Bankruptcy – Minnesota
Due to extreme financial hardships caused by unemployment, medical bills, unmanageable credit card debts and a host of other reasons, many Minnesota residents, like so many others across America, are considering bankruptcy. If you are struggling with credit card debts and other unsecured debts, you might be thinking about bankruptcy – how it works, the different types of bankruptcy, and how it can potentially give you a new financial lease on life. Bankruptcy may be a good option for some consumers who may have exhausted all their options to get relief, but it's wise to explore all of your debt relief options before making a serious decision. Other debt relief include credit counseling, debt consolidation, debt management, or even debt settlement or debt negotiation.
Debt consolidation through a credit counseling agency involves taking high-interest credit card and unsecured debts, such as utilities or medical bills, and combining them all into a single monthly payment that is more manageable, more affordable and predictable. This type of debt consolidation program may also be called credit counseling or a debt management plan (DMP). Another debt relief option is debt settlement, which may allow consumers to settle their credit card debts for significantly less than the full amount owed. Both debt consolidation and debt settlement have become increasingly popular debt relief options as alternatives to personal bankruptcy, which can have a more severe, longer lasting effect on a consumer's credit rating.
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Bankruptcy is a legal process whereby qualified individuals and businesses have the opportunity to have their debts discharged. It's possible for a bankruptcy court to protect an individual from creditors during bankruptcy proceedings, if the individual can prove eligibility. This debt relief option is often known as a last resort for individuals and businesses who are experiencing a genuine financial hardship and want to make a new beginning in order to get their finances and life on track. A straight bankruptcy can typically remove your financial obligation to pay most of your credit cards and other unsecured debts. It can also afford relief from foreclosure. One of the most commonly asked questions about bankruptcy in Minnesota is whether or not financial obligations such as alimony, divorce payments, child support, or student loans are excused. These debts are not usually covered by bankruptcy.
Chapter 7, Chapter 11 and Chapter 13 are the three main types of bankruptcy. Under Chapter 7, a consumer will typically have to surrender all property, which is why Chapter 7 is also known as straight or total bankruptcy, or liquidation. While some property will be immune from this rule (termed exemptions, i.e. homestead exemptions), exemption laws vary by state, therefore it is important to consult Minnesota laws to clarify which types of property are affected. Also, since bankruptcy is such a serious financial consideration, it's wise to consult with an attorney or financial advisor before choosing the best course of action.
Commonly referred to as reorganized bankruptcy, Chapter 11 bankruptcy is the type of bankruptcy that is most frequently used by a company or organization that is facing financial hardship, but wants to remain in business. The company or organization must pay its creditors according to a court-created debt reorganization plan but it will be allowed continue to operate under Chapter 11.
Lastly, Chapter 13 bankruptcy is not a form of bankruptcy that thoroughly eliminates debts but a form of debt adjustment. An individual would likely file for this type of bankruptcy if they desire legal relief from debts and are also willing and able to follow a formal debt payment plan based on their current income.
Alternative Options to Filing Bankruptcy
Although bankruptcy can clear debts in situations where an individual is truly out of options and can no longer meet their financial obligations, it is an option that has severe financial and legal implications. It is also the option that has the most detrimental impact on personal credit, so it should be considered carefully before pursuing it.
Debt consolidation, or credit counseling, and debt settlement are some of the more popular forms of debt relief. Debt consolidation involves combining multiple higher-interest cards and other unsecured debts into a single, more affordable payment each month. Typically, debt consolidation programs are coordinated by credit counselors who customize a debt management plan, or DMP, providing consumers with a more structured and more predictable path to get out of debt.
Debt settlement is generally a negotiation process between the debtor and individual creditors. When you enter into a debt settlement program, the goal is to negotiate or settle with creditors for significantly less than what's owed. However, debt settlement has risks:
Typically, with debt settlement, your credit rating declines because this option involves falling behind on your payments to save up funds, over an extended period of time, that you can use to make a settlement offer. As you fall behind in making your payments, your credit score will likely go down, especially if you had good or excellent credit prior to the debt settlement process. Also, many consumers enrolling in a debt settlement program may face legal action for defaulting on the terms of their credit card agreements. But in spite of the risks, debt settlement is still a popular alternative for many consumers seeking to resolve their debts.
Financial Help from the State
Debt relief programs and plans may offer significant help to many individuals who are truly unable to pay off their debts or falling behind on their payments. However, in these tough economic times, there are many individuals and families who might need access to life's basic essentials such as food, housing, childcare, or even utilities. As a type of lifeline, the state of Minnesota offers several programs and resources that address these specific needs and more. To learn more, go to the state's homepage and find the Social Services section.
Is Debt Relief the Right Option for You?
Whether it's in the form of debt consolidation through credit counseling or debt settlement, it's important to compare and contrast all of your debt relief options in order to make an informed decision about what's right for you and your family. In addition, make sure that you fully understand how each debt relief option works, the benefits of each, and its potential impact to your credit.
To see your debt relief options and see how much you can save, simply answer a few questions and get your free debt relief analysis and savings estimate.