Dollars & Sense

Dealing With Debt - Recovery

Over the last few months we've discussed various ways of dealing with debt. We've reviewed budgeting, financial options such as debt consolidation loans and credit counseling. What we haven't discussed is bankruptcy.

If every possible avenue has been explored you may find your only option left is bankruptcy. Nobody wants to file bankruptcy and the consequences can be severe, especially for someone self-employed but sometimes it's best to start over. 
 
Bankruptcy

Financial experts on bankruptcy say it may not be advantageous to file for bankruptcy unless you will be eliminating at least 50% of your debt. It is important to get the advice of an experienced bankruptcy attorney before pursuing this option. 

Bankruptcy has a negative effect on your credit rating and stays on your credit report for 7 to 10 years. It is difficult to obtain a credit card after bankruptcy, at least for the first several years. You can obtain a secured credit card, which requires a cash deposit with the lender for the amount of credit.

It is essentially a debit card good for the amount on deposit. It is said that one of the most difficult issues after bankruptcy is renting an apartment. Those with mortgages are usually in the best position because you can usually exclude your home from bankruptcy. Experts say the key is not waiting too long to file.

The two common types of bankruptcy are Chapter 7 and Chapter 13. Chapter 7 is the most common form of bankruptcy, your assets are liquidated to pay off creditors and your other debts are discharged. Some debts cannot be discharged and this plays a major role in determining if bankruptcy should be filed. Chapter 13 allows you to set up a plan to repay a portion of your debt over a period of time, usually three to five years.  

Each state has different rules for bankruptcy but usually your home, car and retirement accounts are exempt. You should talk with a bankruptcy attorney in your state before making a final decision. It can also be very helpful to speak with a debt counselor for guidance with your particular situation. For referrals to reliable organizations you may contact our office. 

Recovery

You can eventually rebuild your credit even if you've had to file for bankruptcy. It's possible to get a major credit card or loan usually two years after filing bankruptcy. 

Beware of credit repair scams. Companies nationwide take advantage of consumers with poor credit histories. Credit repair companies can't do anything for you that you can't do yourself for free. No one can legally remove accurate information from a credit report but you can legally dispute inaccurate or incomplete information.

You have a right to a free copy of your credit report if you've been denied credit, insurance or employment because of information provided by a credit bureau. Otherwise you may request a copy of your credit history directly from the credit reporting agency. A credit bureau may charge up to $9.00 for a copy of your credit report.

The three largest credit bureaus are:

Experian (formerly TRW) 
P.O. Box 2002  
Allen, TX  75013
(888) 397-3742 

Equifax
P.O. Box 740241  
Atlanta, GA  30374-0241 
(800) 685-1111  

Trans Union
P.O. Box 1000
Chester, PA 19022
(800) 916-8800

If you find errors or mistakes on your credit report you have the right to dispute those items for free. Contact the credit bureau and request a dispute form or submit your dispute in writing, along with any supporting documentation (do not send your original documentation).

Clearly identify every item you dispute, explain why you dispute the item, and request a reinvestigation. When the reinvestigation is complete the credit bureau must give you the written results and a free copy of your credit report if the dispute results in a change. You may also request that a copy of your correct credit report be sent to anyone who received your credit report in the past six months.

When trying to improve your credit be sure to pay bills on time, update old accounts (an account may be showing a balance that was paid off) and do not max out your credit lines. Try to limit the number of times you apply for credit and maintain existing accounts for long periods of time.

Your best chances for recovery are to avoid overspending, set-up a budget, correct any errors on your credit report, and maintain a good credit standing.

This article has been presented by PBS Tax & Bookkeeping Service, a company which has been providing income tax and bookkeeping services to the trucking industry for over a quarter century. Contributions to this article were made by Shasta May, Director Business Development for PBS.  If you would like further information, please contact us at 800-697-5153.  Visit our Web Site at www.pbstax.com.

Everyone's financial situation is different.  This article does not give and is not intended to give specific accounting and/or tax advice.  Please consult with your own tax or accounting professional.