Personal finance tips – Part 6

Personal finance tips:

Bankruptcy

The purpose of a bankruptcy filing is to give an individual, state or business entity relief from a portion of an accumulated dept load, while ensuring that their creditors are paid to the extent that the debtor is able to pay. The consequences of personal bankruptcy are not permanent, yet can be severe and remain on your credit report for seven to ten years. Its usually in a consumers best interest to avoid bankruptcy proceedings.

There are five variants of bankruptcy filings in the United States, but only four are of concern to most private citizens:

Chapter 7 deals with the liquidation of nonexempt personal or business assets

Chapter 11 deals with the reorganization of businesses or persons with substantial debts and assets

Chapter 12 deals with a special case for rehabilitation of farmers and fishermen

Chapter 13 deal with restructuring and repayment plans for most individuals, and is the most common form of bankruptcy protection sought by consumers.

Of these, Chapter 7 and 13 are the most common. The biggest difference is that in Chapter 7 bankruptcy filings, a persons nonexempt assets are liquidated to help pay creditors, whereas in chapter 13 bankruptcy, most of a person’s assets remain protected, and a portion of their future income is set aside to pay collectors over the next three to five years.

Credit Cards

Credit cards should be used as a convenience, not as a means of living a lifestyle that one cannot afford otherwise. To protect your credit score, most credit reporting agencies suggest not letting your credit card balances exceed 50% of your limits.

Debt Consolidation Programs

Debt Consolidation Programs offer a means to pay off several smaller, higher interest loans with one loan, often at better terms (a lower interest rate, or lower monthly payments). Some consolidation loans use an asset of the debtor as collateral for the loan, usually the debtors house or property.

Credit Card Counseling

Credit Card Counseling services can negotiate lower interest rates and lower monthly payments with creditors on your behalf. The catch is, they change a fee for doing so, and not all counseling companies are equal. Some are strong advocates for the consumer and do a good job negotiating down payments and interest rates for their clients. Others defruad the consumer of their money in the form of an upfront fee, then disappear.

Debt Consolidation Loans

These are