If you are faced with insurmountable credit card debt, you may be contemplating a charge off or a bankruptcy filing. If you find yourself at this crossroads, here is the information you need to make a wise decision, and even avoid these two scenarios. What’s the Difference?
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A charge off is simply that the creditor has written off your debt because you are unable to pay for six months or more. However, you will be dealing with credit collections agencies for a lengthy period of time after the charge off. A charge off does not relieve you of the debt, it is just a way for the credit card company to get it off their books. You must pay this debt back to the collection agency that takes possession of the debt after it is charged off. The charge off and subsequent collections will be reported to credit bureaus for seven years and hurt your credit score. As a result, it may be nearly impossible for you to obtain credit and even some jobs until the charge off comes off your credit report. Bankruptcy
There are several types of bankruptcies, but general rules apply to all. In a bankruptcy, you petition the federal bankruptcy court to absolve you of your debts. If the court agrees, your debts are either written off completely, or reduced to a manageable level that you pay back over a period of years. You may be forced to give up your assets in a bankruptcy. A bankruptcy judgment will also be reported to the credit bureaus, and negatively affect your ability to obtain further credit, and even hurt your chances at many jobs. Likewise, if you are a federal government employee or military member, you can lose your security clearance due to a bankruptcy. You also must pay filing fees and retain an attorney to represent you in bankruptcy court. This is very costly, and is a long, drawn-out process. How Can You Avoid Bankruptcy or Charge offs?
The best way to avoid a charge off or bankruptcy filing is to quite simply pay off your debts. This is sometimes easier said than done. If you can’t pay your bills now, work out a plan to do so as soon as possible.
First, create a budget and account for every penny. Make a list of your debts, when they are due, and the name of the creditor. Give top priority to the bills that are overdue. Pay these bills first. After all of your bills are caught up, begin to pay off your bills from the smallest to the largest. This may take a period of years, but is completely possible.
While you are working your pay-off plan, look for ways to bring in extra funds. Sell some assets. Find a part-time job. Create a part-time job if the unemployment rates are high in your area. Pick one of your skills and market your services to the community. There are many ways to bring in extra funds, you just have to be creative and think outside the box.
Next, contact your creditors to work out payment arrangements for any debts you are behind on. Many creditors are more than willing to work with clients that are behind, if they are assured that you are trying to do the right thing and make restitution for your debt. Work with your creditor to create a payment plan and stick to it.And make payments every month. If you skip a payment, the creditor will consider you in default and take further legal action against you.
While you are working on paying back your debt, stop using any credit. Cut up your credit cards and cancel the accounts. Close any revolving credit lines. Pay for everything with cash. In addition, put aside a small emergency fund of $1,000. After you get all of your debt paid off, you can add to this. While you are working on paying off debt, a small emergency fund will be enough to keep you afloat for a short time in the face of an unforeseen emergency. In Conclusion
A bankruptcy or charge off can sometimes be an unavoidable choice. If you are in dire financial straits and have to choose, make sure you weigh your options carefully before jumping into a decision. Seek the services of a financial counselor to help you. Many cities offer free financial counseling and assistance for citizens in need, so check out these programs. There is light at the end of the tunnel, you just have to persevere.