In bad economic times, it is not unusual to become overburdened with debt. Many Americans struggle to pay their monthly payments, which quickly accumulate into large debts. Once these debts have gotten so extreme, some are forced to decide whether to file bankruptcy or lose their house to foreclosure. Each of these options comes with separate repercussions.
Bankruptcy is often seen as a final resort for those who have fallen too far behind on payments to catch back up. Bankruptcy may be a quick way to alleviate debts, but it will remain on your credit report for the next ten years. There are two types of bankruptcies that are typically filed: Chapter 7 and Chapter 13.
Chapter 7 bankruptcy is a personal declaration that allows the debtor to keep some of their property (these properties vary from state to state). Then the rest of their property is ceased by the courts and turned over to the creditor to be used for payment on amassed debts.
Chapter 13 bankruptcy is a way that the court sets up a payment plan for the debtor. Then a trustee is appointed to collect the payments and ensure that the plan is followed. This allows the debtor to pay off their debt without relinquishing their assets.
Bankruptcy has other options as well. If the debtor can afford to pay off some of the debts, but cannot pay them all, another plan can be negotiated. Say you do not want to lose your car but you do not mind the other assets that are going to be taken. You can choose to sign a “reaffirmation agreement” that will allow payments to be made toward retaining the car, while everything else is turned over.
On the other hand, there is foreclosure. Like bankruptcy, foreclosure should be avoided if there is any possible means. Do not just let the creditors seize your house, instead try to work out an agreement where they will allow you to make smaller payments. Or there is always the option to ask if the creditor will allow you to sell your house and use that money to repay your loans. This may cause you to lose some of the money that you have invested; however, it keeps you from foreclosing. Another option is to ask your credit if they will grant you forbearance. This suspends your payments until you can make them. If these are not feasible options, then there is always foreclosure.
A foreclosure is where a debtor allows a creditor to take control of the house in return for no longer owing debts. These debts may be wiped away, but you will keep record of this transaction on your credit report for seven years.
When you are looking into these drastic options, always be sure to know all about their costs. Each of these comes with large costs because they will hurt your credit score and will make getting a loan in the future much harder. If you do not know what your options are, then you should look into using a credit counselor who will be able to tell you all of the options and the consequences associated with each. In most cases, these options should be a last resort.In bad economic times, it is not unusual to become overburdened with debt. Many Americans struggle to pay their monthly payments, which quickly accumulate into large debts. Once these debts have gotten so extreme, some are forced to decide whether to file bankruptcy or lose their house to foreclosure. Each of these options comes with separate repercussions.
Ashley Russell is a North Carolina native, hailing from Kings Mountain. She is a diehard Carolina fan who loves to watch her team play in any sport—a Tar Heel born and bred. She loves to read and write in her free time. Since high school, she has known she wanted to pursue a career that involved both reading and writing. However, she has recently discovered a love for computers, so she also hopes to incorporate them into her career. She spends her free time tutoring k-5 students in reading and writing in the Chapel Hill area. She is a second-year captain of a Relay for Life team and a participant in Dance Marathon 2011. She is also the online webmaster for the Blue & White magazine based out of Chapel Hill.
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