Credit Card Debt Counseling

If you are overwhelmed by debt, there are a number of solutions. The most drastic of these is filing bankruptcy. I want to encourage you to make sure that you have examined all of the available options, including credit card debt counseling, debt settlement and negotiation before you go down this road. In recent years, the stigma surrounding filing bankruptcy has lessened somewhat. However the effects are financially devastating, and long ranging.

Bankruptcy is a court action in which debts are either discharged completely as in a Chapter 7 bankruptcy, or restructured to allow for payment as with a Chapter 13 bankruptcy. unlike credit card debt counseling, Chapter 13 does not eliminate any part of the debt. It only restructures it for payment. These payments are administered by the court.

There are different rules concerning each of these. You should know the rules, and the consequences.

At one time, you basically had your choice. Chapter 13 or Chapter 7. In those days, I would have recommended a Chapter 7. On your credit file, a bankruptcy is a bankruptcy. One doesn't look any better than the other. That being the case, why would you pay back the debt if you can just get rid of it.

It is best to make sure that if you are filing a Chapter 7, you have no assets of value that can be liquidated by the court to settle the debt. Many states allow you to keep assets necessary for survival such as your car and your house. The court will decide on the amount to be repaid.

I know I keep pounding on the credit card debt counseling concept, but the fact is that the consequences are far less extreme. Credit card debt counseling allows your to begin recovering from debt and credit problems almost immediately. In many cases, you are able to make improvements to your credit file as a part of the settlement.

It's not as easy as it was to file a Chapter 7 bankruptcy. You may not have the choice. If your income is greater than 25% of the population, the court will force you into a chapter 13. There are special circumstance where this will not apply. In either case you may be required to have undergone credit card debt counseling, and diligently tried to settle the debt prior to filing for the bankruptcy. One such special circumstance for filing a chapter 7 is if you were a victim of hurricane Katrina.

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In a chapter 13, you will repay your debts. The court just creates a structured payment, your payments are made to the court appointee. This keeps your assets from being sold, and the court works with you to make sure you can make the payment. The formula for you new and imposed budged is decided by an IRS formula which takes into account ALL your bills. Things like your mortgage and utilities, gas, etc., are all included to make up your budget.

In the event of a Chapter 7, the court may order the seizure of any assets purchased close to the filing date to make sure you are not attempting to stash money away by making purchases that you intended to file bankruptcy on.