If you are experiencing severe financial distress due to the recent downturn in the American economy, you certainly are not alone. Many people who never thought they'd lose their jobs and who have always been able to support their families are now finding themselves in a position of having to fend off creditors and making difficult choices about which bills to pay and when. If you are falling further and further behind and cannot decide between filing Chapter 13 bankruptcy and trying to obtain other debt consolidation help, here are some facts to consider.
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Keeping Your Home
Under Chapter 13: You usually can keep your home if you agree to continue the lender's lien on it and are diligent in making your agreed-upon monthly payments after the Chapter 13 terms are made. Any back payments owed to the lender will have to be repaid as part of your Chapter 13 payment plan, of course.
Debt Counseling: A home equity loan, though tempting, does not give you any real protection Against property seizure should you be unable to repay it. If you agree to put any existing sheltered equity into the terms of the loan agreement, you risk losing that money as well.
What About Interest and Taxes?
Under Chapter 13: Any interest on existing debts are immediately frozen once the Chapter 13 goes into effect. At this point, creditors must comply with the law and agree to any court-ordered repayment plans.
Debt Counseling: In this situation, the interest rate offered by a debt consolidator is often lower than the credit card company's, making this type of an arrangement seem extremely attractive. In addition, a debt consolidator may get creditors to agree to discharge up to 50% of the original debt. However, any amount saved in debt reduction is considered taxable income and will be reported to the IRS. So is there really that much savings?
If you are deciding whether or not to file for Chapter 13, it is wise to consult with an attorney who specializes in bankruptcies; not only will the lawyer help you determine if it's right for you, he or she can assist you in making sure it's done correctly and to your advantage.
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