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How To Know If You Can File For Bankruptcy

How To Know If You Can File For Bankruptcy

It is a common misconception that you can only file for bankruptcy only when you have no money or income and are totally broke. Which in a matter of speaking can be said to be the case but technically there are a lot of pre-requisites to be fulfilled.

You might have a regular income but still, can file for bankruptcy. I know it’s surprising to hear that at first but that is true. How?

Well, let’s discuss in detail.

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1. Assess your debts against your income:

First of all, you need to look at your financial condition. How much money do you owe to banks in form of loans and credit card dues? If you think that you can barely meet the minimum payment for these loans and cards. It’s time to rethink.

After honestly answering these questions, you can judge for yourself if you need advice from a consultant or not. If you think you do then look for a reputable and reliable financial consultant.

The consultant will evaluate your income as compared to your expenses. Also list your assets including your retirement funds, stocks, bonds, real estate, vehicles, college fund accounts, non-bank account funds and any other liquid assets you have.

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Next, the consultant would add up all your expenses, outstanding debts, bills and credit card or loan payments. If your assets turn out to be less than the expenses, then you can file for bankruptcy in order to come out of this stressful financial situation.

2. How to file for Bankruptcy?

To file for bankruptcy you will need to hire a law firm. It is always better to take the action firstly and voluntarily. Instead of the bank initiating the process, file for it yourself.

There are multiple ways of doing that but your lawyer can guide according to your situation.

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3. What is the difference between chapter 7 and chapter 13 bankruptcies?

In easy words, chapter 7 bankruptcy which is also referred to as “straight bankruptcy” is the bankruptcy in which all your assets are liquidated to pay off your debts. Meaning your assets are sold to collect cash to pay off your bank loans and credit card payments.

Once you file for this type of bankruptcy, it is marked in your credit report for 10 years. But it is the simplest way of starting over. After payment to your loan companies and banks, you will get a notice of discharge within 4 months.

Although this seems to be a simple and straight case but before opting for this type of bankruptcy, you should realize that in this all your assets are taken over. If you have some property or business or assets that you want to keep then this is not a good option for you. In such cases, you should opt for chapter 13 bankruptcy.

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In chapter 13 bankruptcy, you are given a grace period of 5 years to pay off your debts. Your assets are not taken over or disposed of. You get to keep them and are given additional time period to pay your debtors. This is a good option for people who have stable annual income, which can be considered as an assurance of payment of dues.

4. Is bankruptcy a necessary evil?

Declaring bankruptcy can be hard to deal with and very understandable if you try your best to avoid it. Some people feel embarrassed about being known to their friends and family as a bankrupted person. All of this is emotional and stress full, however, sometimes it is required to start a new.

Taking a decision to file for bankruptcy is like pulling off a band-aid. It hurts so you need to make a quick and timely decision to have your fresh start.

Featured photo credit: marie vdm via unsplash.com

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Adnan Manzoor

Data Analyst & Life Coach

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Last Updated on March 4, 2019

How to Use Credit Cards While Staying Out of Debt

How to Use Credit Cards While Staying Out of Debt

Many people will suggest that the best thing to do with your credit cards during these tough economic times is to cut them up with a pair of scissors. Indeed, if you are already in huge debt, you probably should stop using them and begin a payback strategy immediately. However, if you are not currently in trouble with your credit cards, there are wise ways to use them.

I happen to really love my credit cards so I will share with you my approach to how I use mine without getting into deep financial trouble.

Ever since about 1983 when I got my first Visa card, I continue to charge as many of my purchases as possible on credit. Everything from gas, groceries and monthly payments for services like my cable and home security monitoring are charged on credit. Despite my heavy usage, I have maintained the joy of never paying any interest fees at all on any of my credit cards.

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Here are some tips on how best to use your credit cards without falling into the trap of paying those nasty double-digit interest fees.

Do Not Treat Credit Cards as Your Funding Sources

Too many people treat their credit cards as funding sources for major purchases. Do not do this if you want to stay out of trouble. I use my credit cards as convenient financial instruments so I do not have to carry around much cash. In fact, I hate carrying cash, especially coins. When you buy things on credit, the purchases are clean and you will not get annoying coins back as change.

I do not rely on my Visa, MasterCard or American Express to fund any of my purchases, large or small. This brings me to my golden rule when it comes to whether I will pull out any of my credit cards either at a retail or online store.

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I never purchase anything with my credit cards if I do not have the actual cash on hand in my bank account.

If I really cannot pay for the item or service with cash that I already have at the bank, then I simply will not make the purchase. Remember, my credit cards are not used as funding sources. They are just convenient alternatives to actual cash in my pocket.

Make Sure to Always Pay Off Balances in Full Each Month

The next very important part of my overall strategy is to make absolutely sure that I pay the balances in full each and every month no matter how large they are. This should never be a problem if the cash has been budgeted for my purchases and secured in the bank. I have always paid my full balances each month ever since my very first credit card and this is why I never pay interest charges.

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Using Credit Cards with Rewards

Most of my credit cards are of the “no annual fees” type, including one MasterCard on a separate account I keep at home as a spare in case I lose my wallet or incur any fraudulent charges. However, I do use a main Visa card which does have an annual fee because all purchases on that card reward me with airline frequent flyer points. For me, the annual fee is worth it since I do travel and I get enough points to redeem many free flights.

You have to decide for yourself if you will charge enough purchases on credit each year without paying interest charges to warrant a credit card that rewards you with airline points (or other rewards). In my case, the answer is “yes” but that might not be the case for you.

I occasionally use a MasterCard or American Express card on small purchases just to keep those accounts active. Also, I have been to the odd retailer that accepted only a certain type of credit card, so I find that having one from each major company is quite handy. Aside from my main Visa card which earns the airline points, the rest of my cards are of the “no annual fees” variety.

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So this is how I use my credit cards without getting into any financial trouble with them. This strategy is recommended only if you are not in debt, of course. In fact, it is worth keeping in mind once you’re out of debt so that you can keep your credit cards active and treat them responsibly.

What are your credit card usage strategies? Let me know in the comments — I’d love to hear what methods you use.

Featured photo credit: Artem Bali via unsplash.com

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