Are you struggling to pay off your debts? Debt can be overwhelming regardless of the source or cause of your debt. This could be due to an illness, over-spending, student loan payments, etc. Debt, for whatever reason, is stressful and overwhelming when you can’t pay it. It gets even more frustrating when the credit card companies and their collection agencies keep calling you about the payment.
One way to get out of this situation and get a grip on your financial burden is to avail of debt relief. Let’s find out everything there is to know about debt relief and how to use it to avoid bankruptcy.
What is Debt Relief?
Debt relief refers to the various measures that are taken to partially or fully remit a debt. This includes stopping or slowing down debt growth to make it easier for the borrower to pay. Indebted individuals and companies can Find debt relief at SFgate.com as there are several options for relief that they can explore. There are debt relief programs or services that provide borrowers with a fair way to pay off their debts and ease their financial burdens.
Forms of debt relief
There are different Forms of debt reliefeach of which work differently than other forms of debt relief. Each form of debt relief also has its specific advantages and disadvantages.
The five main forms of debt relief are;
Sometimes a debtor just needs budgeting to properly manage their debt. With budgeting, a consumer can monitor how they receive and spend money. This will help highlight the areas where they are being over spent. This should usually be an effective form of debt relief, but barely 40% of consumers are sticking to their budget. Credit counselors are professionals and experts in budgeting. They can advise and educate consumers on how best to budget their funds.
As the name suggests, debt consolidation is a financial strategy that combines multiple bills and debts into a single debt. The debts are then paid off with a consolidation loan or a debt management plan. This type of debt relief lowers the interest rate on the debt and reduces the monthly payment required on your debt.
This service is provided by debt management Companies. They work with creditors to help lower the interest rate and monthly payment on your debt. Debt management is a part of debt consolidation plans and it helps consumers manage and control their debts by drastically lowering the interest rate and monthly payments they have to make on their debts.
This type of debt relief involves a negotiable agreement with your lender on how you can settle your debt for less than the amount originally owed. A company that offers this type of service will help you negotiate with your lender so that you can settle your debts for less than you owe – sometimes significantly less.
Filing for bankruptcy.
bankruptcy is the last resort for debt relief that debtors resort to when the other four types of debt relief do not work to pay off their enormous debts.
How does it work? A debtor, be it an individual, a corporation, etc., is going to court to file for bankruptcy because they have incurred an overwhelming debt that they believe they do not have the money to pay the debt.
A judge and trustee will then thoroughly examine the assets and liabilities during the judicial process. In this way, the court can determine whether the debtor actually does not have enough assets to pay off his debts. The court will then forgive the debt, which means that the debtor is no longer legally expected to pay it. Otherwise, the court will dismiss the case if it considers that the debtor has sufficient assets to pay off his debts.
Bankruptcy laws exist to allow debtors to start over after their finances have collapsed and they cannot meet their financial burden naturally.
However, do not view bankruptcy as an easy way out of your financial burden, as you face long-term penalties after filing for bankruptcy. This penalty is deducted from your credit report and lasts 7-10 years, making it difficult for you to get access to credit.
The good news about filing for bankruptcy is that it often gives people the opportunity to start over after their finances have collapsed.
Check out the cases of bankruptcy filings for 2020.
- 544,463 bankruptcy filings were registered.
- 381,217, and 70% of those filings related to Chapter 7 bankruptcy.
- 154,341 of the bankruptcy filings fell under Chapter 13.
- Finally, according to Chapter 11, the insolvency comprised 8,113 cases.
This shows that bankruptcy is really serving its purpose of debt relief, especially in the case of Chapter 7 bankruptcy.
Note: Bankruptcy cannot settle all types of debts and financial obligations.
Bankruptcy does not exempt this type of debt
- Federal student loans, except under certain conditions
- Loans that have been fraudulently accessed
- Debt after filing for bankruptcy
- Debt resulting from personal injury from driving under the influence of alcohol
- Debts from court-ordered alimony; and child support.
As for the big question you might be asking yourself, should I file for bankruptcy? You need to think about it carefully and determine if you can pay off your debt in five years or less. If you cannot pay your debt within five years, you should file for bankruptcy.
As we mentioned earlier in this article, when your debt becomes overwhelming, in order for you to be able to pay off the debt, you must seek debt relief. You can choose from one of the five types of debt relief discussed in this article, depending on the nature of your debts and assets.
You can expect a negative impact on your credit report if you use debt consolidation, debt management, or debt settlement. Their effects on your credit report can last for three to five years, or even seven years.
If you decide whether to stick to any of the three above debt relief options, you will not be filing for bankruptcy. What to consider is not how to avoid the effects of bankruptcy on your credit report, but rather your ability to pay off the debt without filing for bankruptcy.
The best way to answer this question is to consult professionals such as bankruptcy attorneys so that you can decide on the best debt relief option.