Debt Consolidation Truth
Debt Consolidation Truth
First of all, please keep in mind that there are
some honest Debt Consolidation Companies. That said, good luck distinguishing the good companies from the scam artists.
Many of the companies that advertise on the Internet, television, radio and print are simply "boiler room" style telemarketing companies. The "counselors" who work at these companies are paid on a commission bases, and many earn bonuses for the amount of new accounts secured each month. Most of these companies boast about their accreditations and their "not for profit" status. The truth about these companies is both shocking and disheartening.
Debt Consolidation Companies often tell consumers that filing bankruptcy is the worst thing you can do to your credit score. However, in many cases,
NOT filing bankruptcy actually hurts your score far more in the long run. When you miss the
original contractual payments for tow or more months in a row, your credit score is lowered dramatically. The payment arrangement that a Debt Consolidation company establishes for you is
NOT the original contractual payment. Hence, entering into repayment plan that the Debt Consolidation Company establishes destroys your credit score. Entering the program is considered a default, which will be reported like a "late payment", "partial payment" or "charge-off" every month, for the entire term of the program.
Chapter 7 vs. Chapter 13 bankruptcy
A Chapter 7 bankruptcy allows individuals to discharge most or all of their unsecured debt in order to get their financial situation under control. Dischargeable, unsecured debt includes credit cards, personal loans, lawsuits, medical bills, utility bills and even some types of unpaid taxes. For the most part, those who are current with their mortgage payments and vehicle payments find a Chapter 7 bankruptcy may be a helpful solution to financial problems.
Filing for Chapter 7 bankruptcy has other advantages other than eliminating your legal liability to repay your unsecured debt. Upon filing of the bankruptcy petition, creditors and collection agencies will be prohibited from contacting and harassing you for your debt. Also, all legal action must cease. For this reason, Chapter 7 bankruptcy is extremely advantageous, as creditor harassment is one of the worst effects of having unpaid debt. Furthermore, Chapter 7 can also stop execution sales, frozen bank accounts and eliminate liens on your property.
Chapter 13 bankruptcy is a debt repayment plan for individuals. It allows individuals to protect a house from foreclosure while catching up on past-due mortgage payments. It also allows individuals to reduce debts by paying a discounted amount over time. The repayment plan is created to repay a specific amount to creditors for a period of three to five year. At the end of the plan, all eligible debts are discharged.
Chapter 13 is a forum where secured debts, such as car loans or second mortgages, can be appropriately addressed. Sometimes second mortgages can be eliminated altogether. Vehicle repayments can usually be drastically modified or reduced in Chapter 13. The Chapter 13 reorganization may also be an attractive option for those individuals that earn too much to qualify for a Chapter 7. All situations are certainly different; hence it is best to schedule an appointment to see how the bankruptcy laws apply to your particular situation.
Credit Rehabilitation
Your FICO score determines whether creditors will lend you money, how much, and at what interest rate. The higher the FICO score, the better. As your debt to income ratio increases and you owe more money, your score decreases. Every late payment, failure to pay, or charge off, decreases your credit score. If you default on your loanswithout filing bankruptcy, your credit is likely to be so damaged that you will not be able to repair it by yourself.
Although it may seem like you will never get through this difficult time, the truth is there are many effective ways to restore and rebuild your credit. I can work with you one on one to restore your credit and help you get your finances back on track after filing for bankruptcy. In gerneral, your FICO score will improve immediately after banlruptcy, as your debt to income ratio is greatly reduced or eliminated. Within a few short months you will start to see offers for credit cards, as these companies know that you will not be able to file for bankruptcy again for another eight years. Car loans will be available also, althrough many individuals prefer to wait because the interest rates will be better in time. Even home loans are available to clients who have filed bankruptcy in time. The myth that you can't borrow or finance for seven years simply isn't true.
