September 22, 2021

Disastrous Credit Myths

Think you know everything there is to know about credit? Well, think again.

Several common misunderstandings can lead you down the path to bad credit and eventually bankruptcy.

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How Bankruptcy Affects Your Credit

Sometimes debts pile up, starting small at first and then getting bigger as time goes on. That is when it is time to find a way to take care of the problem. There are very few people who have not heard of filing for bankruptcy but many do not understand what it entails. It is not something to be taken lightly. While it can cancel some obligations, it will not cancel them all.
Bankruptcy

With the abundance of credit cards and easy credit with merchants, it is not difficult to get overwhelmed with bills. What seems like a small obligation can turn into a big one when combined with a number of others. When the situation gets to the point of putting off necessities, like utility bills, to pay another bill that is past due, it is time to start thinking of finding a way out, such as bankruptcy.

In the United States, the U. S. Bankruptcy Code was originated to help people who simply become so swamped with debt that there seemed to be no other solution. Taking this route does give people a chance for a fresh start without bills continuing to pile up. Not paying creditors ruins a person’s credit rating. Contrary to popular belief, this is one way to bring that rating back to the ‘good customer’ category.

There are two different types of bankruptcy, Chapter 7 and Chapter 13. Chapter 7 eliminates unsecured debt but does not relieve secured debt, such as a car or a house.

Chapter 13 is an arrangement where the lenders or merchants are paid off over a set period of time, in specified interest free payments.

Chapter 7 clears debts such as credit cards, medical, utility, store credit cards, payday and some personal loans and parking tickets. It does not clear student loans, mortgages, car loans or anything that is secured by collateral. This is the type of bankruptcy many people take.

Chapter 13 does not pay anything off but stops harassment and may also stop foreclosure/repossession of one’s home, automobile or other collateral. Under this plan payment arrangements are made, through an interest-free repayment plan over a period for three to five years. This has been an excellent plan for many people as it not only relieves the pressure of the debts but helps re-establish their credit rating.

There is nothing worse than to have one’s wages attached in order for someone to collect a debt owed. Called wage garnishment, this can be embarrassing and can be as much as fifty percent of one’s salary. This can very well leave a person without sufficient funds for daily living. This will be stopped when filing either Chapter 7 or Chapter 13.

The filing fees are set by the U. S. Bankruptcy Court at Chapter 7, $299 (Discharge of unsecured debts), Chapter 13, $274 (Structured interest-free repayment plan), Conversion, $25 (Changing application from a Chapter 13 to a chapter 7). Although some people file these papers on their own, there are a number of very good companies, on the Internet, who are well acquainted with all the ins and outs of taking this kind of action. They will, of course, have a fee for their services. However, by shopping around, one can be found that can take care of all the paper work quickly and efficiently, relieving the applicant of that responsibility.

Additional resource links: http://www.azb.uscourts.gov/