making payments and ultimately keep the property.

Chapter 13 vs. Chapter 7: Which is best for your situation?

If you are considering bankruptcy as a possible way to eliminate debt from your life once and for all, you are not alone. Hundreds of thousands of Americans file for bankruptcy every year, and many are able to gain financial freedom from overwhelming medical expenses, mortgages, credit card debt and other owed funds. When filing for bankruptcy, you must choose which chapter to file. This step may be confusing, as each chapter has different benefits to people who are going through different situations. The two most popular types of bankruptcy, Chapter 13 and Chapter 7, have specific differences, and it is crucial that you make careful considerations before you choose which chapter to file.

In a Chapter 13 bankruptcy, you are able to reorganize your debt into manageable payments. The payments are spread over a three to five-year period. In some cases, creditors will work with you to lower the amount of debt owed, reduce the interest rate and make the payments more convenient. Chapter 13 allows you to keep your home, vehicles and other property, as long as you continue making payments.

What is debt reaffirmation?

When you file for a Chapter 7 bankruptcy, there are several factors that you may want to keep in mind when organizing your property. Chapter 7 is otherwise referred to as liquidation bankruptcy. The trustee presiding over your case may decide to repossess any unsecured assets and/or property that you have in order to repay a portion of your debt. For example, the trustee may decide to repossess your vehicle, sell it, then distribute the funds to unpaid creditors. There is a way, however, that you can keep your property and continue making payments on your loan.

Debt reaffirmation allows you to resign the terms of the loan and continue making payments to the lender, just as nothing ever happened. In some cases, the lender may lower your percentage rate or decrease your monthly payments as a way to simplify the repayment process.

What a Chapter 7 discharge can and can't do for you

Whether you got into debt over time or through some financially catastrophic event such as an accident or job loss, you're now having trouble making ends meet. As a result, you must choose between keeping a roof over your head and paying your credit card bill. You make the obvious choice, but now, your creditor calls you relentlessly demanding payment.

You've tried working with your creditors and cutting expenses, but you don't see any relief in sight. If this sounds familiar, you could benefit from filing for Chapter 7 bankruptcy. Before doing so, however, you may want to know exactly what that all-important discharge can and can't do for your financial situation.

What are the pros and cons of credit cards?

After your bankruptcy is discharged and all or most of your debt has been cleared away, you are left with the task of rebuilding your credit score. There is no question that declaring bankruptcy can leave a significant mark on your credit report. However, there are a number of ways in which you can strengthen your score. Although you may think that you will never qualify for another credit card after bankruptcy, the opposite is true. You may begin to receive several credit card applications; however, it is important to use extreme caution when getting a credit card after bankruptcy.

Many credit cards offered to people who have gone through a bankruptcy have high interest rates and may charge an annual fee. If you are not careful, you may find yourself racking up debt once again on your credit card and accruing high interest on your balance. It can be surprisingly easy to fall back into the bad habits of overspending and using plastic as a form of payment.

How can Chapter 7 help clear medical debt

If you are stuck behind a wall of medical bills, expenses and debt, you are not alone. According to a study that analyzed data from the Centers for Disease Control and Prevention and the U.S. Census, medical debt is one of the largest contributors to bankruptcy. In fact, nearly 2 million people declare bankruptcy each year as a result of unpaid medical expenses. Approximately 56 million adults will continue to struggle with medical debt without filing for bankruptcy. These numbers are not restricted to people who do not have health insurance, but affect fully-covered people as well. What causes these extreme medical bills?

High insurance deductible plans are one reason why people are not able to meet their medical expenses. In addition to paying a monthly premium to carry insurance, people may have to pay as much as $10,000 out-of-pocket before their insurance benefits kick in. This high deductible starts over every year. Furthermore, there are copays on top of the deductible and monthly premiums. It is no wonder why do many people are falling behind.