Category Archives for Get Out of Debt
Need Some Help Getting Out of Debt? Consider Debt Eye!
The following review is sponsored by DebtEye.com*.
Recently, through being a Yakezie Personal Finance Blog Network member, I was exposed to a brand new online debt payoff/management tool, called Debt Eye.
The full version of the tool is currently being rolled out (due to launch fully in the next few weeks), so I wasn’t able to try out all of the features that Debt Eye has to offer, but I was able to get the feel for what will be available. Below are my experiences thus far:
Overview of Debt Eye
So, at a high level, Debt Eye’s goal is to help you pay off your debt. However, how exactly do they help with this? Furthermore, what makes them different from the hundreds of other “tools” available on the Internet to help you reduce your debt?
Well, let’s take a look in more detail at what Debt Eye offers to seek out an answer to these questions.
Getting Started with Debt Eye
To get started using Debt Eye, you simply input your specific information in to the secure online system. The information you need to provide is listed below:
- Name (first/last), address, phone number, etc.
- Desired username and password.
- In order to have Debt Eye pull a free copy of your credit report from the credit agency, TransUnion, you must enter your Social Security Number (SSN).
- However, if you are unsure about whether or not you want to enter your SSN, then you can elect to list out your different debt accounts manually.
- Once you have entered your SSN, the Debt Eye system will automatically generate a list of all of the debt accounts you are currently carrying (or you can enter your debts manually if you choose).
- Included in this list will be the amount of debt owed, status of payments (whether they are past due or not), time frame of payback, and interest rate.
What Tools Does Debt Eye Offer?
Once you confirm a comfortable payoff amount, Debt Eye then allows you to interface with your checking and/or savings account from which to transfer money to your creditors.
Debt Reduction Plans Offered by Debt Eye
Once you enter all of your personal information in to Debt Eye’s system and your list of debts has been generated, the interface will then recommend one of 3 types of debt reduction plans, including debt snowball, debt settlement, and debt management plans. A screenshot of the different plan options is shown below:
Debt Snowball Plan
As described in a previous post on my site about helping a friend get out of debt, the overall aim of a debt snowball plan is to pay off your lowest balance debt account first. In order to do this, you will set up your debt payments so that you pay the minimum required amount for all your debt accounts EXCEPT for the one with the lowest balance.
Debt Management Plan
Debt management plans work by getting all of your creditors to agree on one low(er) monthly payment and reducing your interest while you are on the plan. It usually doesn’t impact your credit when you start, and your credit will improve once you complete the plan.
Debt Settlement Plan
The premise of a debt settlement plan is to save up enough of a lump sum amount to offer your creditors at one time to get rid of your debt balances completely. Extreme caution should be used when proceeding with this option because debt settlement can have a large negative net impact on your credit score. However, when someone is getting behind on their payments and is struggling to meet their monthly demands, having a lower credit score probably isn’t the worst thing in the world.
How Much Does Debt Eye Cost?
According to the Debt Eye site, the service is free to sign up for and to use. On the “How it Works” page, it mentions that it is free of charge to set up a debt management, settlement, or snowball payoff plan. However, it does mention that you can choose to have Debt Eye manage your debt payments for a small fee.
Unfortunately, it never talks about the detail about what is or isn’t involved in having Debt Eye manage your payments nor does it discuss the exact definition of the “small fee.” Additional detail is needed in this regard to the service.
Conclusions
Overall, I was nicely surprised by how easy the Debt Eye interface was to use, especially in regards to how easy it was to manually enter my various debt accounts. I also liked that Debt Eye seems to offer the majority of their tool free of charge. In this way, it could serve as a great tool for people wanting some guidance in paying off their debt, but whom do not want to seek the help of a formal debt counselor.
Lastly, since the complete version of the interface wasn’t rolled out yet during my investigation, I’m very curious to give Debt Eye another run through once it officially “goes live.”
How about you all? Have you tried Debt Eye yet? What did you think?
Have you tried any other type of debt management/payoff tools? How did you like or dislike them?
Share your experiences by commenting below!
*Disclosure – I received monetary compensation for writing this review. However, as with all of the reviews I do, I offer my fair and honest opinion about the service/product.
Helping A Friend Get Out of Debt – Part 3 – Cut Your Interest Rates In Half
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So far, in Part 1 and Part 2 of this series, I’ve discussed the following steps that my anonymous friend, Debtor Dan, and I have taken to put together a debt management plan in order for him to avoid the threat of bankruptcy.
- Summarized the details of all of his different debt accounts in to one central spreadsheet.
- Determined the best debt prioritization method and finalized his Debt Free Action Plan.
Both of these are important first steps to assessing your debt situation prior to considering more active measures such as debt consolidation. However, there is one more step that is needed to maximize Debtor Dan’s chances of paying off his debt as quickly as possible – negotiating a lower interest rate!
As is the case with many aspects of personal finance, negotiating a lower interest rate is not rocket science and does not require a degree in finance and/or marketing; the only thing that is required is the desire and initiative to get started by simply calling up the companies that manage your debt accounts and asking for a lower rate!
However, taking this very important step can be quite scary, as I found out with my friend, Debtor Dan. Nevertheless, by putting together a precise script of what he needed to say during the call, the majority of the nervousness felt can be alleviated.
Note: I’m going to present this information in the context of getting your credit card interest rates lowered, since those are often the debt accounts involving the highest interest rates. However, if you have other types of debt accounts, the same preparation/model can be used. Just be sure to adapt it to your specific situation.
Preparing for the call
As I mentioned above, Debtor Dan could not simply go in to the call to request a lower interest rate “cold.” By taking some simple steps, Dan and I were able to greatly improve his chances of lowering his credit card interest rates.
In order to prepare for the call with the credit card companies, you will need to gather the following data:
- Research what rates your credit card company is currently offering new customers for the same card you have.
- For example, if you have a Chase Freedom Credit Card, you would visit their website and see that they are offering new account holders as low as a 12.99% APR interest rate. You would then make a note of how this compares to the current rate they are giving you.
- Find out the national average credit card rate on Bankrate.com.
- The current average variable interest rate on purchases is 14%. You would then make a note of how your current rate compares with this.
- Visit CreditCards.com and find another credit card that you are interested in.
- Once you isolate which you like, find out their terms (% interest and term) for doing a balance transfer from your current credit card to theirs.
- Know how long you’ve been a customer with your current credit card and whether you have ever missed a payment or not.
Do you have the information above compiled? Ok great! Now, it’s time to gather all of your records and make “the call of a lifetime!”
Script for during the call
As Kevin @ DebtEye mentioned in his guest post several days ago, the first step in making this call is to find the phone number of your credit card’s customer service department. This can be found either on your most recent credit card statement, or more easily, on the back of your credit card.
Once you have located and dialed the phone number, I suggested the script below to Debtor Dan in order to ask for a lower interest rate:
Debtor Dan: Good evening/morning/afternoon. My name is Debtor Dan. In the coming weeks and months, I’m going to be paying down my credit card balance more aggressively and want lower rate. Can do that for me?
Credit Card Rep (Possibility A): Sure! Let me get that processed for you. (If this is the case, your job is done, and you just have to listen for the results!)
Credit Card Rep (Possibility B – probably more likely, and the one you need to be ready for!): Uhhhhh….Why?
Debtor Dan: I’ve committed to myself and my family that I’m going to pay off my debt more aggressively, and having a lower rate will help me do this. I’ve been a loyal customer of _____ credit card for ____ number of years and have never missed a payment. Other cards I have looked at, such as ______ card, are offering ____ % interest. Can you lower my interest rate by 40-50%?
Credit Card Rep: That sounds reasonable. However, after reviewing your credit account here in my computer, it is not showing that your account is eligible for a reduced interest rate.
Debtor Dan: Thanks for taking the time to review this. However, that will not work for me. In addition to other cards offering significantly lower rates than you, I saw on your website that you are offering new customers an interest rate that is almost ____ % lower than what I’m paying. My interest rate is also ____ % higher than the national average of ____ %. I have been a loyal customer for ____ years, and would prefer to not have to transfer my balance to a competitor. Can you match these rates or go lower?
Credit Card Rep (Possibility 1): I understand. It looks like the computer is now able to offer you a lower rate. Remain on the line for a little while I make the necessary changes. (If this is the case, your job is done! Pat your self on the back for a successful call!)
Credit Card Rep (Possibility 2): I wish that I could help you, but I am not authorized to make this change.
Debtor Dan: That’s understandable. No worries. If you are not authorized to make the change, can you give me your name and employee ID number and transfer me to your supervisor so that I can talk to him/her about this?
After the customer service rep gives you his name, ID, and transfers you to his/her supervisor, you would then inform the supervisor that you were discussing the issue of getting a reduced rate with ____ (name), employee ID _______. This is important to instill accountability in the system.
Next, you would basically repeat the same script used above with the supervisor. And, I will willing to bet that most, if not all of the time, this will work in getting your interest rate reduced. If it does not work, then the worst they can say is “no,” and you will be satisfied that you have done everything possible to get your interest rate reduced.
I feel that I must also stress the importance of maintaining a professional demeanor during this call. You do not want to turn it in to a “yelling match.” You should not get upset, no matter what the customer service rep says. After all, it is not their fault. They are simply doing what they are told. Remember, it makes them more money to lock you in to a higher interest rate.
If you do not succeed in getting your rate reduced, you would then want to explore other credit card options that offer lower interest rates, including the possibility of a balance transfer (provided that the fee to do so isn’t significantly high).
How much can getting your interest rate lowered save you?
Because credit card interest is “special” in that it accrues daily, getting your interest rate reduced can inflict serious savings in to your personal finances.
For example, let’s say that before calling to lower your interest rates, your APR is 25%. And, by talking with the credit card rep, you get it lowered to 12%. This interest rate applies to your current outstanding balance of $5,000.
Using the handy-dandy credit card calculator at Bankrate.com, the following results are seen, assuming that your minimum required payment is 3% of your account balance.
- With a 25% APR, it will take a total of 308 months to pay off your balance and will cost a total of $10,600 in interest. (Note from Jacob – Simply incredible! It’s amazing that this minimum payment game is legal!)
- With a 12% APR, it will take a total of 155 months to pay off your balance and will cost a total of $2,300 in interest. Talk about a large amount of savings! That’s almost an 80% reduction in total interest expense.
Clearly, the potential savings that can result from this one call is simply enormous. Well worth the 1 hour or so of total time commitment needed to make the call.
Where do you go from here?
Once the three steps discussed in this series have been completed, you must then take a step back and examine your debt payment plan as a whole. To do this, look at your total amount of monthly income compared to your monthly expenses. Identify how much you can afford to pay towards your debt balances each month.
I think that most people will find that the combination of a lowered interest rate and cutting back on extraneous monthly spending will enable them to effectively pay off their debt. However, if after examining your financial inflows and outflows, you determine that there simply isn’t enough money available to meet your minimum commitments, you should consider additional options such as debt consolidation and counseling. Remember, you are never alone is improving your situation.
How about you all? Have you ever made a call such as this to get your interest rates reduced on your debt accounts? How did it go?
Share your experiences by commenting below!
***Photo courtesy of http://www.creditcards.com/credit-card-news/images/hammer-dollar.png
Helping A Friend Get Out of Debt – Part 2 – Finalize Your Debt Free Action Plan
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- Debt Snowball Method
- The debt payoff method that is, in my opinion, most popular in the personal finance blogosphere (maybe due to the catchy “ring” it possesses) is debt snowballing.
- Essentially, this technique involves reorganizing your debt payments so that you pay only the minimum required payment to all debt accounts, except for the one with the lowest balance. You then commit as much money as possible to paying off the lowest debt account balance as quickly as possible.
- Advantage = It gives the debtor the psychological benefit of seeing the number of their debt accounts dwindle quickly.
- Disadvantage = This technique also costs you the most money because while you are seeing the number of debt accounts you have decrease, you can still be paying out large amounts of money in interest in your higher interest accounts.
- For example, if you have a car loan (1% interest) balance of $500 and a credit card balance of $10,000 (28% interest), the debt snowball method dictates that you would pay off the car loan first, even though the credit card debt could be costing you hundreds of Dollars in interest.
- DOLP (Done On Last Payment Method
- The proprietary DOLP method is the cornerstone of David Bach’s Debt Free For Life
book.
- It involves assigning each debt account a DOLP number.
- DOLP number = balance outstanding/minimum payment
- After assigning this number to each of your debt accounts, you then pay only the minimum payment for every account except the one with the lowest DOLP number.
- In my opinion, this method is good because it takes in to consideration both the psychological benefit of paying off a small account balance quickly and the effect of interest rates on minimum payments.
- Pay Off the Highest Interest Rate Account Balance First
- This is my favorite of the 3 methods, and also the one recommended in Ramit Sethi’s book, I Will Teach You To Be Rich.
- This method is very simple because you pay only the minimum required payment on every debt account except for the one with the highest interest rate, which you pay as much as you possibly can.
- It is my favorite because bottom line, this technique saves you the most money. Why is that? This is due to the fact that with this method, you will be getting rid of your (most costly) highest interest rate account first.
So, as you can guess, the “paying off the highest interest rate account first” approach was the one that Debtor Dan and I went with.
***Photo courtesy of http://www.loseweightguy.com/img/set-your-goal-and-take-action.jpg
Get Out of Debt for Less with an Expert Debt Settlement Attorney
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Today’s guest post comes to us from Debt Settlement Link.
Are you tired of weekly collection calls, little sleep, and a spiraling debt burden that is pushing you further and further behind your ideal life? With the current economy, today is a perfect time to present your creditors with a debt settlement offer. Let go of some unnecessary stress. A debt settlement attorney is specially trained to help you navigate the legal system and settle your unsecured debt for less.
What Is Unsecured Debt?
First off, what kind of debt qualifies for assistance? An unsecured debt is simply a financial obligation where the lender does not hold any collateral. Most credit card debt, department store debt, personal loans, and medical bills are unsecured and can be settled for less than you owe.
Examples of bills that are NOT eligible are mortgages, car loans, student loans, alimony, and tax debt. You may have other options for renegotiating these obligations, but they will not be part of your unsecured debt settlement.
Creditors make their money off interest payments and fees, so as long as you are able to make minimum payments, they will not be interested in settling. When you slip to 90 days or more past due and the risk of bankruptcy increases, most creditors will finally consider a debt settlement agreement.
The Next Steps of Debt Settlement
If you meet these guidelines and qualify for financial relief, your debt settlement attorney will work with you to prepare the best course of action for your situation. Typically, the initial plan involves contacting each creditor and negotiating reduced interest rates, debt forgiveness, or other payment plans. The goal is to eliminate fees, reduce your payment burden by up to 60%, and give you some room to afford regular payments. Your debt settlement attorney will take care of all communications with creditors and collection agencies, help you correct errors on your credit report, and give you the tools to get your credit history back on track. Keep in mind that settling unsecured debt will impact your credit history, but it is often a better route than giving up and declaring bankruptcy.
When you are beyond the help of credit counseling, debt settlement is an excellent solution. The small amount you will pay in attorney fees is well worth chopping your unsecured debt in half and getting your finances back on track.
How about you all? Have you used a debt settlement attorney to get out of debt? Did it work well? Were you satisfied with the results?
Share your experiences by commenting below!
Jacob’s Thoughts – Listed below are my random thoughts as I was reading this article.
- First, I find it interesting that only consumer debt (credit card debt, etc) is eligible for debt settlement. I suppose that the creditors figure that secured debt (such as home mortgages) don’t need settlement since the creditors can merely repossess your assets to cover the debt. But, I wonder what happens if the market price of the asset dips way below the mortgage price? It seems that it would be in the lender’s interest to negotiate the debt.
- In my opinion, most people absolutely do not need to pay for an attorney to settle their debt. They either 1) do not have that serious of a debt condition and do not need to settle or 2) can do the same things on their own. So, make absolutely sure that you have exhausted your options before seeking expensive help such as an attorney.
***Photo courtesy of http://bankruptcyattorneysinillinois.com/
Helping A Friend Get Out of Debt – Part 1 – Collect Your Debts
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This article was chosen as an editor’s pick in the 96th Carnival of Money Stories hosted by our friends at Squirrelers.
Several weeks ago, one of my friends (we’ll call him Debtor Dan for privacy reasons) asked me if I could help him look at his consumer debts and current finances to see if I could identify any areas for improvement and/or to help him pay down his debt faster.
After explaining my normal “protect-myself-in-this-sue-happy-society” disclaimer about not being a certified financial professional, I said, “Sure! What a great learning experience for me since I haven’t ever (luckily) had consumer debt debt to pay off.”
What will follow is a three part series detailing the steps I’ve recommended that my friend take in order to get him on the fast lane to being debt free! It is my own personal adaptation of the great advice contained in two of my favorite (and most straight-forward) personal finance books for debt management plans, I Will Teach You To Be Rich
by Ramit Sethi and Debt Free for Life
by David Bach.
Enjoy, and be sure to share you experiences by getting involved in the comments.
Facing the Truth Can Be Scary
Prior to beginning this endeavor, I had read in many personal finance books about how nerve-racking and embarrassing debt can be for individuals. However, it never really hit home for me until hearing about it first hand from Dan.
My friend would tell me in length about how ashamed he was of his debt because he accumulated it during his undergraduate university days and had since changed his ways. Debtor Dan also proceeded to tell me that I was the only non-credit-company human being who knew the concrete numbers/magnitude of his debt. However, I was very glad that he accepted my help and was open to sharing the details because ignoring the problem will only make it worse.
Where Should You Begin?
When Debtor Dan and I first sat down to discuss our plan of attack, he naturally had a lot of questions.
One thing that he was wondering about was if there were any “higher-tech” financial remedies other than just the old-fashioned gradual debt repayment approach. In particular, he asked about debt consolidation loans and debt counseling.
From what I’ve read, I personally do not think that debt consolidation loans and debt counseling is worth the time and effort unless your financial situation is such that a) you are on the verge of bankruptcy or b) making your minimum payments results in you not being able to feed yourself or your family.
In Debtor Dan’s case, he really was living quite comfortably, but just wasn’t seeing any results in paying down his credit card debts each month with the minimum payment.
So, there would be no shortcuts or fancy remedies here. Only hard work and time would be needed to get Debtor Dan out of debt! With that settled, it was time to get started.
Collecting Your Debts
The first part in creating what I like to call a Debt Free Action Plan, Collecting Your Debts, is also the hardest part. It is where one will have to come face-to-face with the shear volume of debt that they have accumulated.
To help you complete this step, I’ve put together a handy spreadsheet that you can download at the following link – Google Docs Spreadsheet – Collect Your Debts. The table is also shown below.
On the spreadsheet, simply fill in the following information:
- List out the name of all of the debts you have with an identifier in the first column.
- This includes car loans, home loans, credit cards balances, pet care loans, furniture loans, computer loans, student loans, etc. If you owe money to someone, put it here!
- In the 2nd and 3rd columns, fill out the total amount outstanding that you have to pay back and the annual interest rate (APR), respectively.
- In the next 3 columns, list the minimum monthly required payment, the due date for that payment, and the monthly amount that you are currently paying on the loan.
- Leave the last (green) column blank, for now.
- Lastly, the most important step in this is to then use the Excel Sorting function to sort the rows based on which debt account has the highest APR. The highest APR should go on top, while the lowest should be placed in the last row of the spreadsheet.
So there! You did it! That was the hard part. You tallied up all of your debts and are now ready to get those balances slashed to zero.
In Part 2 of this series, we’ll take a look at the things Debtor Dan and I did to calculate the target monthly payments going forward (in the last green column). After doing this next step, your Debt Free Action Plan will be complete.
How about you all? Do you currently keep track of the total amount of debt Share your experiences by commenting below!
***Photo courtesy of http://blog.abn.org.au/wp-content/uploads/2010/01/collect-money.jpg
The Consequences of Chapter 13 Bankruptcy
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Today’s guest post comes to us from Wystan North. He has made his mark by writing on legal issues especially on filing bankruptcy procedures in different states.
One of the strong points of choosing Chapter 13 bankruptcy over Chapter 7 is that it doesn’t reflect as badly on one’s credit. Since your creditors are still being paid and less debt is being discharged, your credit score doesn’t take as big a hit.
But, that’s not to say Chapter 13 is free of implications. Bankruptcy has a negative impact on your credit score; it’s just a matter of minimizing the damage. Here are some of the effects you can expect from a Chapter 13 bankruptcy filing and how you can control them.
FICO Score Changes
A Chapter 13 bankruptcy filing can take 80 to 250 points off your credit score, depending on how much debt you have and how much of it is discharged. This is mild compared to the 300 to 400 points often lost in a Chapter 7 filing. Generally, the more debt you can cover through the repayment plan, the less drastic the credit score change will be.
Bankruptcy Records
The bankruptcy itself will be visible on your credit report for seven years after the filing, whether it’s for a Chapter 7 or a Chapter 13 bankruptcy. But, since a Chapter 13 repayment plan lasts three to five years, there will only be two to four years left after your discharge. The bankruptcy will still be there while you’re on the plan, but it won’t count for much because your credit options will be limited anyway.
Loan Rates
Any type of bankruptcy will have an effect on the types of loans you can take out. With a bankruptcy on your record, banks may not be as willing to grant large loans, or at least give you prime rates on them. A Chapter 13 bankruptcy tells them that while you’re not as deep in debt as one who filed a Chapter 7, your paying capacity is still limited by your repayment plan. You may not be able to get the best car loan or mortgage while you’re still making payments, but small personal loans are usually easier to get.
Credit Limits
You may be able to get a credit card after filing Chapter 13 bankruptcy, but don’t expect a high credit limit. Most commercial banks will only give you a credit limit proportional to what you can afford considering the added expense of your payment plan. Some companies offer credit cards specifically for people with tarnished credit histories, but the rates are much higher and you risk falling back into default.
How about you all? Have you or any one you know had to file for Chapter 13 bankruptcy? How did it affect him/her?
Share your experiences by commenting below!
***Photo courtesy of http://www.cwdebtrelief.com/shr/wys/71/i/bankruptcy.jpg
The Advantages of Debt Consolidation Loans
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Today’s guest post comes to us from Andrew. Andrew has been working in the finance industry for several years. He has helped many people with debt issues by advising debt consolidation solutions and short term loans.
Consolidating your finances is an option many people tend to overlook because they do not understand what it entails. Many credit providers and lenders offer many debt consolidation loans because there is a constantly increasing demand for such products. It is not surprising that now is the best time to get such loans.
Debt management is something you should master if you want to relieve your current financial stress. If you consolidate your debt, you could save a lot on interest costs, but you should also consider each loan’s early repayment fees, if there are any. Take advantage of financial calculators available and compute how much you could save if you would repay all your loans simultaneously and instead repay a single loan in a month.
Effective debt management is assured by taking advantage of consolidation loans available. The single loan could replace the multiple debts and loans you may have. Thus, in a month, you would only need to pay one debt in a lender, instead of many debts in different lenders. It could also help save time and money. Consumers with consolidation loans rave about how they get more effective in avoiding possible loan defaults, which could be more troublesome.
Have you ever computed how much you are paying in interest rates of each of your loans? If you would consolidate all those rates, you would be surprised at how much you are shouldering in a month. By that alone, there is no doubt debt consolidation loans are very advantageous. The money you could save could be added to the repayment for a consolidated loan in a month. This is logically more practical.
Debt consolidation loans could give you the opportunity to pay lower monthly repayments. You have the option to take a longer term or repayment period, which comes with lower monthly dues. This is the best option if you are aiming to more effectively manage your overall finances. Thus, you need not worry about having to spend all your monthly income just to repay your debts. In the long run, you could be able to generate more savings, which you could use in investments for added revenues.
Are you one of those consumers who dread taking telephone calls every now and then from various creditors? It could ruin your day and affect not just your mood but also your productivity. It is time to get rid of that kind of pressure. Debt consolidation loans are there to help you eliminate that kind of problem.
Lastly, you could improve your credit record or maintain a good one if you would repay all your debts now and replace them with a single consolidation loan. This is possible because you could easily avoid incurring late payments or worse getting to a loan default. It is always best to come clean after emerging out of your debt obligations.
How about you all? Have you all ever used a debt consolidation loan? Do you think this could be something useful to your current financial situation?
Share your experiences by commenting below!
***Photo courtesy of http://www.prlog.org/10203658-debt-consolidation.jpg
Important Aspects You Must Know About Bankruptcy Laws
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Today’s guest post is brought to us by Wystan North. Wystan regularly writes on bankruptcy related issues like Ohio bankruptcy, Filing Bankruptcy In Ohio, Chapter 13 bankruptcy, and Chapter 7 bankruptcy.
If you need to file for protection under the bankruptcy laws of Chapter 7 or Chapter 13 in order to attain debt relief, there are a number of aspects you should know about bankruptcy laws.
These laws are designed to permit debtors who can’t pay their debts, to discharge or restructure these debts while still allowing creditors to regain as much of the monies owed as possible. Because the situation of the individual or legal entity, such as a company, seeking protection under the bankruptcy laws can vary widely, there are different kinds that cover specific situations. These laws are written in the different chapters of the United States Bankruptcy Code.
In general, the Chapter 7 rules apply to personal or corporate liquidations, while those of Chapter 13 apply to personal reorganization bankruptcies. For large corporations that need to restructure huge amounts of debts and assets, the bankruptcy laws of Chapter 11 generally apply. Before you file for protection under the bankruptcy laws, you will have to know which chapter you must file.
Means Test
The choice is not yours; instead, you must take a means test that determines which bankruptcy laws apply to your situation.
The means test measures your income against that of the state median, and if it is below it, you must file Chapter 7, or liquidation bankruptcy. However, if your income is above the state median, you must file for protection under the bankruptcy laws of Chapter 13.
It is important to realize that the state you file bankruptcy in can have a huge impact on which bankruptcy laws apply to your situation. There is another aspect of bankruptcy law that is defined by your location: exemptions.
Exemptions
Exemptions are assets you may exclude from the bankruptcy proceedings, which means that you are allowed to keep them. Exactly which assets are excluded from your proceedings is defined by the bankruptcy laws of your state.
When you file your petition, it is imperative that it complies with all necessary bankruptcy laws. If it contains any incorrect information, or it is not complete, the court will not accept it. A very important aspect to bankruptcy laws pertains to your creditors. If you are filing for protection under the bankruptcy laws of Chapter 7 or Chapter 13, it’s more than likely that creditors and collection agencies have been harassing you.
Once your petition has been accepted by the court, the bankruptcy laws state that the Trustee must notify all your creditors of your filing and the automatic stay goes into effect. The automatic stay means that your creditors must stop all collection actions against you, even foreclosure, until a decision has been made in your bankruptcy case.
How about you all? Have you ever had to file for bankruptcy? What are the key points that people need to know to get through the tough time in life?
Share your experiences by commenting below!
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