Stupid Ways to Spend Your Money #6
..Some products, services, and investments that are highly advertised (even here on gather.com) are simply bad and expensive products, things with many fine prints, and some are simply run as scams and fraudulent schemes. I will bring out main points, and describe the remedy to get rid or out of them.
The advantages of bankruptcy
The key benefit of bankruptcy is the discharge of debts, which enables a debtor to start over with a clean slate. However, there are many other advantages, including protection of property and an automatic stay.
- Discharge of most debts - The principal goal of most bankruptcies is to have most unsecured debts discharged.
- Protection of property and income from unsecured creditors - Bankruptcy is often the only sure way to protect a debtor's property from unsecured creditors. Normally, bankruptcy also serves to prevent any garnishment (attachment or seizure) of wages or other income after the petition is filed.
- Tools for eliminating or modifying secured debts - A bankruptcy discharge does not, by itself, eliminate the liens on a debtor's property that secured creditors have obtained before bankruptcy. However, provisions in the Bankruptcy Code do give debtors mechanisms to deal with most secured creditors.
- Automatic stay - The most valuable feature of a bankruptcy is sometimes the automatic stay, which the debtor gains instantaneously on filing a petition. The stay is an automatic court order that prohibits all sorts of collection attempts by creditors, allowing the bankruptcy to proceed in an orderly fashion.
- Other protections available through bankruptcy - Bankruptcy may offer the only possible way for an individual to keep or regain a driver's license that is subject to revocation because of an unpaid debt arising from a motor vehicle accident.
The disadvantages of bankruptcy
Despite all of the advantages that bankruptcy may provide, there are many valid reasons for choosing not to file a petition.
- Loss of property - One consequence of a Chapter 7 bankruptcy is the loss of nonexempt property or its value in cash. This is not a problem for many debtors because consumer debtors rarely have any nonexempt property. Only debtors with equity of substantially more than $21,000 per debtor in a home, $3,225 in a car or $10,775 in household goods and certain other property are likely to have problems under the federal exemptions.
- Effect on credit and reputation - A bankruptcy will be part of a debtor's credit history for as long as the law allows, that is, 10 years under the Fair Credit Reporting Act. This means that anyone who requests a credit report will be informed of the bankruptcy filing.
- Possible discrimination after bankruptcy - Closely related to the problem of reputation is that of discrimination against debtors who have filed bankruptcy cases. Creditors who are precluded from discrimination based on bankruptcy may refuse new credit or other services if the refusal is properly based on other considerations.
- Cost of filing a petition - Besides any attorneys' fee, which will be hundreds of dollars, bankruptcy carries an out-of-pocket cost of at least $284-$299 for the court fees and fees for a prebankruptcy credit counseling briefing and a credit education course requierd after the case is filed. Some of these fees may be waived for people too poor to pay them. Other fees may raise this figure somewhat. In a Chapter 13 case, for example, the trustee is usually entitled to a commission of up to 10 percent of the payments made through the plan. In some cases, various utilities may require security deposits to ensure continued service.
- Failure to solve the underlying problem - In some cases, bankruptcy is simply the wrong tool to use, and none of the advantages will be realized. One such situation is that of the debtor whose debts are fully secured by security interests or other liens on property that cannot be impaired through bankruptcy and who does not have sufficient income to remedy a default even with all of the help bankruptcy provides. If a debtor has substantial and valuable non-liened property that cannot be exempted, a premature bankruptcy will generally hasten property loss rather than prevent it. Some debtors may be barred altogether from filing a bankruptcy for some period of time. An individual cannot file if he or she had a previous bankruptcy case dismissed in the past 180 days and the dismissal was (1) for willful failure to abide by court orders or to appear in court in proper prosecution of the case or (2) a voluntary dismissal following a request for relief from the automatic stay of section 362 of the Code.
Remedy: Just remember that, in general, bankruptcy atorneys have one track mind – to earn his/her own income by taking you through your bankruptcy procedure. They lean toward letting you go through bankruptcy even when one is not warranted because that's what the customer wants. So don’t ask a bankruptcy attorney for an unbiased advice. Secondly, several things must be kept clear in your mind: Three categories of indebtedness are not dischargeable: IRS lien, federally insured student loans, and back child support. In addition, if you choose to keep posession of a secured asset ( a house, a car, a motorcycle, etc.), you must continue making monthly payments for them. After excluding these items, you may be left with just few thousands in bankruptable funds. If you still have income, then going to a consumer counseling service may be a better solution than to go through the bankruptcy route. Some even buckle down to pay down debts themselves after negotiating deals with credit entities.
Learn from your mistakes, and never rack up debts any more. Save up emergency fund, and use debit card. Save up and pay cash for purchases. If you don't have the money, you can't afford it. Most of all, spend less than you earn.
Next post will discuss AFLAC
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