Only in extreme cases bankruptcy can be considered a good idea and most people can handle their debt through debt consolidation. Bankruptcy will leave a scar on your credit history for a long time, much more than seven years that people say it will. Unless a professional recommends that actually there is no other way out of your debt, bankruptcy isn’t the answer! The debt consolidation is the perfect alternative to bankruptcy because with debt consolidation you can pay your debts, and because of this, it will enhance the long-term credit and you’ll be able to get cheaper loans in the future.

Debt consolidation works by gathering all your debts, and work with the people to whom you owe money to reduce interest and even take a small portion of the principal amount due off the bill. Do this with each bill will lower your personal debt up to twenty percent, and when it comes to large amounts of debt twenty percent may be a lot! Twenty percent can mean the difference between the possible and failure. Twenty percent can mean keeping your home or have it foreclosed upon!

The first step after gathering all your debts and reducing them where possible is to make a comparison of income to debt. This report will determine if debt consolidation really will work for you. For example, if you make fifty thousand dollars a year and only ten thousand dollars debt, you’ll definitely be able to work out arrangements for the debt doesn’t far exceed what you can bring in more than a couple of years’ time. But if your income is just twenty-five thousand U.S. dollars a year and you have a debt of a million dollars, can be difficult to always get on top of that. Your debt must be something you can realistically expect to pay within a few years. A debt consolidation professional can take a look at your specific debt to income ratio and let you know if you’re a good candidate, or if you really need to consider bankruptcy as a last resort. Do not pay the debt isn’t an option, because bad credit robs your purchasing power, and you need this!

Even if you think that your debt is outrageously high, you must still consult with a debt consultant. Even if your debts are high now, you should see what a debt consolidation company could do for you, with interest and reduced debt. Don’t be discouraged until a qualified professional will tell you that debt consolidation isn’t an option for you. Don’t give up until you’tried everything you can’t just roll over and scrub your credit without being one hundred percent sure that bankruptcy is the only option.

First of all, you need to know what are the exact effects of personal bankruptcy: it’s going to stay in your credit report for the next 10 years, and this means that it’s going to be rather difficult to get a credit, buy a house, get life insurance and it might even be more complicated to get a job, as some employers check the credit report of prospective employees.

However, you’re going to get a discharge, which is a court order which says that some of your debts no longer have to be repayed and it will stop the activities of debt collection agencies. You need to remember that not all debts are erased by personal bankrupcy: while unsecured debts (including credit card debt) are going to be canceled, there are a number of debts which will not be canceled: among these are the child support and alimony, any kind of fines and taxes you owe to the authorities and student loans.

Your whole wealth (with some exceptions, such as personal items) is going to be liquidated and used for the partial repayment of creditors. If you have a house for which your creditor has a an unpaid mortgage attached to it, you are no going to keep it, unless you make a plan with the creditor to catch up on your debt.

Alternatives to personal bankruptcy which might want to consider include debt consolidation and debt settlement.
When you get a debt consolidation loan, you are going to get a new loan to pay the rest of the loans you currently have. If the current monthly payment for your loan is too big for your incomes, you can get a loan that is on a longer term, so that you’d get a smaller monthly payment.

Debt settlement is a solution when you are on the brink of bankruptcy: the creditors prefer to negociate wih you: instead of you declaring bankruptcy, they’d rather talk with you on a repayment plan and possibly the reduction of the amount of outstanding debt if you pay them now.

There are two basic types of personal bankruptcy: Chapter 13 and Chapter 7 Each must be filed in federal bankruptcy court. As of April 2006, the filing fees cost $ 274 to Chapter 13 and $ 299 for Chapter 7 Attorney fees are additional and may vary.

Effective October 2005, Congress radically changed the bankruptcy laws. The net impact of these changes is to give consumers more incentive to seek bankruptcy relief under Chapter 13 rather than Chapter 7. The difference is that Chapter 13 allows people with steady income to keep assets such as a house or car, which would otherwise be lost through the bankruptcy proceedings. In chapter 13, the court approved repayment plan, which allows you to use your future income to repay their debts within three-to-five-year period, rather than surrender any property.

Chapter 7 is known as straight bankruptcy, and involves liquidation of all assets that are not exempt. Exempt property may include automobiles, work-related tools and basic household equipment. Some of your property may be sold by a court-appointed official – the trustee – or turned over to the creditor. The new bankruptcy law has changed the time during which you can get through a chapter 7 discharge You must wait 8 years after receiving performance in Chapter 7 before you can file again under that chapter. Chapter 13 waiting period is much shorter and can be as little as two years between filings.

Both types of bankruptcy may get rid of unsecured debts and stop foreclosures, repossessions, garnishments and utility shut-offs, and debt collection activities. Both also provide exemptions that allow people to keep certain assets, although exemption amounts vary by state. Note that personal bankruptcy usually does not erase child support, alimony, fines, taxes and certain obligations, such as student loans. And if you have an acceptable plan to catch up with your debts under Chapter 13, bankruptcy usually does not allow you to keep property when your creditor has an unpaid mortgage or security lien on it.

Another major change to bankruptcy law includes certain obstacles which the consumer must clearly before filing for bankruptcy, no matter what the chapter. You must get credit counseling from a government-approved organization within six months before the file for any bankruptcy relief. Also, before you file Chapter 7 bankruptcy case, you must meet the “income test.” This test requires you to confirm that your income does not exceed a certain amount, which varies by state.

Solving Creditor Harassment

If your main issue is the harassment of the creditors, you should know that filing bankruptcy would not necessarily help you with that. The best solution to your problem is to learn about the local state laws regarding debt collection, which can help you against abusive and harassing conduct of the creditors.

Negotiations with the Creditors

Few people know that if they are on the brink of bankruptcy, they can negotiate directly with the creditors and obtain an out-of-court settlement. If you have a steady income or some assets that you are willing to sell, these negotiations can be quite profitable for you, because this could buy you some time or even you could see your debt reduced by quite a substantial amount. For the creditors, it is better to get a part of the money they gave you, rather than see the complete amount disappear with your bankrupcy.

Debt Consolidation

Credit card debt is the worst kind of loan you could possibly get: if you do not pay your credit card in time, you could end up paying up a yearly interest rate of 20-40%. A solution to these cards is to get a debt consolidation loan with a lower interest rate and repay with it the credit cards. Just beware that if you have a longer term, the total amount you could pay up could be higher than the original. Generally, it is a bad idea to consolidate the unsecured credit card loans against your house, because this way you could end up losing your home, if you cannot pay the monthly payment.

Debt Counseling Services

Debt counseling services can help you consolidate your payments and obtain reductions for the interest rates on your unsecured debts. However, many people who are in a bad financial state could not qualify for such services, as they cannot pay even the lower monthly payments.

Do Nothing Solution

A surprising solution to your debts problem could be to simply ignore them. This is valid in the case in which you have little income and property and you want a simple life. The creditors cannot take basic things needed for your life (like regular clothing, food, basic furniture, unemployment/housing benefits) and you cannot be thrown in jail unless you fail to pay taxes for your incomes or if you refuse to pay child support. The creditors will not sue you because even if they win, they will not get anything from you, and it makes sense not to waste money on trials.