Comparing Bankruptcy and Debt Settlement

Posted on September 23, 2013 by Guest

Debt has become a way of life for many people. A home loan, a car loan and other unsecured debts are common and necessary in some cases. However, there comes a point when the debt becomes out of control, and this needs to be addressed as swiftly as possible.

Consumers have several options when it comes to eliminating or reducing their debt. While attempting to repay the money without professional help is possible, if a person gets behind on payments or can’t keep balances below the maximum limit, the fees and charges can quickly move a person even further into debt. Consumers who need a way out often consider the following two options: bankruptcy and debt settlement. Each has its pros and cons and there is no one right decision for every person.

Bankruptcy

In the United States, consumers have two options when in comes to bankruptcy. Chapter 7 bankruptcy works for individuals who have no way to repay the money they owe. When their income is compared with their debts and liabilities, repayment seems impossible. After filing, it is possible to have a large portion of the debt dissolved, leaving the person free from debt. The process does impact a person’s credit score and can make it difficult to secure credit in the future.

Chapter 13 bankruptcy is comparable to debt settlement since they both work in much the same way. In this situation, a consumer files through the courts, and while some of the debt is reduced, a repayment plan is constructed to ensure that all of the funds are paid back over the course of three to five years. As soon as a person files, he or she receives protection from creditors. The phone calls immediately stop, and the creditors must go through the courts to try and regain their money.

The downside of bankruptcy is often the stringent debt repayment plan. In order to make the payments on schedule, a debtor is often left with just enough money to get by on while the rest goes to the creditors. It can be difficult for people to live up to the expectations of the plan, and if they default at any point, the entire process may be dissolved. This results in a negative mark on the person’s credit score, showing that they tried to file for bankruptcy and defaulted on the repayment plan. This is a common occurrence and can leave people in worse financial shape than when they started.

Debt Settlement

With debt settlement, a company works with creditors to reduce the balance a person owes and work out a repayment plan. The plan is usually more flexible than those offered by the courts. But it must be paid back on time, and payments cannot be missed or the entire solution can fall apart. Negotiations are handled by the debt settlement company, and it is possible to pay back less money that what is actually owed. While this will affect a person’s credit, it tends to be less damaging than filing for bankruptcy.

While debt settlement has many benefits, there are some problems that people may face along the way. The most important thing to consider is the cost. Working with a debt settlement company can be expensive. While less debt needs to be paid back, the cost for the service tends to increase the monthly payments. Also, the borrower is not protected in any way by the court system, so creditors can continue to call and attempt to get their money back unless they sign an agreement not to do so.

When attempting to choose between bankruptcy and debt settlement, it helps to use a debt calculator to total the amount owed. Then, after speaking with a financial advisor, a person can determine whether bankruptcy or debt settlement is the more fiscally sound option. Because each situation is different, it is up to the consumer to make the final decision based on his or her finances.

Andrea Haines writes regularly for a wide range of finance and technology websites. Over the course of her career, Andrea has contributed to a wide range of in-house and national magazines on subjects as diverse as music, gadgets and mobile phones together with her main focus which is the finance sector.

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Predatory Lenders: A Debt Trap

Posted on September 22, 2013 by Guest

If a shady, unlicensed lender is only too eager to grant you a loan, it may just be too good to be true. These lenders prey on desperate people in tough economic times. Getting a loan in this economy isn’t easy, but it’s important not to let your guard down, even if (and especially if) you are going through a financial crisis.

Who do predatory lenders target?

According to the Center for Responsible Lending, target consumers for these predatory lenders are people who are in no position to make the loan repayments. People who are not well educated, have poor credit histories, are advanced in years, and other low-income consumers are considered easy prey for these lenders.

The loans offered by these lenders are very expensive as they carry exorbitant interest rates. They are generally open-ended loans such as payday loans, title loans and secured loans like sub-prime mortgages. However, in recent years, unscrupulous lenders have been offering many more types of loans; all the more reason to beware of this practice.

How to avoid falling prey to a predatory lender

First of all, never rush into the loan origination process. Being in a hurry makes you vulnerable, and if the lender senses you are in a rush, they will only increase the pressure and make the loan terms less favourable.

Here is a list questions to review before taking out a loan from any lender:

  • What will the actual cost of the loan be after calculating the interest rate, loan origination fees, prepaid interest, and any other upfront or hidden fees?
  • What is the loan’s maturity period. i.e., the loan repayment period? Is it six months, ten years, thirty years, more?
  • At the time of resetting the loan, what will be the fresh repayment structure?
  • When will the rate of interest on the loan be revised?
  • Am I financially capable enough of paying back the loan as agreed?
  • Is there any kind of penalty for late or delinquent payments?
  • Will the interest rate on the loan increase if payments are late?

What recourse do you have if you find yourself locked into a predatory loan?

If you suspect you’ve been victimized by a predatory lender, there are some remedial steps that you can take. First and foremost, if you are in the US you can file a complaint with the country’s consumer watchdog, the Consumer Financial Protection Bureau (CFPB). However, auto dealers are exempt from the jurisdiction of the Bureau. In addition, you can inform your state’s attorney general of your experience. And instead of taking out a loan, you can explore alternatives such as payday loan consolidation, debt settlement, or credit counseling. There are many ways you can resolve financial difficulties without going bankrupt. Keep track of the way you spend your money and follow a stringent budget, especially if you are struggling to repay your loans.

Andy Raybuck is a Professional Financial writer associated with Debt Consolidation Care, who has expertise in dealing with financial issues. He tries to impart to people the different situations and simple solutions to get out of difficult situations by contributing financial write-ups to websites and blogs so that he can help people who are struggling with financial worries.

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What If You Develop a Critical Illness?

Posted on August 1, 2013 by Rick

Critical illness is not something we like to talk about. It is, however, an element of risk that must at least be considered. The reality is that more than half of all people living with cancer will survive at least five years after diagnosis, while 75% of stroke victims and 80% of heart attack victims who are admitted to a hospital will survive. Our chances of surviving a critical illness such as those mentioned are much greater today than ever before.

Let’s look at statistics. According to Cancer.org, prostate cancer is the most common cause of cancer death in North America. It’s the same in the UK and most of Europe but with a higher percentage. Malignant tumors are the number 1 killer in developed countries like Canada, USA, the UK and France. That said, allocating a part of your finance towards health protection is something worth considering whether or not you’ll be part of these aforementioned statistics.

The fact remains that survival can be expensive. If you work, you may be faced with significant loss of income during your treatment and recovery period. Whether you are from Canada, the UK, or in any part of the world, having an income protection plan – such as offered by aviva and other established insurance providers – can mitigate this risk and give employees peace of mind. Many life insurance companies now offer a policy that pays out on survival, rather than on death. This type of insurance is generically known as a critical illness insurance policy. It pays a tax-free lump sum benefit in the event of a covered critical illness being diagnosed.

In recent years, we have had our faith shaken in our government-subsidized health care system. The system has undergone many changes and continues to be in a state of flux. There are many expenses that are not currently covered by the government or private health care plans. Often, viable treatments will take years of testing prior to receiving approval from the government.

Consider this scenario: at the age of 39, Becky was a mother and full time worker. She had purchased a critical illness policy only months before tragedy struck. Becky suffered a stroke. She spent much of the year in intensive therapy. Her critical illness policy gave her the financial ability to make some minor renovations to her home, which helped her to function with reduced mobility. This alleviated some of the stress on Becky, and enabled a faster recovery from her illness.

The value of a critical illness insurance policy is that the money is yours to spend in whichever way you think will facilitate your recovery. You can use the money to pay for treatment that is not yet approved by the government, or travel out of the country for treatment that is not available in Canada. Maybe you will need to renovate your home and make it more accessible. Keep in mind that not all policies are the equal. There are many variables, exclusions, and restrictions to consider. Look for comprehensive coverage to meet your needs and budget.

The foregoing is for general information purposes and is the opinion of the writer. This information is not intended to provide personal advice including, without limitation, investment, financial, legal, accounting or tax advice. Please call or write to Rick Sutherland CLU, CFP, FDS, R.F.P., to discuss your particular circumstances or suggest a topic for future articles at 613-798-2421 or E-mail rick@invested-interest.ca. Mutual Funds provided through FundEX Investments Inc.

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Investing for the Future

Posted on July 18, 2013 by Rick

With this short essay we will summarize market developments since the start of the year and share our thoughts for the period ahead. First though, a quick recap of the first half of 2013.

In late May, the US market reached all-time highs. Then at a press conference on May 22, Federal Reserve Board Chair Ben Bernanke made a low-key suggestion that a stronger outlook for US economic growth would lead to a gradual reduction in bond purchases. That policy had helped keep interest rates low. The prospect of an end to the record-low interest rates shocked markets, leading to declines in the next six weeks. As we write this in mid-July many of these losses have been trimmed and the US had actually exceeded its previous highs reached in May.

Some things worth noting about the first half of 2013:

  1. Even with the declines after Bernanke’s announcement, MSCI reports that the US was still up 17% for the year as of mid-July.
  2. The strength in the US is a continuation of the trend of the past three and a half years.
  3. In spite of continuing headlines about Cyprus, Greece and Portugal, European equities showed solid gains in the first half. The worst case scenarios built into equity prices failed to materialize.
  4. Canada continues to under-perform not just the United States but virtually every major developed economy.

Will America pick up the global growth baton?

Like every other country today, the United States faces serious issues. The US is plagued by reports of political dysfunction, burdensome regulation and slipping competitiveness. However, there are some positives being reported. A recent Globe and Mail article titled The Star Spangled Recovery pointed out a long list of positives for the US. There are signs of improvement in the budget situation. There is growth in housing and auto sales. Stronger job growth is being fuelled in part by the return of manufacturing from overseas, and small and mid-sized businesses are flourishing.

In April, The Economist published a special report on America’s competitiveness. The shale oil and gas revolution is changing the dynamics of the energy industry and provides America with the prospect of energy self-sufficiency. America’s innovation engine is once more operating at full speed – research and development as a percent of the economy has reached the previous record set during the space race. In a world where technology is playing a growing role, the United States is home to 27 out of the world’s top 30 universities for scientific research.

None of this is to say that the United States doesn’t face issues around regulation, infrastructure, education and entitlement spending. But as we look forward, there is a strong case that the United States’ recovery will help fuel economic growth around the world – and with that growth we’ll see the prospect of solid performance by equity markets.

What this means for you

Here are some guiding principles in building your investment portfolio for the future.

1. Time to re-balance: Adhering to your plan

In light of equity valuations and the risk in fixed income, you may want to increase equity weights to the upper end of your accepted risk range. Given strong equity performance since the mid-point of last year, that strategy has worked out well.

2. Diversifying portfolios

When building equity portfolios, we’ve always advocated strong diversification outside Canada. This helped throughout most of the 1990s, then hurt in the decade after 2000, then helped again in the past three years.

Going forward, we have no idea whether the Canadian market will do better or worse than global markets, but we do know that Canada represents fewer than 5% of investing opportunities around the world. In addition, because of our resource focus Canada’s market will tend to be more volatile over time than those of the US and Europe. For those reasons, we continue to recommend global diversification.

3. Focus on cash flow

The final principle relates to the role of cash flow from investments. Amid the uncertainty surrounding economic growth and equity returns, we continue to place priority on the cash yield from investments.

Thank you for taking the time to read our summary. We strongly recommend you seek the services of your financial advisor to ensure that these principles are implemented according to your goals and risk tolerance.

The foregoing is for general information purposes and is the opinion of the writer. This information is not intended to provide personal advice including, without limitation, investment, financial, legal, accounting or tax advice. Please call or write to Rick Sutherland CLU, CFP, FDS, R.F.P., to discuss your particular circumstances or suggest a topic for future articles at 613-798-2421 or E-mail rick@invested-interest.ca. Mutual Funds provided through FundEX Investments Inc.

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The Value of Financial Planning

Posted on June 4, 2013 by Rick

The Financial Planning Standards Council (FPSC) recently released a report on a three-year study that took place between August 2009 and August 2012. It involved almost 15,000 Canadian participants. The objective was to evaluate and gain a better understanding of the value proposition of the financial planning industry and specifically planners with the Certified Financial Planner (CFP) designation.

To ensure valid representation, participants were not only wealthy Canadians but included those from very moderate incomes as well. The study concluded that Canadians who engage in comprehensive financial planning with a CFP confirmed significantly higher levels of financial and emotional well-being.

The study looked at three scenarios: those who engage a professional financial planner for comprehensive planning, those who engage a financial planner for limited planning, and those who do not engage financial advice at all.

A comprehensive financial plan involves six steps. The first step is to clarify your current financial position. Step two involves identification of personal and financial goals and objectives. The third step is to identify financial problems and opportunities. The fourth step involves delivering the financial plan with recommendations and alternative solutions where applicable. Step five is implementation of the plan and the final step six is to monitor the plan on an ongoing basis to ensure everything is on track.

Limited financial planning may involve one or two areas of financial planning, such as investment or tax, but ignore others. This is often called modular planning. The planner will address specific areas and then the client is left with an incomplete plan. Only part of the overall picture has been covered. Many clients feel this is all they want or need until they are faced with other financial challenges.

In the no financial planning category the participants did not obtain any help from a financial planner regardless of their situation.

The results of the study were conclusive. Canadians who engage in comprehensive financial planning with a CFP professional had significantly higher levels of financial and emotional well-being than those who did no planning or limited planning. They feel their financial goals and retirement plans are on track, their ability to save has improved in the past five years, and they are more confident about their ability to handle bumps in the road. They were also able to fulfill their discretionary spending goals on things like vacations and occasional splurges.

The FPSC offers consumers a host of free information about financial planning and the financial planning industry. You can learn more about the FPSC by visiting their web site at www.fpsc.ca. Another good free resource on money can be found here.

The foregoing is for general information purposes and is the opinion of the writer. This information is not intended to provide personal advice including, without limitation, investment, financial, legal, accounting or tax advice. Please call or write to Rick Sutherland CLU, CFP, FDS, R.F.P., to discuss your particular circumstances or suggest a topic for future articles at 613-798-2421 or E-mail rick@invested-interest.ca. Mutual Funds provided through FundEX Investments Inc.

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Understanding Tax Credits and Tax Deductions

Posted on May 1, 2013 by Rick

Most of us have now completed our 2012 tax returns. Have you ever wondered why certain line items on your tax return are tax credits and others are tax deductions? There is a big difference between credits and deductions and how these tax reducers really work.

Since 1986 the tax credit system replaced many line items on your tax return that were formerly tax deductions. This was an attempt by the government to make the tax system fair for all taxpayers. Tax credits reduce tax payable, whereas tax deductions reduce taxable income.

You may be asking, “What’s the difference?” Most tax credits are calculated at the lowest marginal tax bracket. Therefore, as long as your taxable income places you in the lowest marginal tax bracket, there is no difference between tax credits and tax deductions. Tax credits provide the same tax relief for all taxpayers regardless of their taxable income.

Deductions, however, do provide a greater tax benefit to those whose income tax bracket is above the minimum. The more tax deductions you have, the lower your taxable income. One of the more popular tax reduction strategies has been the Registered Retirement Savings Plan, or RRSP. Contributions to your RRSP are considered tax deductible. Every $1,000 you contribute to your RRSP will reduce your taxable income by $1,000.

For the year 2013, taxable income at or below $43,561 will be taxable at the lowest marginal tax bracket in Ontario. That is the point where tax deductions become more advantageous than tax credits. If your taxable income is slightly above this threshold then it may be worthwhile to consider RRSP contributions and reduce your taxable income below $43,561. The same logic applies if your taxable income is above the next level of $87,123. It may be to your advantage to contribute to your RRSP and reduce your taxable income below $87,123.

Most tax credits are non-refundable. This means that once you have reduced your tax payable to zero, you cannot receive any further benefits from your remaining tax credits. There are certain tax credits that are transferrable to your spouse, parent and/or grandparent, depending on the credit and circumstances. Examples would be medical expenses, transit passes, and education credits.

Other tax credits are refundable and generate a refund even when the taxpayer does not owe any tax for the year. This is why it is important to file a tax return even if you don’t owe anything. Refundable tax credits are usually paid throughout the year to assist Canadians with ongoing living expenses. Examples include the HST/GST tax credit.

As we mentioned earlier, most tax credits are calculated at the lowest marginal tax bracket. One exception is charitable donations. Only the first $200 of donations is calculated at the lowest bracket. Donations above $200 receive a benefit at the highest tax bracket. This is designed as an incentive for Canadians to give more to charities.

Tax planning should be done year round, not at the last minute, and certainly not as you prepare your tax return. As you begin your year-long journey toward preparing your 2013 tax return you can consider these ideas to help you make better decisions about tax credits and tax deductions.

The foregoing is for general information purposes and is the opinion of the writer. This information is not intended to provide personal advice including, without limitation, investment, financial, legal, accounting or tax advice. Please call or write to Rick Sutherland CLU, CFP, FDS, R.F.P., to discuss your particular circumstances or suggest a topic for future articles at 613-798-2421 or E-mail rick@invested-interest.ca. Mutual Funds provided through FundEX Investments Inc.

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Do Bonds Still have a Place in Your Investment Portfolio?

Posted on March 28, 2013 by Rick

Over the past few years, billions of investment dollars have poured into government and corporate bonds and bond-based mutual funds. The mutual fund industry has recorded that the bond market has absorbed more money than equities did at the height of the dot-com bubble in the year 2000. The bond market could be the next bubble.

Why did this happen? Bonds were perceived as a perfect safe haven against dreaded and volatile equities. In addition to the interest rate paid on bonds, you also received a significant capital gain as interest rates declined. Bonds were safe, secure, and they made money. What more could one ask for?

With interest rates stalled at historic lows, the risk of holding bonds has increased considerably. Bonds are currently paying interest rates that have not been seen since the 1940s. And bonds will not appreciate in value the same way they did during the declining interest rate environment that we saw over the past thirty years. In fact, the reverse is true. Bonds will decline in value when interest rates begin to rise.

There are two guarantees that can be made with absolute certainty for those of you who have participated in this bond-buying mania. The first is that you are guaranteed to lock in historic low rates of return on your bond investment. At the time of writing, the 10-year government of Canada bond was paying 1.82%. For the next ten years, this will be the return paid on this investment. Will this return be adequate to fund your retirement?

The second guarantee is that your bond values will decline when interest rates begin to rise. This is just the opposite of what occurred when rates were declining and you watched your bond values increase. This happens because bonds generate a fixed-income payment. So when market interest rates change, the market value of your bond with a fixed payment will change as well.

Here’s how it works from a simplistic point of view. As interest rates fall bond values rise. And conversely, as interest rates begin to rise bond values will fall. This is the risk and current danger of being over exposed to fixed income securities.

It doesn’t matter whether you are talking about individual bonds or bond-based mutual funds; the result is the same. You can no longer think of bonds as being your safety net. Rising interest rates will decrease the value of bonds. There is now great risk investing in bonds. The wise investor will be aware of these risks and adjust their investment plan accordingly.

The foregoing is for general information purposes and is the opinion of the writer. This information is not intended to provide personal advice including, without limitation, investment, financial, legal, accounting or tax advice. Please call or write to Rick Sutherland CLU, CFP, FDS, R.F.P., to discuss your particular circumstances or suggest a topic for future articles at 613-798-2421 or E-mail rick@invested-interest.ca. Mutual Funds provided through FundEX Investments Inc.

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Changing Needs During Retirement

Posted on March 14, 2013 by Rick

For those of you who are older than age 50, we ask that you think about how your life and lifestyle changed in the thirty years between your 20s and 50s. If you’re in your 20s, you will have to take our word for it. But if you are in your 30s or 40s, then you can probably imagine what we are talking about. Your life and lifestyle has or will change quite dramatically between your 20s and your 50s.

Doesn’t it make sense then, that your lifestyle and needs will also change quite considerably between your 60s and your 90s? It is quite conceivable that a 55 year old couple, planning for their retirement, should have a thirty to thirty-five year time horizon. Statistics predict that at least one of them will live to be age 90.

Your retirement plan must be flexible enough to cover your evolving needs over this time. For most people there are four needs during retirement: basic living needs, lifestyle needs, health care needs, and finally your legacy. Properly funding these expenses is the answer to a successful retirement plan.

Your basic living needs include items such as food, utilities, shelter and personal care. Funding these basic living needs well will create a solid foundation for your retirement plan. These costs may be relatively stable and predictable, although they will be subject to moderate increases due to inflation. Remember that a $100 basket of groceries today will cost $324 in 30 years using a 4% inflation rate.

Most new retirees have big plans for their new life of leisure. Life can be exciting as you discover new experiences, take on new hobbies, make new friends, spend more time travelling, or just live your own personal retirement dream. Proper funding for your lifestyle desires is vital for a happy retirement.

Later in your retirement years, your health may begin to affect your lifestyle. You may not be able to travel as much or do the things that you could when you first retired. However, the need for income does not always change. You may need to divert money that you were spending on lifestyle needs to cover the extra costs health care that are not covered by government plans.

Regardless of the actual size of your estate, most retirees have a desire to leave a financial legacy, either to family members or charitable organizations. The success of your retirement plan to fund the cost of your basic needs, lifestyle needs and health care needs will determine your ultimate legacy.

The foregoing is for general information purposes and is the opinion of the writer. This information is not intended to provide personal advice including, without limitation, investment, financial, legal, accounting or tax advice. Please call or write to Rick Sutherland CLU, CFP, FDS, R.F.P., to discuss your particular circumstances or suggest a topic for future articles at 613-798-2421 or E-mail rick@invested-interest.ca. Mutual Funds provided through FundEX Investments Inc.

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Is Debt Settlement Right For Me?

Posted on February 19, 2013 by Guest

Debt settlement is a practice through which a person owing creditors a good deal of money enlists the services of a debt relief company to negotiate with these creditors. The purpose of debt settlement is to have a portion of the debt forgiven entirely while the remainder is paid back in installments. The debt relief company works with an individual to establish an agreed upon settlement amount, which is paid into an account rather than through monthly bills. When you undergo debt settlement, your credit score is negatively impacted, but you have the opportunity to start over financially without the worry of owing creditors payments with interest.

Good Candidates for Debt Settlement

Some people are better candidates for debt settlement than processes such as self-payment initiatives, debt consolidation or bankruptcy. If you meet the criteria for at least several of the following factors, debt settlement is likely a viable option for you:

  • Your income is too high for you to qualify for chapter 7 bankruptcy. People who earn enough money that they are unable to file bankruptcy but are still significantly behind in payments can be helped through debt settlement.
  • You are struggling or unable to make payments on unsecured debt. If you owe back payments on unsecured debts such as medical bills, credit cards or personal loans, debt settlement is an easy way to relieve these financial burdens before you fall even further behind.
  • You are presently dealing with a severe financial hardship. If your finances have suddenly taken a major turn for the worse due to medical circumstances, loss of employment, divorce or bereavement, debt relief companies are in a good position to negotiate with creditors on your behalf.
  • You have a steady income. Because you still need to pay back a portion of your debts on a regular basis, a steady income is important to have if you are considering debt settlement. Budget a certain amount of this income so that you can be debt free within a few years.
  • You have a non-suspicious credit history in regard to purchases. Both debt relief companies and creditors may not be willing to work with you in regard to debt settlement if they see that you have recently spent large amounts of money on frivolous items.
  • You owe more than a certain amount in unsecured debt. This amount can vary according to the policies of various debt relief companies. Some consider you a good candidate for debt settlement if you owe at least $5,000, while others prefer that you owe at least $7,500 or $10,000.
  • You have a lump sum of money that can be applied toward debts. As is the case with your income, a lump sum in savings can go a long way when used for debt settlement purposes.
  • You are firmly committed to getting out of debt. The debt settlement process can benefit you greatly if you are committed to staying in a program for the agreed upon length of time and learning new strategies for managing money in the future.

Is debt settlement right for me? You can answer that question for yourself by taking a close look at your financial situation and contacting debt settlement companies for advice and guidance. For additional information on the debt settlement process, visit websites such as NationalDebtRelief.com, which offers numerous tips and articles on seeking professional assistance and negotiating with creditors.

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What happens after bankruptcy?

Posted on February 18, 2013 by Lisa

Though several options exist for people who undergo the process of clearing their personal debts, sometimes bankruptcy is the best course of action in regard to repairing poor financial circumstances. When you file for personal bankruptcy, you legally declare that you are unable to repay your creditors and need to be released from all of your debts. The bankruptcy process involves both short-term and long-term financial implications, which may vary according to the type of bankruptcy that you petition for.

Types of Personal Bankruptcy

The two types of bankruptcy under which individuals can file are known as Chapter 7 and Chapter 13. The differences between these personal bankruptcy chapters are defined as follows:

Chapter 7 bankruptcy is a process that results in creditors no longer having the right to collect on your debt. When you file Chapter 7, you are asking that all of your debts be discharged as you do not have the means to repay them. If you have any liquid assets, such as savings accounts, these may be awarded to your creditors as a partial debt repayment.

Chapter 13 bankruptcy allows you to establish a long-term repayment plan. If you file Chapter 13, you are responsible for making payments to the court over a three-year to five-year period. In turn, the court repays your creditors and you are released from any outstanding debts when the payment plan ends.

Short-Term Implications of Filing for Bankruptcy

These are some immediate effects of filing for Chapter 7 or Chapter 13 bankruptcy:

  • Calls from creditors will cease. One bright spot in having to file for bankruptcy is that you will no longer have to communicate with creditors. Under the law, they are no longer allowed to attempt contact through the telephone or other means.
  • Qualifying for loans may be difficult. A recent bankruptcy filing can significantly impact your likelihood of securing a home or car loan with an affordable interest rate.
  • Re-establishing credit will be a complicated process. Though you may see improvements in your credit score within several years of filing for bankruptcy, you are likely to struggle with obtaining credit and paying high interest rates in the meantime.
  • You may have some expenses to settle. While you are no longer responsible for your previous debts, you may have to pay trustee and attorney fees as a result of declaring bankruptcy.

Long-Term Implications of Filing for Bankruptcy

These are some potential long-range consequences of a Chapter 7 or Chapter 13 bankruptcy:

  • Your bankruptcy filing will be listed on your credit report. If you file for a Chapter 7 bankruptcy, this information can be accessed on your credit report for ten years afterward. In the case of a Chapter 13 bankruptcy, this information is only available for a period of seven years after the filing.
  • Your bankruptcy status may come to light as you seek employment. Keep in mind that potential employers may ask if you have ever filed for bankruptcy even if your credit has recovered over the years.
  • Life insurance policy applications may be affected by your bankruptcy history. Some life insurance companies ask that you divulge any history of bankruptcy throughout your lifetime and determine your policy eligibility accordingly.

Though the process and aftermath of filing for bankruptcy are often stressful in an emotional sense as well as a financial sense, many helpful online resources are available to guide you in the proper direction. For instance, bankruptcyadvice.co.uk is a comprehensive website that can answer any questions that you may have about bankruptcy and its ramifications.

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