Life With Your Credit

My first step in trying to find help was to search the internet. I had heard of credit counseling before but didn’t have the first clue as to what it really did. I needed to know what my options were. Wikipedia has some very good descriptions and explanations…( http://en.wikipedia.org/wiki/Main_Page). Take a look at what I found….

Debt Consolidation

This procedure, simply put, is taking out one loan to pay off the others. Hopefully with a lower interest rate and the convenience of only having one loan to pay off monthly. This, of course would not include your day to day living expenses. Usually this is a secured loan against collateral….in most cases, your home. My research also tells me that it is not a good idea to take out a secured loan to pay off unsecured debt. If you can not keep up with the terms of the loan you risk losing your collateral…in this case your house.

Debt Settlement

Also known as Debt Arbitration or Debt Negotiation, is an aggressive approach to debt reduction, which may be appropriate for debtors with serious amount of debt and are considering bankruptcy. A debt settlement agency negotiates with the creditors to settle the debt for a lower amount than owed, as the debtor saves their money for a lump-sum settlement payment. After the debt is settled, the creditor will send a letter stating the debt obligation was fulfilled, and will report to the credit bureaus that the debt has been, “Settled for less than full amount”, “Paid” or “Settled”.
Creditors will usually only settle for less than owed when the debtor is under serious financial strain because if the debtor chooses to file bankruptcy, then the creditor gets nothing. If no financial hardship is evident the creditor may choose to take legal action.

Credit Counseling

This is a process offering education to consumers about how to avoid incurring debts that cannot be repaid. This process is actually more debt counseling than a function of credit education.
Credit counseling often involves negotiating with creditors to establish a debt management plan (DMP) for a consumer. A DMP may help the debtor repay his or her debt by working out a repayment plan with the creditor. DMPs, set up by credit counselors, usually offer reduced payments, fees and interest rates to the client.
Credit counselors refer to the terms dictated by the creditors to determine payments or interest reductions offered to consumers in a debt management plan.

After joining a DMP, the creditors will close the customer’s accounts and restrict the accounts to future charges. The most common benefit of a DMP as advertised by most agencies is the consolidation of multiple monthly payments into one monthly payment, which is usually less than the sum of the individual payments previously paid by the customer. This is because credit cards banks will usually accept a lower monthly payment from a customer in a DMP than if the customer were paying the account on their own. Some DMPs advertise that payments can be cut by 50%, although a reduction of 10-20% is more common.

The second feature of a DMP is a reduction in interest rates charged by creditors. A customer with a defaulted credit card account will often be paying an interest rate approaching 30%. Upon joining a DMP, credit card banks sometimes lower the annual percentage rates charged to 5-10%, and a few eliminate interest altogether. This reduction in interest allows the counseling agencies to advertise that their customers will be debt free in periods of 3-6 years, rather than the 20+ years that it would take to pay off a large amount of debt at high interest rates.

A third benefit offered by credit counseling agencies is the process of bringing delinquent accounts current. This is often called “reaging” or “curing” an account. This usually occurs after making a series of on-time payments through the debt management program as a show of good faith and commitment to completion of the program. For example, a client with an account with a monthly payment of $50 which has not been paid in two months might be considered by the creditor to be 60 days past due. After joining the DMP and making three consecutive monthly payments, the creditor could reage the account to reflect a current status. Thereafter the monthly payment due on the statements would be the monthly payment negotiated by the DMP, and the account report as current to the credit bureaus. It should be noted that this process does not eliminate the prior delinquencies from the credit bureau reports. It merely gives a fresh start and an opportunity for the client to begin building a positive credit history. Like all derogatory credit information, the passage of time will lessen the impact of the negative marks when credit scores are calculated.

Bankruptcy Chapter 7

In a Chapter 7 bankruptcy, the individual is allowed to keep certain exempt property. Some liens, however (such as real estate mortgages and car loans), survive. The value of property which can be claimed as exempt varies from state-to-state. Other assets, if any, are sold (liquidated) by the trustee to repay creditors. Many types of unsecured debt are legally discharged by the bankruptcy proceding, but there are various types of debt that are not discharged in a Chapter 7. Common
exceptions to discharge include child support, most taxes, most student loans, and fines and restitution imposed by a court for any crimes committed by the debtor.
A bankruptcy discharge stays on the individual’s credit report for up to 10 years for most purposes. This may make credit less available and/or terms less favorable, although high debt can have the same effect.

I did this once and knew I didn’t want to do it again. And I didn’t learn my lesson when I filed so for me this was not an option. You should know however, there are new laws governing bankruptcy that force you to consider other options before turning to the courts. You can file again after 6 years providing you meet all the criteria.

Bankruptcy Chapter 13

Chapter 13 bankruptcy is an interest-free debt repayment plan through which you consolidate your debts and make a payment on your debt over a 3 to 5 year period. While in a Chapter 13 debt repayment plan, the creditors cannot collect from you, and the creditors are required by a Federal Court order to adhere to the terms of the plan. You can file as often as needed, assuming the previous filing has been completed.

On a web page for Indiana Law(http://www.indianabankruptcy.com/process.html) I found the following information. It is the best description of the bankruptcy law I have come across:

2005 Bankruptcy Act Credit Counseling
The 2005 Bankruptcy Act requires all individual debtors who file bankruptcy on or after October 17, 2005, to undergo credit counseling within six months before filing for bankruptcy relief and to complete a financial management instructional course after filing bankruptcy.

2005 Bankruptcy Act Means Test
Under the 2005 Bankruptcy Act you income and expenses will be analyzed to determine if you qualify to file a Chapter 7 or if you must file Chapter 13. To apply the means test, the courts will look at your average income for the 6 months prior to filing and compare it to the median income for that state. If the income is below the median, then you may choose Chapter 7. If your income exceeds the median, the remaining parts of the means test will be applied to determine if you can file Chapter 7 or if you must file Chapter 13.

Your will likely still be able to file a Chapter 7 bankruptcy if you are unable to pay at least $6,000 over the next five years ($100 per month) to your unsecured creditors after your expenses. However, if you can pay at least $10,000 over five years ($166.67 per month or more) your Chapter 7 will likely be denied.
If you could afford more than $6,000 but less than $10,000 over five years, then a mathematical calculation determines whether your Chapter 7 will likely be successful or not. If you could afford to pay 25% or more of your unsecured debt, then a Chapter 7 will likely be denied. If you can’t afford to pay 25% of your unsecured debt, your Chapter 7 filing will likely be successful. Examples of unsecured debts would include medical and credit card bills. Note that you can still opt for Chapter 13 even if you qualify to file under Chapter 7.

Good Morning! I love the early morning…don’t you? Especially in the spring and summer when I can take my coffee out on the patio and listen to the birds…watch the sun rise and everything awaken fresh.

I love it… unless I have spent the entire night tossing and turning or been unable to sleep at all wondering how I am going to make it through the week…or pay the electric bill on what I have left. And I have spent many, many nights in this position…

I was raised in a middle class home by parents who loved me. Some times we had lots of money, sometimes we didn’t. But it was never discussed. We talked about everything under the sun at that dinner table…politics, family, the neighbors, the news of the day, religion, science etc. But we never talked about how to handle money or what to do with it when you had it.

I lived at home till I was 26. I worked part time all through high school till the time I left college. And then I got a good full time job when I left school…but I still lived at home. My parents asked for no rent…no financial responsibility. I spent everything I earned any way I wanted. And if I ran short…Daddy was right there.

Then I married…now we had 2 full time jobs…and we could spend more….and we did. We had vacations, 2 kids, a house, credit cards, nice clothes, 2 cars. Life was good…we had debt and had fallen behind a couple of times after the kids were born but we always made it up.

After 12 years the divorce came…and through difficult circumstances I gave up all rights to joint money and housing…took my kids and ran. At 38 I was starting over with 2 beautiful children and no savings. But I did have the help of family and friends as I found a place to live and set up after school care for my children.

Over the next 15 years…I robbed Peter to pay Paul every week. We had ups and downs…sometimes I worked 2 jobs to make ends meet…sometimes I couldn’t make ends meet. I borrowed from family and friends, small amounts just to make it through. I still had no savings…I ruined my credit cards..had to buy cars at high interest…and lived paycheck to paycheck. I filed bankruptcy once but didn’t learn from the lesson. I always had the excuse in the back of my head…I am raising 2 kids as a single parent…what more could I expect…of course I had money issues!!

3 Years ago my youngest struck out on her own. And I found myself alone for the first time in my entire life. I had just left a not so good relationship and acquired my own first apartment. I have a great job and make good money. I have an older decent car…that’s paid for. Now I can live my life!! I bought new furniture, clothes and furnished my “new place”. I love it! I also acquired credit cards…and used them…I lived well and had fun doing it.

Then 2 years ago…the balancing act fell apart. To this day I can’t tell you how or what happened…but I ran short and didn’t have enough to make my credit card payments…I took out my first internet payday loan. For $200. I paid it back in 2 weeks. That was easy….but the original problem wasn’t fixed…so I took out another…then I couldn’t pay it off in 2 weeks so I had to extend…and so began my biggest decline yet. By April of 2007 I had 10 internet payday loans and 80% of my paycheck every 2 weeks was going toward keeping these alive. The interest and roll over fees. I hadn’t made a payment on my credit cards in 4 months or more. I was also falling behind in my rent and utilities. I hadn’t gone grocery shopping in 3 months…In December of 2006 I had a medical problem followed by a surgery. So I now also owed the hospital, the radiologist, and my doctor. I was borrowing money to make it through the week from my adult children…both whom were in college on student loans and working hard.

My sleepless nights became all too common…I had to find a way out. I was tired of living like this and knew I was too old to be having these problems…I had to turn around and take a good hard long look at my past and find away to turn it around. And I had to do it NOW.