Ads Promising Debt Relief May
Be Offering Bankruptcy
in cooperation with the American Financial Services
Debt got you down? You're not alone.
Consumer debt is at an all-time high. What's more, record
numbers of consumers-nearly 1.5 million in 2001-are
filing for bankruptcy. Whether your debt dilemma is
the result of an illness, unemployment, or simply overspending,
it can seem overwhelming. In your effort to get solvent,
be on the alert for advertisements that offer seemingly
quick fixes. While the ads pitch the promise of debt
relief, they rarely say relief may be spelled b-a-n-k-r-u-p-t-c-y.
And although bankruptcy is one option to deal with financial
problems, it's generally considered the option of last
resort. The reason: its long-term negative impact on
your creditworthiness. A bankruptcy stays on your credit
report for 10 years, and can hinder your ability to
get credit, a job, insurance, or even a place to live.
The Federal Trade Commission (FTC)
cautions consumers to read between the lines when faced
with ads in newspapers, magazines or even telephone
directories that say:
"Consolidate your bills into
one monthly payment without borrowing."
"STOP credit harassment, foreclosures,
repossessions, tax levies and garnishments,"
"Keep Your Property."
"Wipe out your debts! Consolidate
your bills! How? By using the protection and assistance
provided by federal law. For once, let the law work
You'll find out later that such phrases
often involve bankruptcy proceedings, which can hurt
your credit and cost you attorneys' fees.
If you're having trouble paying your
bills, consider these possibilities before considering
filing for bankruptcy:
- Talk with your creditors. They may be willing to
work out a modified payment plan.
- Contact a credit counseling service. These organizations
work with you and your creditors to develop debt repayment
plans. Such plans require you to deposit money each
month with the counseling service. The service then
pays your creditors. Some nonprofit organizations
charge little or nothing for their services.
- Carefully consider a second mortgage or home equity
line of credit. While these loans may allow you to
consolidate your debt, they also require your home
If none of these options is possible,
bankruptcy may be the likely alternative. There are
two primary types of personal bankruptcy: Chapter 13
and Chapter 7. Each must be filed in federal bankruptcy
court. The current filing fees are $185 for Chapter
13 and $200 for Chapter 7. Attorney fees are additional
and can vary widely. The consequences of bankruptcy
are significant and require careful consideration.
Chapter 13 allows you, if you have
a regular income and limited debt, to keep property,
such as a mortgaged house or car, that you otherwise
might lose. In Chapter 13, the court approves a repayment
plan that allows you to pay off a default during a period
of three to five years, rather than surrender any property.
Chapter 7, known as straight bankruptcy,
involves liquidating all assets that are not exempt.
Exempt property may include cars, work-related tools
and basic household furnishings. Some property may be
sold by a court-appointed official-a trustee-or turned
over to creditors. You can receive a discharge of your
debts under Chapter 7 only once every six years.
Both types of bankruptcy may get rid
of unsecured debts and stop foreclosures, repossessions,
garnishments, utility shut-offs, and debt collection
activities. Both also provide exemptions that allow
you to keep certain assets, although exemption amounts
vary. Personal bankruptcy usually does not erase child
support, alimony, fines, taxes, and some student loan
obligations. Also, unless you have an acceptable plan
to catch up on your debt under Chapter 13, bankruptcy
usually does not allow you to keep property when your
creditor has an unpaid mortgage or lien on it.
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