Avoiding Debt and Bankruptcy

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The two most severe forms of financial trouble that most consumers can imagine are foreclosure and bankruptcy. These two events often happen together, but it is not necessary that they do. A homeowner may lose the house through foreclosure and avoid bankruptcy, and likewise, a person may go through bankruptcy court while managing to keep his home.

The issue of bankruptcy becomes a real threat when consumers find themselves in deep financial trouble that is often caused by a serious personal event such as an illness or loss of job. A second way that consumers can find themselves threatened with bankruptcy is through careless borrowing. In many cases, this is the reason households find themselves so far under that they cannot get out without help fro the courts.

One of the main sources of trouble for many consumers is credit card debt. There are many reasons for this, but perhaps the most logical is the ease of use that credit cards afford us. Unlike any other type of loan where we have to go to a bank or credit union and fill out application papers and then be granted the loan, a credit card is simply handed over to a merchant and that's that.

Credit card purchases are loans. They may be small in nature, say, when a cup of coffee is purchased, or they may be large. Regardless of the size of the purchase, the purchase is, in fact, being paid for by a loan. These loans have some of the highest interest rates on the market, and so it is not uncommon for many consumers to find themselves in deep water when the bills come due.

Bankruptcy laws have changed dramatically over the last few years. In the past, filing for bankruptcy was pretty easy and straightforward. Today, it is much more complicated and the protections that consumers receive from the courts have changed as well. Anyone considering bankruptcy would do well to consult with a qualified attorney before filing. Some of the newer laws may impact you more than you imagine. For example, most people who wish to file must first take mandatory credit counseling classes. There is also a new "means test" being used that will prevent some consumers from being able to file for Chapter 7 bankruptcy. There are also new laws concerning unpaid child support and alimony. In addition, there are fewer "automatic stays" allowed. These automatic stays were once very common but today they are fewer and they are more inclined to favor the creditor than the consumer.

The above are just a handful of the new rules pertaining to bankruptcy. These rules took effect in 2005 and they are law now so there is no getting around them.

Debt and bankruptcy do not have to go hand in hand. Be being careful with the debt that you take out, and by making sure that you pay your obligations when they are due, most consumers can avoid bankruptcy. Once a bankruptcy proceeding takes place, consumers should understand that their ability to get future credit may be significantly decreased. This is in opposition to some of the old myths that once a consumer was free and clear of debts through bankruptcy he or she was given preferred treatment by new lenders. This is not the case anymore.