Today you’ll find that many people are dealing with identity theft. Sadly, once your identity is stolen, your entire life can be ruined for some time. You’ll have to straighten out things with lenders, you may have a hard time getting credit, and cleaning up the mess can be a huge task.

Instead of having to sort out a mess, it’s definitely better to work on avoiding identity theft in the first place. There are many ways that you can be proactive and avoid being a victim of identity theft. Here are six great simple ways that you can avoid identity theft.

Way #1 -- Never Give Out Your Social Security Data -- If you want to avoid becoming a victim of identity theft, then you need to protect your social security data. This means that you should never give out this information unless it is absolutely necessary. Also, make sure your Social Security car is kept in a place that is safe and secure.

Way #2 -- Keep Track of Your Wallet -- Start keeping track of your wallet. If you lose your wallet or purse, this increases your chance of becoming a victim of identity theft. Keep track of your wallet and guarding it will help you to avoid this problem.

Way #3 -- Check Out Bank and Credit Card Statements -- You should be checking out your bank and credit card statements on a regular basis. Look out for any purchases you see that you didn’t make. If this occurs, talk to the bank or credit company as soon as possible.

Way #4 -- Shred Important Documents -- If you have important documents that contain sensitive information, don’t just throw them away. Get a shredder and shred these documents. Otherwise someone may be able to take the documents out of your trash and get access to important information about you, leading to identity theft.

Way #5 -- Check Your Credit Report Each Year -- Each year you should be checking out your credit report. Not only is this good for keeping track of your credit score, but you should be looking to make sure that no strange accounts show up. If you notice a card or account that you didn’t apply for, you need to contact the authorities and the credit reporting agency immediately.

Way #6 -- Use Good Password for Bank, Phone, and Credit Card Accounts -- When you are setting up bank, phone, and credit card accounts, make sure that you use good passwords. Don’t use obvious passwords, such as your birthday, middle name, or mother’s maiden name. A good password can keep your account from being hacked and your identity stolen.

With these tips, you can keep identity thieves at bay. Identity theft can ruin your life. So, it’s time that you do something to prevent it. Make sure you use these tips and you’ll be more likely to avoid becoming a victim yourself.

Are you in debt?  Millions of people are.  While being in debt is not a huge problem in itself, it can quickly become one if you lose your job, are in an accident, or have some other financial crisis.  Suddenly you feel bogged down and don’t know what to do.  Most people think that if they can’t pay their bills, bankruptcy is their only option.  It’s not.  There are many ways to avoid bankruptcy, on your own or with the help of others.  Just remember that you do have options and all hope is not lost.

Your first option when facing financial crisis is to not do anything.  Bill collectors may call and harass you, but they can’t really do much to you for not paying a credit card bill.  They can’t put you in jail, and if you have no money, then they can’t successfully sue you.  If there is nothing you can do, then do just that: nothing.  When you don’t pay certain bills, the company can generally just write the loss off, so it’s not really a big deal to them.  While this isn’t the best long term option, it can work if you’re only going to miss a few payments.  If your creditors are hassling you mercilessly, this is illegal and you can take action.  There are many organizations that can help you fight this kind of abuse.

When your financial situation is a bit more dire, you should consider talking to your creditors and trying to work out a plan.  Many businesses will be willing to work out a plan to get you caught up.  This is especially important if you cannot pay your mortgage bills, taxes, or other important bills.  Just remember to be prepared with financial statements and a proposed plan; this will let your creditor know you’re serious about repayment.  Another good idea for these bills is, if you can’t pay the whole bill, pay as much as you can.  This will help in your negotiation with the creditor because they can see that you are trying.   You may also consider selling off assets, but try to stay away from 401k and retirement plans, this will not only damage your future security; you can also incur large penalties.

Another important step when facing bankruptcy is to remember and protect what is important to you.  If you don’t pay your credit card bills, your credit rating drops (plus missed CC bills go off your record after 7 years); however, if you don’t pay your mortgage payment, you may risk foreclosure.  If you only have a little money coming in, pay the important bills first.  The house and car payments are generally most important, especially if you drive to work.  Paying the utilities is also important; however, if you miss one bill, they’re not going to turn off your heat or water (plus they usually give you warnings first). So if you’re just experiencing a short break in cash flow, they’re not as important.  The least important is your credit card and other similar debt.  You should also pay taxes and child support if possible, because you can get in big trouble for not doing so.

You’ve probably seen commercials for services that will help consolidate your bills and lower your monthly payments.  This can be a good option for some people, but you should also be wary.  You should always find out if the company is a for-profit organization or not.  There are many not-for profit organizations that do this kind of work; it’s best to work with one of them.  You also don’t want to think of this option as a cure all for your credit rating.  Working with these agencies does go on your credit report and in some cases is considered almost as bad as a bankruptcy.  Before you decide if you want to talk to one of these agencies, you should sit down and realistically figure out if you can pay off your current debt (debt that is due, not your mortgage, etc) in three years or less.  If you can, you should simply talk to your creditors and work out a plan on your own.

These are just a few ideas for avoiding bankruptcy.  You should remember that the best way to avoid bankruptcy is to live within your means.  Whether you’re in financial trouble or not, you should be on a budget.  If you are in danger of bankruptcy, you should try to cut back on unnecessary expenditures even more.  If possible, try to keep some money saved up in case of an emergency.  If you have tried many options, or simply can’t make sense of all your options, you can contact an expert.  Many companies offer advice on what would be the best course of action for your situation.

So, you’ve exhausted all your options; you’ve tried everything you can, but you just can’t avoid going into bankruptcy.  What you need to know is that you still have options.  Even if you feel you have no choice but to declare bankruptcy, you still must choose what type of bankruptcy you want to declare.  As a consumer, there are two types of bankruptcy which are most commonly used; these are chapter 7 bankruptcy and chapter 13 bankruptcy.   Each type has its own advantages, disadvantages, and costs.  Which type you declare depends on your specific financial situation.

The first option you have is a chapter 7 bankruptcy.  This is what most people think of when you mention bankruptcy.  Chapter 7 bankruptcy involves total liquidation of assets and is the most extreme of the available options.  In this option, someone will be appointed to sell most of your assets and use them to pay your creditors.  Some of your assets may be eligible to be claimed as exempt.  All assets not labeled and exempt are eligible to be sold.  Much of your debt will be voided if your are successful in filing for chapter 7; however, you should check ahead of time because there are several types of debt which are not eligible and will still have to be paid.  The cost for filing chapter 7 bankruptcy is around $300 and can only be done once every six years.

Not everyone can file under chapter 7.  You should file for chapter 7 only if you are incapable of paying back your debt.  You must undergo a “means test” to determine you are truly incapable of paying back this money and therefore eligible to file for chapter 7.  Also, if you make more money than the most people in your state, your creditors may request that your case be dismissed.  If their motion is passed, you would not be allowed to file for this chapter of bankruptcy.  Another case in which you would not be allowed to file this type of bankruptcy is if you had been found to have violated behavior outlined in the Bankruptcy Code.

The other common bankruptcy option for consumers is Chapter 13.  Under this option, a person can work out a schedule to pay off all or part of their debt with future earnings.  The time allotted to pay off the debt is 3 or 5 years, depending on the court’s decision.  In this option, the debt is not cancelled; repayment is simply delayed.  This option also allows you to keep your property and assets.  The costs of filing for this type of bankruptcy are also around $300.

Similar to filing for chapter 7, Chapter 13 bankruptcy also has some restrictions.  Just like Chapter 7, there are certain types of debt that are not eligible.  You must have some sort of steady income to apply for chapter 13, otherwise you have no proof that you can pay off the debts within the allotted time period. There are also limits as to the size of the debt covered under this plan.  If your debt is too large, you will not be allowed to file.

The two other types of bankruptcy available to consumers are Chapter 11 and Chapter 12.  Chapter 11 is generally used by businesses as a way to restructure debt.  This option is much more complicated and expensive than the other two and should only be used the Chapter 7 and Chapter 13 bankruptcies are not options.  You should also discuss this option with a lawyer before you proceed.  Chapter 12 bankruptcy can only be filed by those who own a farm or are fisherman.

These are the options available for you to file for bankruptcy; however, that doesn’t mean they are you only options.  There are many alternatives to bankruptcy that you should research prior to filing.

A credit counselor is a person who helps work with your creditors to lower your interest rates.  Credit card companies will work with these agencies because it’s better for them to work this way and get paid smaller amounts of money than to have you stop paying your bill and get no money at all.  A credit counselor will work with you to figure out a plan to pay off your debt that’s tailored to your specific needs.  You will pay one monthly bill to the credit counseling agency and they will pay your debt for you.  Besides offering you a way out of debt, a credit counselor can also act as a sympathetic knowledgeable ear to ask your questions and express your concern.

You should not think of credit counselors as a cure-all for your money troubles.  You still have to pay off your debt; they simply make it more manageable.  Plus, going to a credit counselor goes on your credit report and still significantly affects your credit report.  The affect of credit counseling is about the same as declaring Chapter 13 bankruptcy (redistribution of debt), but not nearly as bad as declaring chapter 7 bankruptcy (total liquidation of assets).   It does keep you out of court though.  Another downside of credit counseling is that you generally have to give up all your credit cards so you can concentrate solely on paying off debt.

When you decide that credit counseling is the route you want to take, you should be sure to find a reputable agency that is going to work in your best interest.  Sadly, there are lots of companies out there that are perfectly willing to take advantage of your situation if you’ll let them.  You first step is to find an agency that is not-for profit.  Most large agencies are; however, some are non-profit branches of a for-profit company.  It’s best to research the company you’re going to work with first to make sure this isn’t the case.  Plus, even if a company is a legitimate not-for profit, that doesn’t mean they have your best interest in mind.  If a company offers a quick fix if you pay an upfront fee or guarantees you help before knowing your financial situation, keep looking.  Legitimate credit counselors offer their services at very low rates, many times less than 20 dollars a month, and they will never ask for money before services are rendered.  If you’re having trouble finding a credit counseling agency you think is legit or just want help finding one, you can always check with the Better Business Bureau.  They can give you a list of reputable credit counselors that you can work with.

What you need to remember is that while there’s no quick fix to being in debt, there are people out there who are willing and able to help you; you just have to ask.

This simple guide is designed to help you finally get out of debt.

The average American carries $8,000 in credit card debt. If cards are paid off using the minimum payment option, $8,000 can take 20+ years to pay off. That’s a scary thought, huh? 30 years from now you could still be paying for a dress or iPod that you barely used. This is a harsh reality for many Americans and, chances are, if you’re reading this article, then you’re in debt and are about to face this reality.

One thing to keep in mind, though, is that you control your own future. If you set your mind to it, you can get out of debt. Now you may be asking “how can I get out of debt when I don’t know how?” It’s a question that many people with debt ask. How to get out of debt is often a confusing and long process. In this article, we will be going over, in depth, how to get out of debt so that the process will be as simple and quick for you as possible.

Know Your Options

Before you can even begin the process of getting out of debt, you should first explore all your options so that you can find the method that suits you best. There are generally two ways of getting out of debt without hurting your credit score further:

• Debt Reduction Plan: A debt reduction plan is provided by a credit counseling agency. They will, essentially, take all of your credit card bills and combine them into one or two monthly payments. Additionally, they will negotiate with creditors to lower interest rates. A debt reduction plan is good for those who are unable to figure out how to get out of debt on their own. For more on debt reduction plans, please see our article on them.

• On Your Own: You completely determine how to get out of debt. You’ll create your own repayment plan and possibly negotiate with creditors to lower interest rates. This is the method of getting out of debt which is covered in this article.

Step 1: Stop Charging and Cut up the cards!

The absolute first step to getting out of debt is to quit charging. You obviously cannot expect to get out of debt if you’re still charging. To prevent you from being tempted to charge, you can cut up the credit cards.

Step 2: Look at all of your bills

The next step is to look at every one of your bills. See how much debt you owe to each company, how much interest they charge on the debt and how much the minimum payment is. Create a spreadsheet (perhaps by hand or on the computer) and write all the details associated with each card. This allows you to see exactly how much you owe.

Step 3: Add all debt to see your total debt

It’s important to know the total amount of debt owed so that you can formulate an accurate plan. Add every individual debt together to determine your total debt. This will be the very basis of your plan.

Step 4: Create a budget

Next, you must figure out how much a month you can delegate toward debt. If you don’t know how to create a good budget, it’s time to check out our article on creating a budget. After you’ve gone through that, progress to the next step.

Step 5: Look at the interest rates and balance for each account

It’s time to create a plan to pay your debt off in the best possible manner. Take a good, hard look at the interest rates and balances on your credit cards. Strive to pay off the cards with the highest interest rates and balances, as those are most harmful to your credit report.

Step 6: Phone the credit card companies

A sometimes uncomfortable aspect of getting oneself out of debt is to actually phone the credit card companies. Many people who are in debt shun communications with credit card companies because they think the companies will treat them rudely. However, this is a huge mistake.

Most credit card companies employ workers who are helpful and friendly. Before you make a concrete plan for eliminating your debt, phone the credit card company. Explain your situation (that you want to get out of debt) and ask for a reduction of the interest rate. Most credit card companies are happy to oblige because they will be getting their money back.

Step 7: Re-Evaluate

After you’ve (hopefully) gotten the credit card companies to reduce your interest rates, it’s time to re-evaluate. You’ll want to, once again, pay off the credit cards with the highest interest rates and balances first.

Step 8: Pay more than the minimum on all cards

Paying the minimum, as we already said, can stretch out the amount of time you’ll be paying off the cards. Thus, it’s a great idea to pay above the average on all cards, regardless of how much you may be spending on the higher interest cards. Try to pay at least $10-15 above the minimum on each card.

Step 9: Create a plan

Now that you know how much to pay out to each creditor, it’s time to create your plan. Write down exactly how much you’ll be paying out to each creditor and add up the total amount you’ll be paying to creditors each month. Put this amount down on your budget so that it fits in with all your other expenses.

Update this plan every month with the updated balances and, as you pay off creditors, cross them off their list. This does two things: it holds you accountable and gives you a sense of accomplishment when you successfully pay off a creditor.

Step 10: Make payments on time

Late fees can increase minimum payments and make it that much harder to pay off the debt. That’s why you should do everything you can do to avoid these late fees. Send your money out to creditors a week before the due date on the specific credit card. If it’s not an option for you to send them out that early, arrange to wire the money to the credit card company a day or two before the due date. Doing so helps you completely avoid costly late fees.

Bonus Step: After the debt is paid off, do not get as many credit cards before

Once credit card companies see that you’ve paid off, or nearly paid off, debt, they’ll start sending you a lot of applications for new credit cards. Resist the urge to sign up for every offer that is extended to you, as overloading yourself with credit cards can harm your credit score and cause you to get into debt all over again. Try to limit yourself to two credit cards and you should be fine.

Bonus Step: Request a credit report each year

You can usually request a credit report for free every year. This report tells you about any outstanding debt you may owe, as well as what your credit score is. Knowing your credit score is crucial, so don’t skip this step.

When people go into deep debt, they often think that the only solution to the problem is to simply get a bankruptcy and start over again. Bankruptcies, though, aren’t exactly “starting” over—they stay on your credit record for years and also make you look bad to potential lenders. So what are you supposed to do if you’ve got deep debt? You could take the bankruptcy route and damage your credit more or you could do something else that will allow you to get out of debt while not further harming your credit: credit counseling.

What is Credit Counseling?

Credit counseling is essentially debt counseling. When you get into a lot of debt and are unable to pay it off on your own, you’ll go to a credit counselor who will tell you the best method of paying off the debt. Credit counseling gives you an effective way of paying off whatever credit card debt you may have.

When should I consider Credit Counseling?

Anyone who has debt which they cannot pay off should consider credit counseling. Credit counseling offers you a way out of the mess of credit card debt. Qualified and experienced credit counselors can look at your debt and determine the best way of paying it off. Depending on how much debt you have, your counselor may tell you about a debt reduction plan to help rid yourself of the debt.

What is a Debt Reduction Plan?

Under a debt reduction plan, your counselor will consolidate all your debts into one monthly payment which you give to the counselor who then disperses it to creditors. Your counselor will also attempt to lower your interest rates and will arrange payments to each creditor in a way that enables you to pay off the debt as quickly as possible. Most debt reduction plans last anywhere from 12-60 months, although people with a huge amount of debt ($30,000 or greater) may end up in a debt reduction plan of longer than 5 months. How long your debt reduction plan lasts will entirely depend on how much you can afford to set aside for your bills each month and how much debt you have.

Why is Credit Counseling Effective?

Credit counseling is effective because those who work as credit counselors are able to financially analyze any situation and tell the person who is in debt what the best option is for them in regards to paying off the debt. They are able to create individualized plans for anyone who is debt.

Why is Credit Counseling NOT Effective?

Generally speaking, most credit counseling is effective. However, if you go to a credit counseling agency that is unaccredited and dishonest, you will run into big problems. In fact, you may even be worse off than before. That’s why picking the right credit counseling agency is extremely important.

How do I pick the right Credit Counselor?

The first step toward selecting a credit counselor is to open your phone book. Look for the section of the yellow pages about “Credit counseling”.

Take a look at each listing—there should be at least one local credit counseling agency in your area. As you look at each listing, make note of the name of the counseling agency.

After you’ve come up with a list of agencies, log on to Google.com and google each agency. Really research each agency so that you do not end up with one that isn’t effective. You may want to check out http://www.nfcc.org/ for a list of accredited credit counseling agencies. Those agencies that are accredited are usually the most effective ones.

Questions to Ask a Credit Counselor

Once you narrow the list down to potential suitors, you’ll still have some work to do before you can pick a good credit counselor. Each agency that you may consider should offer a free session. Take advantage of this session to ask the counselor some of the following questions:

• What fees are associated with using this counseling agency to get out of debt? While virtually every counseling agency is non-profit, they will still all charge some fees to help cover administrative costs. Generally speaking, you will not want to choose an agency that charges more than $50 a month for their services.
• How will you tackle my debt?
• Will you employ a debt reduction plan?
• Will I have to pay any extra fees?
• It’s important to know how a perspective counselor will help you to get rid of your debt before you even sign up with them.
• How long will the plan take? In other words, how long will it take for me to pay off all this debt? Time is money, and if you’re looking to pay off your debt in a specific amount of time, perhaps a year or two, it’s important to ask how long it will take you to pay off the debt using this credit counseling agency.
• Are you accredited? It’s a legitimate question that you should ask every single perspective credit counselor. Good, accredited counselors will not mind this question. Those who aren’t will mind the question, and that’s a good indication that they are not right for you.
• Will you tailor your plan to fit my unique needs? Everyone’s situation is different and good credit counselors will take all of your needs into consideration when coming up with a plan. Make sure that the credit counselor that you are considering will be able to tailor fit a plan to you.
• Can I meet with you once a year to discuss my debt and how much I’ve paid off?

It’s important to stay updated when it comes to using credit counseling. Most credit counseling agencies will encourage meeting up with their clients once or twice a year to discuss details of the plan and how well it is working. They will also review your credit report with you.

Recommended Credit Counseling Agencies

It is often very difficult for some people to find credit counseling agencies that are respectable and legitimate. While the agencies below may not have offices in your city, some offer online services that you may be able to use.

• GreenPath – GreenPath has offices in many states and cities. They’ve helped millions of people get out of debt and are accredited.

• Delray CC – Delray offers completely free credit counseling services to millions of people. They are accredited and can counsel via the internet or the phone.

• MoneyManagement – MoneyManagement offers services both online and in person at their many locations. There are some fees associated with MoneyManagement, but they are minimal. MoneManagement is fully accredited and very effective.

Keep in mind that these are just three of the many possible credit counseling agencies that you can use to get out of debt. Check the NFCC for more possible options.

By Michelle

Americans are going broke. That seems like a ridiculous statement to describe people who live in the richest country in the world. Unfortunately, the statement is pretty much true. A recent report revealed that Americans are now spending 1% more than they earn. The savings rate for Americans now sits at -1%, the worst savings rate in over 73 years.

While people once strived to save 10% of their earnings, most Americans now want to spend what they have and sometimes what they do not have. The reasons for why Americans are going broke vary. Some go broke due to overusing credit cards, while others struggle to make monthly mortgages or car payments. Others are involved in divorces that leave them with next to nothing. Still others cannot keep up with the cost of living, which has greatly increased over the past 30 years—while salaries haven’t quite kept up with the change. Some are laid off by their employers, as is the case with many auto workers.

Credit Cards Ruin Lives

Practically every adult American has had or currently has a credit card. It’s easy to see why—they offer Americans the chance to buy things that they might otherwise not be able to afford. While credit cards can be a great way of establishing credit, they can also be quite lethal for Americans.

I’ve seen this first hand with my parents, both of whom have racked up big debts on credit cards. They both charged gifts and other things, ranging from gasoline to groceries, on their credit cards without much thought. Pretty soon, they charged more than they could afford to pay back. As they stopped making monthly payments, the late charges started to pile up. Eventually, it got to the point where they had minimum payments from $200 on up for each credit card. Most Americans cannot afford to pour that much into bills. My parents couldn’t. They were able to get into a credit counselor, which allowed them to pay off the debts.

Pretty much the same thing happens to a lot of Americans. They charge a lot of things on their credit cards without much thought. The minimum payment for each card they use slowly increases. After a while, the minimum payment is too difficult to maintain. That’s when the late fees begin to accumulate on each credit card, thus increasing the minimum payment even more. When the late charges hit, the credit rating is hurt and some Americans are forced to file for bankruptcy.

Monthly Mortgages Become Too Much to Bare

Remember the mortgage you got a few years back? The rate was quite low and it seemed doable on your salary. But then the interest rate increased and so did the monthly payments. Homeowners could no longer afford the mortgage that was previously affordable.

This harsh reality has led to many home foreclosures in the United States. Instead of buying a home and staying in it, some Americans are forced to hop from house to house, trying to find a mortgage that they can afford.

The American dream is, of course, to be successful. The way to be successful is to live big by buying a house that sometimes can cost as much as $300,000. With expenses factored in, a mortgage of $1,000 a month is simply too much for many American families to afford. Expensive mortgages are yet another reason for why Americans are going broke.

Car Payments are Too Expensive

Some Americans who drive big trucks or expensive cars are paying $300-$500 a month in car payments. That’s not even with insurance, which can cost another $100-$300 a month. Gas prices have also been on the rise recently, so buying gasoline for the vehicle can cost another $100-$250 a month. All told, an average American family may be spending a $1,000 a month on transportation. That’s simply too much of a strain on their salary, and so many people resort to using credit cards to pay for car payments or gas. Once the cards are maxed out, there is no way to make monthly payments.

Divorces Hurt Finances

When a couple enters into marriage, the finances typically become joint between the couple. This may be good for the marriage, but once the marriage falls apart and the couple divorces, the financial situation worsens.

With the high cost of divorce attorneys and divorce court, many Americans emerge from their divorces with little to no money. This can cause financial ruin for a person, which may lead to bankruptcy or bad credit that will be difficult to repair.

The Cost of Living Has Increased While Many Salaries Have Stayed Constant

It’s a fact that the cost of living has greatly increased over the past 30 years. Many salaries have stayed the same or even decreased in some ways. Things like groceries, utilities and the bare essentials are becoming harder and harder for Americans to afford.

When Americans are not able to afford the necessities, they usually turn to loans or credit cards to cover costs. In the short term, this may be OK, but in the long run, it greatly hurts credit—especially if the person who borrows or charges is unable to pay back the money. It is, thus, another reason why many Americans are going broke.

Workers Lose Jobs

Since many people lack adequate savings, when they lose their job, the results can often be catastrophic. People who have lost their jobs are often unable to pay the bills once they have received their last check. While looking for a new job, they may be forced to take out loans or use credit cards in order to make ends meet. When their credit limit has been reached, they are left with huge stacks of bills. If they haven’t found another job by this point, they are stuck in financial ruin. The last resort for them is to file for bankruptcy.

What Can Be Done?

The only logical solution to the problem of Americans going broke is for Americans to simply realize that they must have certain priorities for their money. They must realize that they cannot live beyond their means, even if they want to.

Priority number 1 should be to provide the things necessary to live a decent life.

Priority number 2 should be to pay the rent and utilities.

Priority number 3 should be to save at least 10% of the salary.

Priority number 4 should be to buy things that may be luxuries—iPods, computers, big screen TVs etc. This should only be done if there is enough income to afford these things and only after all other bills and necessities have been paid for.

Unfortunately, many Americans put the fourth priority at the top of the list and live beyond their means, which is why America is going broke.

If you have no other options, bankruptcy can allow you to have a “fresh start” but it comes at a price.

Bankruptcy allows individuals or businesses who owe others more money than they’re able to pay to either work out a plan to repay the money over time or completely eliminate (”discharge”) most of the bills. With few exceptions, any person or business owing money to a creditor can file a bankruptcy petition. When filing bankruptcy, there are the two types of debt to look at, Secured and Unsecured Debt. Secured debt is a creditor’s claim that is secured by a lien of some type in your property, either by your agreement or involuntarily such as with a court judgment or taxes.

A creditor can generally claim the property that secures the debt in the event of bankruptcy. Unsecured debt is not tied to any type of property, leaving the creditor without any claim to property. However, some situations may not warrant filing for bankruptcy. If your financial situation is temporary, you may consider making arrangements with individual creditors for a change in payment amounts or a reduction in the total amount due. If an individual has little in the way of property or money, filing bankruptcy may not be necessary, as the creditor may not be able to collect the debt.

Types and Chapters of Bankruptcy

Consumers typically file Chapter 13 bankruptcy, where repayment is made to creditors, or under Chapter 7 where the debts are discharged. Each chapter of bankruptcy spells out what bills can be eliminated How long payments can be stretched out What possessions you can keep.

The selection of which type to file depends on your particular circumstances and whether or not there are assets available to repay all, or part, of the debts owed. Bankruptcy laws can be complicated, so determining if you should file and what type of bankruptcy you need should be made with the input of an experienced bankruptcy lawyer. Generally, you can convert a case once to any other chapter for which you are eligible. The request to convert can be a simple one-sentence document.

There are issues to watch when going from on chapter to another, though. For example, when moving from a Chapter 13 to a Chapter 7, you will need to review whether you have acquired items that will now be considered property of the estate under Chapter 7 that was not part of the previous filing. There are, however, limitations on how often you can file. A Chapter 7 bankruptcy can be filed every 8 years from a previous chapter 7 filing or 6 years from a prior chapter 13 filing. Chapter 13 can be filed 4 years from a prior Chapter 7 filing or 2 years from a prior Chapter 13 filing. Filing bankruptcy can adversely affect your ability to obtain future credit, rent housing and even negatively impact a job application, so any decision to file must be carefully considered.

How to Begin

There are a few things you must do when preparing to file bankruptcy. You need to compile a listing of the past and present debts you have. The petition in a bankruptcy filing includes schedules of assets and liabilities as well as a statement of financial affairs. These documents are filed with the bankruptcy court, along with payment of the filing fee. Also, talk with your spouse or significant other before filing. If one spouse files and the other does not, the one who does not file could possibly be responsible for the debts. Check this out carefully before filing.

When finally deciding to file with your spouse, you must choose between A joint petition or a single bankruptcy petition. A joint petition is the filing of a single bankruptcy petition by an individual and the individual’s spouse. Only people who are married on the date they file may file a joint petition. Unmarried partners must each file a separate case. In the case of a divorce, you may still be responsible for some debt. If you are a co-signor with your ex-spouse on a debt, the creditor can require the entire payment of that debt from you even though the divorce decree assigns the debt to your ex-spouse. Your divorce decree may address any recourse you may have against your ex-spouse should he or she default on the loan obligations set out.

What Can’t be Discharged

The debts that cannot be discharged vary between the different chapters of bankruptcy. Generally, the following cannot be discharged:

• Debts for taxes owed to local, state or federal agencies
• Debts for money, property, services, or an extension, renewal, or refinancing of credit, which was obtained fraudulently
• Debts which were neither listed nor scheduled or which the debtor waived discharge
• Debts which are owed to a spouse, former spouse, or child of the debtor, for alimony, maintenance, or support of such spouse or child, in connection with a separation agreement, divorce decree or other order of a court of record
• Debts owed for willful and malicious injury by the debtor to another person or property owned by another.
• Debts for government-sponsored educational loans, unless it can be shown that repayment will cause an undue hardship
• Debts for death or personal injury caused by the debtor’s drunk driving or from driving while under the influence of drugs or other substances
• Debts incurred after a bankruptcy was filed

What you lose and keep in bankruptcy

Exemptions allow an individual to “exempt”, or keep, certain kinds of property. State law defines what assets are considered exempt, but typically includes:

• Jewelry
• Vehicles up to a certain amount
• Equity in a home up to a certain amount
• “Tools of the trade” or tools and equipment necessary to allow the individual to continue working

Retirement accounts are typically kept. Accounts that are ERISA-qualified are not considered property of an estate and cannot be taken. Social Security benefits are generally protected from assignment or garnishment for debts in bankruptcy. The Social Security Administration’s responsibility for protecting benefits against legal process and assignment usually ends when the beneficiary is paid. Once paid, the benefits continue to be protected only as long as they can be identified as Social Security benefits. For example, money in a bank account where the “only” deposits into the account are direct deposits of Social Security benefits are identifiable and generally protected.

Losing your home is a possibility. The factors that affect your ability to keep your home are:

• The state you are in and the exemptions allowed
• The status of your loan (current or in foreclosure)
• The type of bankruptcy you’re filing (Chapter 13 provides more protection than Chapter 7 as long as payments are current)

Credit Repair Companies

Most consumers can be just as effective as a credit repair company in dealing with credit reporting agencies and improving their credit ratings — it simply takes time and patience. While there are non-profit companies in each state that offer credit guidance for a small fee, “We can fix anything” credit repair companies offer very little in comparison to the fees they charge.

Creditors after Bankruptcy

During the time the debtor is working out a plan or the trustee is gathering and preparing the assets to sell, the bankruptcy code dictates that creditors must stop all collection efforts against the debtor. As soon as the bankruptcy petition is stamped “Relief Ordered” upon filing, you are immediately protected from your creditors. If a creditor continues to attempt to collect a debt, immediately notify the creditor in writing that you have filed bankruptcy, and provide them with both the case name number and filing date, or a copy of the petition that shows it was filed. If the creditor continues to collect, the debtor may be entitled to take legal action against the creditor.

The bankruptcy court notifies, by mail, all creditors advising them of:

• The filing of the bankruptcy
• The case number
• The automatic stay
• The name of the trustee assigned to the case (if filed under chapters 7 or 13)
• The date set for the meeting of creditors
• The deadline, if any, set for filing objections to the discharge of the debtor and/or the discharge of specific debts
• Whether and where to file claims

The exact information in the notice may be slightly different depending on the chapter under which the case is filed.

Each type of bankruptcy allows creditors to object to specific debts included in the plan or the manner in which the plan addresses the repayment or discharge.

In Chapter 7 Bankruptcy, creditors generally have 60 days after the first creditors meeting to object to the discharge of a specific debt. If no objections are filed, the court will issue the discharge order and the trustee will proceed to collect and sell the assets, then distribute the proceeds to the creditors under a predetermined system. If there are objections, the bankruptcy itself, less the objected debts, continues through to discharge. It may be necessary to have a trial before a judge to resolve the items that creditors objected to.

In a Chapter 13 case, creditors are given an opportunity to object to the plan for repayment. If there are no objections filed by creditors or the trustee, the plan may be confirmed as filed. After the plan is confirmed, the trustee will distribute the payments from the debtor to creditors until the plan is completed. Upon completion of the Chapter 13 plan, the court will issue a discharge order, the trustee will prepare a final report, and the case will be closed.

Bankruptcy is complex and must be done right for you to be protected.  I highly recommended consulting with a lawyer before making a decision.

Credit Counseling

If you are not disciplined enough to create a workable budget and stick to it, cannot work out a repayment plan with your creditors, or cannot keep track of mounting bills, consider contacting a credit counseling organization. Many credit-counseling organizations are nonprofit and work with you to solve your financial problems.

Most credit counselors offer services through local offices, the Internet, or on the telephone. If possible, find an organization that offers in-person counseling. Many universities, military bases, credit unions, housing authorities, and branches of the U.S. Cooperative Extension Service operate nonprofit credit counseling programs. Your financial institution, local consumer protection agency, and friends and family also may be good sources of information and referrals.

Regardless of your particular need, selecting the right credit counselor is vital. Unfortunately, some organizations, including some that label themselves “nonprofit credit counseling agencies,” can be underhanded and more concerned with helping their own bank accounts than helping yours. An April 2005 report by a U.S. Senate investigating committee reported, “Some new entrants to the industry, however, have developed a completely different business model – a ‘for-profit model’ designed so that their non-profit credit counseling agencies generate massive revenues for for-profit affiliates.

Consumers need to know and understand the differences when selecting a credit counselor. They must know the warning signs. The following information can serve as a valuable guide to help consumers “know the difference” when choosing a credit counseling agency.

1. Ask the BBB (Better Business Bureau) and other third parties about the agency. A number of independent or government organizations work to protect consumers by collecting complaints and making the information public. The BBB is one such agency.

2. Be skeptical of extravagant promises. Some organizations claim they can “fix” a bad credit report or credit score. Others say they can settle a consumer’s debts for relatively little money. If an agency sounds too good to be true, it probably is. Reliable credit counselors help people manage their money better and, if appropriate, can set up a realistic repayment plan that is acceptable to creditors.

3. Make sure counseling sessions are substantial. The length of a counseling session will vary from agency to agency, but consumers need to make sure the counselor takes enough time to understand your personal situation

4. How does the agency protect consumers’ money? Consumers need confidence that any funds they hand over to an agency for debt repayments are secure. Consumers need to ask for evidence that an agency is bonded or has insurance that protects their money from fraud or the agency’s own financial difficulties.

Debt Management Plans

If your financial problems stem from too much debt or your inability to repay your debts, a credit-counseling agency may recommend that you enroll in a debt management plan (DMP). A DMP alone is not credit counseling, and DMPs are not for everyone.

You should sign up for one of these plans only after a certified credit counselor has spent time thoroughly reviewing your financial situation, and has offered you customized advice on managing your money. Even if a DMP is appropriate for you, a reputable credit counseling organization still can help you create a budget and teach you money management skills.

In a DMP, you deposit money each month with the credit counseling organization, which uses your deposits to pay your unsecured debts, like your credit card bills, student loans, and medical bills, according to a payment schedule the counselor develops with you and your creditors. Your creditors may agree to lower your interest rates or waive certain fees, but check with all your creditors to be sure they offer the concessions that a credit counseling organization describes to you.

A successful DMP requires you to make regular, timely payments, and could take 48 months or more to complete. Ask the credit counselor to estimate how long it will take you to complete the plan. You may have to agree not to apply for — or use — any additional credit while you are participating in the plan. As above, here are also things to look for when looking for a Debt Management Plan.

1. ALL payments sent to the agency should go to creditors and be disbursed in a timely manner. Some agencies may take the entire first month’s payment and call it a “fee” or “donation.” Consumers should ask whether this is the agency’s policy. It is also a good idea to ask whether the agency holds payments or disburses them shortly after receipt. The success of a DMP relies upon full and timely payment to creditors to reduce a client’s debt.

2. Does the agency provide a full range of services, or is it just trying to push a profitable Debt Management Plan? Consumers should seek out an agency that provides a full range of services and tailors plans to each consumer’s personal circumstances.

3. The full amount of Debt Management Plan repayments should go to creditors. Some agencies may take a portion of a consumer’s debt repayment and call it a fee or “donation;” others may even take the entire first month’s payment. Consumers should find out how much of each monthly payment is going to creditors and how much is going to the credit-counseling agency. The full amount of those payments should be paid to creditors to reduce the client’s debt.

4. Make sure the agency will work with all of your creditors. Before entering a DMP, consumers should make sure the agency would work with all of their creditors. Some agencies may refuse to work with creditors unless the creditor agrees to a certain level of financial support for the agency. No agency can require creditors to recognize a DMP program, but the agency should be willing to reach out to every creditor.

If debt has consumed you, and your life is getting more difficult by the day, then Debt management and credit counseling are probably two very important choices to consider. If you have severe debt, you may be eligible to enroll in a Debt Management Plan. It takes approximately 36-60 months to repay debts through a DMP. This is sometimes the best alternative to debt freedom.

You’ve probably seen those commercials which state that you can consolidate your debt into one easy payment each month. It sounds like a great deal, right? Well, that’s certainly the case for some people, but debt consolidation isn’t the ideal solution for every situation.

Here we take a look at how debt consolidation works, its benefits and disadvantages.

When a lot of people enter into or consider debt consolidation, they really don’t understand how debt consolidation programs work. They assume that it’ll fix every problem for them and that they won’t have to worry about the debt, which isn’t the case. That’s why anyone who is even remotely considering debt consolidation programs should arm themselves with all necessary information. In this article, we’ll cover the basics of how debt consolidation programs work.

Debt Consolidation – The Basics

Debt consolidation is not at all like debt management plans. That’s because with a debt management plan, a credit counseling agency contacts the creditors and gets them to lower interest rates. Then you give money to the credit counseling agency and they disperse it to creditors. That’s not the case with debt consolidation.

With debt consolidation, you are essentially taking out one big loan and then placing all your other loans on this loan, thus creating one big loan which has to be paid off. Depending on the interest rates of your debt, this can be quite beneficial—if you can get a big loan with a fair interest rate. You’ll be paying one big monthly payment each month which takes care of your debt for that month.

So, to sum it up, you’ll be transferring all your debt to one loan and then repaying that.

How Does It Work?

You’ll have to first find a financial institution that offers debt consolidation. Don’t think, though, that they will grant you a huge loan without anything being done on your part. You’ll have to put up some sort of collateral to make the deal worth their while. This collateral usually comes in the form of a house.

Once you secure a loan, they’ll basically put all your debt on the loan and they’ll tell you how much to pay each month for the loan. How much you pay depends on the interest rate, time and total amount of debt.

Should I Consider Debt Consolidation?

There really isn’t a one-size fits all answer to this question. Who should and shouldn’t consider debt consolidation depends on the situation. Before considering debt consolidation, you should ask yourself the following questions:

• Is it best for me to get a loan than to pay off the debt on my own?
• Have I looked into alternate methods of paying off my debt like debt management plans? Would these plans be a better fit for me?
• Am I comfortable with the possibility of losing my home if I miss a payment on my debt consolidation loan?
• Am I OK with potentially hurting my credit by getting a debt consolidation loan?
• Have I fully researched debt consolidation loans and do I know the possible harmful effects of them?

If you’ve carefully and thoroughly gone through the above questions and still feel as though you should go with debt consolidation, then it’s time to go over the benefits and hazards of debt consolidation.

Benefits of Debt Consolidation Programs

If you have several credit cards, it’s probably hard for you to remember to pay each one every month. In fact, it can be downright impossible to get everything straight month after month. The bills seem to just keep piling up and you’re overwhelmed by it.

Debt consolidation can change all this. It can consolidate all your bills into one easy to remember monthly payment. It’s very convenient.

Another benefit to debt consolidation, besides the convenience, is that it can actually take care of your debt in a quicker time than you could by paying it off by yourself. That’s because you can usually get a debt consolidation loan with an interest rate of between 3% and 10%. Considering the fact that most credit cards feature rates of 10-25%, debt consolidation can result in big savings and a quicker repayment time.

Debt consolidation loans can also be pretty flexible. Depending on the financial institution, you may be able to set up the loan so that it can be repaid over a set period of time. This allows you to somewhat tweak the loan depending on your unique situation.

Hazards and Pitfalls

Just like the song says, every rose has its thorn. Debt consolidation, while a great solution for some, has its downsides. The most obvious downside is that you’ll have to put up collateral, such as a house and vehicle. If you miss even one debt consolidation loan payment, you risk having your house taken away from you. That’s a huge risk.

Another bad thing about debt consolidation is that it initially negatively affects your credit score. That’s because you are taking out a huge loan (and taking out a loan always initially hurts your score) at one time. Even after you’ve paid off your loan, it’ll still show up on your credit report for a period of time and potential lenders may be inclined not to grant you credit if they see that you had to resort to a debt consolidation program to pay off your debt.

Where Can I Get a Debt Consolidation Loan?

Many financial institutions (banks, credit unions etc.) offer debt consolidation loans. If you want to get the best possible deal on your loan, you should try several different places.

At first, you’ll want to go to your local credit union or bank. You can ask them what they offer in the way of debt consolidation loans. Also ask what kind of interest rate they would give you, as well as the repayment plan and what collateral is necessary. One tip is to go to a bank or credit union which you are not a member of. They may give you an excellent interest rate in order to win your business.

The online banking market is extremely competitive, so you’ll also want to look online for debt consolidation programs. You may be able to get an even lower rate online than you could by going to a local bank or credit union. Just make sure to do a lot of research on any online bank to make sure they are legitimate and won’t scam you.