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debt reorganization

Sometimes, taking up a loan may be the most 債務重組 sensible option to manage potentially troublesome financial issues involved in starting businesses or in settling up accounts. Especially when you are able to negotiate a favorable interest rate, a first or even a second mortgage need not be a dirty word, as long as you’ve done the appropriate research.

While loan consolidation has the potential to lower interest rates and lower payments in aggregate, it is important to pay close attention to the terms of repayment, especially when interest rates are variable over the course of the loan. In many cases, debt balances are spread out over ten or twenty or even thirty years. Upon the advent of negative amortization loans (one of the causes of the sub-prime mortgage crisis and the inspiration for ever worsening foreclosure patterns), some loans would never be paid off. It’s important, always, to recognize that lower payments don’t necessarily mean the debts are decreasing. In too many cases, the opposite could be true.

Often, without effective debt management, low monthly mortgage payments can result in a situation in which you are held hostage by overly lengthened debt loads. After the long term effects of compound interest, borrowers might end up paying their debts three or four times over for the sake of temporary relief. Savings can help prepare against this possible scenario, of course, but strategic planning is a better option in order to responsibly plan for future well being, especially in the face of unstable future economic times.

Settling of Debts:

Most credit card companies are willing to negotiate with delinquent cardholders to reach terms that are amicable to both parties. Some credit institutions are even willing to reach debt settlements with their debtors. What is important is that you don’t neglect a past-due debt. Penalty fees and interest rates can accrue dangerously and compound a debt until it is difficult to dig out of the financial hole. The best policy is to contact your credit company and try to strike mutually beneficial terms for everyone concerned, even if settlement remains one of the more obscure debt relief options available for the borrower.

It can be difficult for the average consumer to believe that credit card companies would willingly waive fees or lower interest rates or (surprisingly often) reduce the actual balance of a debt legally owed simply for the promise of a strictly adhered to repayment schedule. Every American should remember, though, that these creditors are terrified of their debtors declaring Chapter 7 bankruptcy protection and erasing any possible obligation. As we shall explain later on in the article, new legislation has made filing for Chapter 7 much more difficult – as well as far more arduous to endure – but, nevertheless, that threat is a powerful weapon against lenders.

Of course, even though credit card companies know that the potential for bankruptcy exists, they are still instinctually more harsh to ordinary consumers attempting to settle their debts themselves without the help of professional negotiators. Certified debt settlement specialists offer far more than a formal authority, though. Their training and experience should help the process through a knowledge of specific company practices (not all credit cards are willing to negotiate and each has a different ceiling of debt elimination). They should also instill proper debt management techniques within the borrower to avoid capricious purchases and maintain a well reasoned budget in the future. Still, someone professional acting on the borrower’s behalf generally results in a more equitable settlement.

Refinancing:

A convenient strategy to cope with debt, when it becomes too much to bear, is to take on a new debt to pay back a previous one. The new loan, of course, has a new maturity period, thus saving you from paying penalty fees. The most convenient way to do this, rather than taking on a new loan, is by refinancing your existing loan or (as is generally the case) home mortgage. Nonetheless, this process must be conducted responsibly, with due attention to terms, fees, and interest rates. Adjustable rates are currently popular since they are low at the start of the loan, but, make no mistake, they will only adjust upwards. Refinancing also contains its own costs. Industry standard is two points (or two percent) of the total balance, and, if the total balance includes a home mortgage, this can be quite a bit of money. Beyond all of that, as has been previously discussed, fooling around with home equity can never be thought of as a wise debt settlement strategy.

Bankruptcy:

When all other options have been expended, the final resort for debtors is to file for Chapter 7 bankruptcy protection. This is to be considered only as the last resort, and is subject to the analysis of civil courts. If the court decides that the debtor is bankrupt–and this is subject to the assessment of a judge and/or informal arbitration — the debtor’s assets will be sold off to satisfy his unsecured debts. Even if the debts are not paid in full after selling off all relevant assets, the debts will still be forgiven upon foreclosure, upon application of the debtor’s previously discussed properties.

For a variety of reasons, this should be avoided. The 2005 passage of changes to the bankruptcy code now forces those filing to list each asset’s replacement value instead of, as before, salable value. This means household goods and family heirlooms are now at risk of seizure. Furthermore, after the recent legislation, it is harder than ever to successfully attain Chapter 7 protection since the courts must look at the filer’s income (from an arbitrarily defined period three months before declaration) and compare it to the average income of his or her state of residency. Debtors who do not qualify are now put into the Chapter 13 debt reorganization program which still requires them to pay back the majority of their debts, but under the watchful eye of the trustee and with exactly the same negative credit repercussions as bankruptcy.

Debt settlement – Why It’s Important:

Many thousands of people in the United States are currently facing considerable debt loads, and the amount they owe ranges from hundreds of dollars to hundreds of thousands of dollars. While one of the more popular – and simpler – solutions to severe debt crises may be to file for bankruptcy, debt settlement is preferred because it has less of an impact on credit reports. There are benefits as well as drawbacks to settlement, and every borrower should understand them before deciding how to manage their debt. Investigate every option, make sure the company to handle negotiations has references and an impeccable track record for competence and respect within the industry. As important as it may be for debtors to remove the shackles of consumer debt, they want to make sure they’re making the right choice.

However, if bankruptcy seems to be the only option, you may want to get an attorney to help with filing. To qualify, you must be living below average means according to your state census bureau report. You will also pay for the filing and administrative fees though often times, the fee can be made in installments or completely waived.

A number of bankruptcy options such as chapters 7 and 13 are available for you to choose from. Chapter 13 bankruptcy also known as debt reorganization bankruptcy, allows you to keep your properties as long as you continue to make the agreed-upon payments on time.

Chapter 7 bankruptcy also known as liquidation or straight bankruptcy, involves selling of all your assets that are not exempt in your state.

If you are able to consolidate your debts, it is best you find a credit counseling agency to help you with debt consolidation. With debt consolidation, you will get lower monthly payments, low interest rate and will be able to keep your property, if you can afford to make the minimum payments.

While consolidation will appear on your credit report and affect your score, your information will not be made public or shared with your employer. It is also possible for you to keep one credit card for emergencies while giving up the rest.

When you file bankruptcy, credit card companies and debt collection agencies will no longer hassle you. However, the bankruptcy will go on public record and may appear on your credit records for up to 10 years, lowering your score by at least 200 points. This implies, you might not qualify for loans for a couple of years, and may in future only qualify for high interest loans.

Also note that chapter 7 bankruptcy will not wipe out all your debt, and you will still have to pay back alimony, taxes, and any fraudulent debt including child support.

As clearly outlined, there are pros and cons of choosing bankruptcy vs debt consolidation. Secured debts like car loans, mortgage, and some personal loans cannot be consolidated. While consolidation will not entirely ruin your credit in the short term, it limits your use of credit cards, and can only help with multiple unsecured debts such as credit card debts from different credit card issuers.

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