Debt Free! Real World Credit Management Solutions

Several years ago I was drowning in debt. I lived far beyond my means. I was saddled with a high interest loan, student loans, and extensive credit card debt. I felt so overwhelmed. I considered filing bankruptcy.

I heard some lawyer talking about bankruptcy on television. The commercial said something like filing bankruptcy now would stop creditors in their tracks. Your debt will virtually disappear and your life will return to normal--like magic! I thought about that freedom and then I did my homework.

Bankruptcy is the incapability of a person or business to pay their creditors. Bankruptcy laws allow for a dispersing of property or repayment plan to settle the debt. Bankruptcy can be voluntary or involuntary.

Voluntary bankruptcy occurs when the debtor files for bankruptcy. Involuntary bankruptcy happens when a creditor files a bankruptcy petition against you to get their money.

After you file bankruptcy, you have to tell creditors and some employers if they ask. What creditor is going to give you credit after you filed bankruptcy?

My career involved money handling. Would an employer want to hire me after filing bankruptcy? If you file bankruptcy and lie about the fact later, it's fraud.

Chapter 7 - The basic filing of total bankruptcy for a business or individual. Chapter 7 follows your credit for 10 years.
Chapter 9 - Municipal bankruptcy (city, group, territory, or township).
Chapter 11 - The business restructuring, rehabilitation, and repayment. Individuals can use this if they own a number of assets and are in extensive debt.
Chapter 12 - Bankruptcy for farmers and fishermen.
Chapter 13 - This is for individuals with a regular income that intend to repay their debt. Chapter 13 follows your credit for 7 years.
Chapter 15 - International bankruptcy for companies spread throughout the globe.

In the end, I opted to work through my debts. I sold my fancy car and paid off that loan. I convinced my boss to give me extra shifts and a raise. I also took on a second part-time job.

I called each credit card company and worked with them to stop the extra finance charges and late payment fees. For some, I was able to get them to stabilize and lower the interest rates to a manageable level. In exchange I made payments every other week rather than monthly.

If you are trying to manage your debt, you need to decide which debts are priorities. Room and board are first and foremost. This includes food and necessary utilities: electricity, water, and gas. Many times utility companies will take partial payments or payment plans to avoid disconnection.

If you need your car to get to work, then that payment is a priority. If you are paying on two cars, see if you can make do with one. If you choose to keep your car, timely payments are imperative to avoid late payment fees. Also, be sure to include insurance, gas, and maintenance in your budget.

Top priority debts include child support and taxes. There are repercussions, including imprisonment, if these bills are not paid.

Secured loans are a priority, if the secured item is a necessity. Luxury items are not necessary. You will need to sacrifice your toys to avoid bankruptcy.

Student loans are not the highest priority. Student loan officers will work with you if you explain your situation, but you have to ask for help. There are deferment and consolidation plans for student loans. If you take the initiative on this bill, you can lighten your debt considerably.

Medical, service, and credit card companies are the most harassing and will tarnish your credit ratings. However, these debts should be your lowest priority. You should try to tell them what is going on and hope that they will work with you. Remember that your late or slow payments have already been reported to the credit bureaus. These threats to ruin your credit are scare tactics that have already been acted on.

Priorities taken from: Surviving Debt: A Guide for Consumers. Jonathan Sheldon and Gary Klein. National Consumer Law Center, Inc. 1996