Having trouble paying off your debts? Debt can be overwhelming no matter the source or reason for your debt. It could be the result of illness, overspending, student loan payments, etc. Debt, for whatever reason, is stressful and overwhelming when you can’t pay it. It becomes 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 your financial burden under control is to seek debt relief service. Let us explore everything you need to know about debt relief services and how they can be used to avoid bankruptcy.
What is Debt Relief?
Debt relief refers to the different actions that are taken to partially or completely cancel a debt. It is also a question of stopping or slowing the growth of debt to facilitate the repayment of the borrower. Individuals and companies in debt can find debt help on SFgate.com because there are several relief options they can explore. Debt relief programs or services exist to provide borrowers with a fair way to settle their debts and ease their financial burden.
Forms of debt relief
They are different forms of debt relief, each working differently from other forms of debt relief. Each form of debt relief also has its pros and cons.
The five main forms of debt relief are:
Credit counseling
Sometimes all it takes for a debtor to properly manage their debt is budgeting. With budgeting, a consumer can monitor how they receive money and how they spend it. This will help to point out the areas where they are overspending. Usually this should be an effective type of debt relief, but barely 40% of consumers are on budget. Credit counselors are budgeting professionals and experts. They can advise and educate consumers on the best way to budget their funds.
Debt consolidation
As the name suggests, debt consolidation is a financial strategy that combines multiple bills and debts into one debt. The debt is 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 lowers the monthly payment required for your debt.
Debt management
This service is provided by Debt Management companies. They work with creditors to help you lower the interest rate and your monthly debt payment. Debt management is a part of debt consolidation plans and helps consumers manage and control their debt by drastically reducing the interest rate and monthly payments they owe on their debt.
Debt settlement
This type of debt relief involves a negotiable agreement with your lender on how you can settle your debt for less than the original amount owed. A company that offers this type of service will help you negotiate with your lender so that you can pay off your debt for less than you owe, sometimes much less.
Filing for bankruptcy.
Bankruptcy is the last resort for debt relief that debtors fall back on when the other four types of debt relief won’t work to pay off their huge debt.
How it works? A debtor, whether an individual, a corporation, etc., goes to court to declare bankruptcy, having incurred such a crushing debt that he does not believe he has the money to cover the debt. debt.
A judge and trustees will then thoroughly examine the assets and liabilities during the legal process. This is how the court can determine whether, in fact, the debtor does not have enough assets to pay his debts. The court will then discharge the debt, which means that the debtor is no longer legally obligated to pay it. Otherwise, the court will dismiss the case if it considers that the debtor has enough assets to settle its debts.
Bankruptcy laws exist to give debtors a chance to start over after their finances have collapsed, and they are unable to settle their financial burden naturally.
However, don’t view bankruptcy as an easy escape from your financial burden as you will face long-term penalties after declaring bankruptcy. This penalty will be removed from your credit report and will last 7-10 years, making it difficult for you to access loans.
The good news about filing for bankruptcy is that it often gives people the opportunity to start over after their finances have collapsed.
Take a look at the bankruptcy cases for the year 2020.
- 544,463 bankruptcy filings were recorded.
- 381,217, and 70% of those filings were for Chapter 7 bankruptcy.
- 154,341 of bankruptcy filings fell under Chapter 13.
- Finally, the Chapter 11 bankruptcy included 8,113 cases.
The American Bankruptcy Institute found that 94.9% of 2020 Chapter 7 bankruptcy filings were successfully discharged. 43.2% of Chapter 13 files were successfully rejected.
This shows that bankruptcy really serves its purpose of debt relief, especially in the case of Chapter 7 bankruptcy.
Note: Bankruptcy cannot settle all types of debt and financial obligations.
Bankruptcy Doesn’t Free These Types of Debt
- federal student loans, except under certain conditions
- loans accessed by fraudulent means
- debts that arise after filing for bankruptcy
- debts resulting from bodily injury resulting from impaired driving
- debt from court-ordered support; and child support.
As for the big question you may be asking yourself, should I file for bankruptcy? You need to think about it deeply and determine if you can pay off your debt in five years or less. If you are unable to repay your debts within five years, you should consider filing for bankruptcy.
As we stated earlier in this article, when your debt becomes overwhelming for you, you need to seek debt relief so that you can settle the debts. You can choose from one of the five types of debt relief that we have discussed in this article, depending on the nature of your debts and your assets.
You can expect to see a negative impact on your credit report if you use debt consolidation, debt management, or debt settlement. Their effects on your credit report could last three to five years, or even seven years.
If you decide to stick with one of the three debt relief options above, you won’t go bankrupt. What you should consider is not how to escape the effect of bankruptcy on your credit report, but your ability to settle debt without declaring bankruptcy.
The best way to answer this question is to consult with professionals like bankruptcy lawyers so that you can choose the best debt relief option to choose from.