According to the U.S. Census Bureau, average debt amounts have nearly doubled in the last decade. Debt is a continually increasing problem in America, with credit card debt as the most common type. In fact, credit card debt now averages at about $8,500 per household and the average family is paying about $1,100 a year in credit card interest charges. Debt settlement businesses provide great solutions for those who are overwhelmed by bad debt problems.

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Debt settlements are a very aggressive method for eliminating large amounts of debt. Some debt settlement companies will require that clients have at least $2,500 worth of unsecured debt before they can use the settlement services. Those who have more mild cases of debt may want to consider other options. For instance, in mild cases of credit card debt, transferring balances to zero or low balance credit cards can be helpful for avoiding treacherous interest charges.

Debt settlement clients will typically become debt free in a period of 18 to 24 months. This is after debt totals have been negotiated by 40 to 60 percent. Depending on individual situations, debt can sometimes be paid off much sooner. Fees and reductions for debt amounts are often determined according to individual circumstances, such as income and the amount of debts that have been accumulated.

Debt settlement is very beneficial for debt sufferers because it will not ruin credit ratings. Because debt settlement can help to pay off debts quickly, credit scores can be rebuilt quickly as well. Debt settlement can reduce monthly payments by as much as 60 percent and pay-off times by as much as 70 percent. They can also be used to eliminate fees or charges that have been accumulated and to drastically reduce interest charges.

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Falling into credit card debt can happen in the blink of an eye. It is very easy to overspend and not realize until it is too late when using credit cards. Unfortunately, eliminating credit card debt is typically a difficult and lengthy process. The best way to avoid getting into debt is by carefully monitoring credit expenses, or by not using credit cards at all. If you are already in the trap of credit card debt, there are a few options to consider that will help you to eliminate this debt.

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Debt settlements and debt consolidation loans are both popular options for eliminating credit card debt. While both methods have their advantages, debt consolidation loans seem to have many more disadvantages than debt settlements. Debt consolidation loans are desirable because they combine all debt amounts and unsecured bills into one monthly payment with lowered interest rates. However, they will often get people into deeper or unsecured debt. Debt settlements are more desirable because they can cut down your total debt amounts, interest rates, and pay-off times without the need for a loan.

There are a few different types of credit cards that commonly encourage debt development. Unsecured credit cards are the most common of all credit card options. Perhaps they are so popular because they are fairly easy to obtain. They can be issued to people with imperfect credit or no collateral, unlike secured credit cards. These credit cards can get people into trouble because they often have annual fees or high interest rates that must be paid in addition to balances from purchases.

Secured credit cards can be dangerous as well because they require collateral. They may require that you have certain amounts of money in the bank in order to cover them. Some will also only allow users to shop from particular catalogs that have expensive items. Department store credit cards are another option that can lead to debt. They typically offer customers special deals, such as 10 percent off purchases the first time credit cards are used. This is great for initial purchases, but these cards can be dangerous after that, with interest rates as high as 21 percent.

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Personal bankruptcy is a legal way to give people with overwhelming debt a fresh financial start. Many people do not realize that there are five types of bankruptcy options available under the U.S. Bankruptcy Code; however, for most consumers there are really only two viable options; Chapter 7 and Chapter 13 bankruptcy.

Chapter 7, bankruptcy is entitled Liquidation: In a Chapter 7 bankruptcy, a court-supervised procedure occurs during which a court-appointed trustee collects the assets of the debtor's estate, converts them to cash for repayment, and makes all necessary distributions to the debtor's creditors; however this is all done within the debtor's right to retain certain exempt property. Traditionally, there is little or no nonexempt property in a chapter 7 bankruptcy. Due to this fact, there may not be an actual liquidation of the debtor's assets. In this case, it is called a "no-asset bankruptcy." It is important to realize that a creditor that is trying to collect on an unsecured claim will only get a distribution from the bankruptcy estate if the case is an "asset bankruptcy" and the creditor can provide proof of their claim with the bankruptcy court. In almost all chapter 7 bankruptcies, the debtor will be grated a discharge that releases them of personal liability for most dischargeable debts. The entire process normally takes just a few months from the time the bankruptcy petition is filed.

Chapter 13, bankruptcy is entitled Adjustment of Debts of an Individual with Regular Income: A chapter 13 bankruptcy is traditionally used for people who have a regular source of income or a full-time job. For many people, chapter 13 is preferable to chapter 7 because it allows the debtor to keep some assets. A chapter 13 bankruptcy allows the debtor to repay creditors over time. This time traditionally varies from three to five years. This type of repayment proposal takes place at a confirmation hearing. During this confirmation hearing, the court will either approve or disapprove the debtor's repayment plan. This decision largely depends on whether the repayment plan meets the Bankruptcy Code's requirements for confirmation. In a Chapter 13 bankruptcy the debtor is usually able to remain in control of their possession and property while making payments to creditors; however, payments are made via a court trustee. Unlike chapter 7 bankruptcy, the debtor does not receive an immediate discharge of their debts. Under chapter 13 bankruptcy, the debtor must complete the repayment plan before the discharge is granted; however, the debtor is protected from lawsuits, garnishments, and other creditor action while the plan is in effect.

It is important to remain cognizant of the fact that not all debts are discharged under bankruptcy. The debts that are able to be discharged will vary under each chapter of the Bankruptcy Code. However, the most common types of non-dischargeable debts are tax claims, debts that are not presented by the debtor to the court while filing for bankruptcy, debts for spousal or child support or alimony, debts to governmental units for fines and penalties owed to government entities, debts for personal injury caused by the debtor's operation of a motor vehicle while driving intoxicated, debts for willful and malicious injuries to person or property, debts for government funded or guaranteed educational loans, and debts for certain condominium or cooperative housing fees.

In order to file for bankruptcy, you must file a petition in federal bankruptcy court. You must file a statement of assets and liabilities as well as schedules listing of your creditors. Once you have finished filing bankruptcy, your creditors can no longer take action against you to collect discharged debts. Negative Aspects of Bankruptcy In chapter 13 bankruptcies, you may end up paying back 50% or more of your current debts. Additionally, if you miss a regularly scheduled payment at anytime during your chapter 13 bankruptcy repayment plan, you could end up in violation of the court and forced to repay all the debt!

One of the most difficult parts of bankruptcy is learning to live with the fact that filing bankruptcy limits your personal spending to items that the court considers absolutely necessary. In most cases, debtors do not complete their chapter 13 bankruptcy repayment plans. Most people filing chapter 13 bankruptcies think they will be able to complete their repayment plan; however, only about a third of them actually do. Additionally, chapter 7 bankruptcy may stay on your credit longer than a chapter 13 bankruptcy. This time ranges from 7-10 years for most people. Many people do not realize that if you own a home with a sizable amount of equity, have a fair amount of assets to protect, or have co-signers on a loan, you most likely will not be able to file chapter 7 bankruptcy under current law. Now that the new bankruptcy legislation has passed, it will be even more difficult to file for bankruptcy.

Many people think that filing bankruptcy is the silver bullet that will fix all of their debt and credit related problems; however, filing bankruptcy is the worst thing you can do to your credit. Most lending institutions will consider your bankruptcy when evaluating you for a personal loan even after the bankruptcy has expired. Qualifying for a loan after filing for bankruptcy can be very difficult and could cost you considerably more than a person that has not filed for bankruptcy.

It is understood that some situations will require you to file for bankruptcy. However, you should avoid bankruptcy if at all possible. A good debt settlement company can help eliminate most, if not all, of your unsecured debt so that you do not have to file for bankruptcy. If you require additional information on the subject of bankruptcy you may want to contact a bankruptcy attorney in your area.

Alan Barnes IAPDA Certified Debt Arbitrator
President and CEO of Debt Regret
http://www.debtregret.com

Article Source: http://EzineArticles.com/
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