Debt management strategies are strategies often deployed by professional financial advisors and debt management companies aimed at assisting individuals, corporations or organizations manage their debt portfolio. Here are some frequently asked question explaining in details the financial terms pertaining to debt management
- WHAT IS DEBT SETTLEMENT?
Debt settlement is a debt relief method in which a supposed debtor negotiates with the creditor for substantial debt reduction and subsequently pays off the renegotiated debt. It is a method often considered as a last resort instead of bankruptcy or insolvency.
- HOW DOES DEBT SETTLEMENT WORKS?
For instance a debtor owing $100,000 may either, using a debt settlement company or not negotiate with its creditor to pay a one-off payment of $40,000. If the creditor accepts this proposal the debtor then pays the agreed sum and some agency fee and is then let off the hook. Please note that the creditor is not obligated to accept the proposal thus making debt settlement option a little bit complicated especially if you are in debt to more than one company.
- WHAT IS DEBT CONSOLIDATION?
Debt consolidation is a personal Refinance strategy used in reducing high-interest debts into lower interest debts in other for easy repayment with the objective of being debt free. The purpose of debt consolidation is to aggregate all debt into a single lower interest debt whose payment is spread over sometime for ease of payment.
- HOW DOES DEBT CONSOLIDATION WORKS?
There are several ways to consolidate a debt and make its repayment simple and seamless. However, in this article,We will focus our attention on two primary ways in which to consolidate your debt:
- Debt can be consolidated by getting a 0% interest balance transfer credit card:
Balance transfer credit card is a system that allows for the transfer of existing your debt/loans from one or more cards into a new card with lower interest charges for examples savvy consumer use this method to consolidate their debt by taking advantage to reduce interest being paid on existing debt into lower interest via the new card.
- The second primary debt consolidation method involves getting a fixed-rate personal loan:
This method of debt consolidation involves a consumer securing a lower interest personal loan and using the loan to repay the unsecured debt while spreading the repayments of the personal loan over a period. It is important to note that the new loan you intend using to offset the previous unsecured loans must be large enough to cover all of the existing loans put together.
- WHAT IS DEBT MANAGEMENT?
Debt management or credit counselling involves enrolling in a program organized by a debt management company which involves debt counselling. It is similar to debt settlement, however in the case of debt management, the debt management company manages your debt, consolidate these debt and negotiate a reduced interest rate for you and payoff your creditors while you fund a dedicated account opened with the debt management company.
- HOW DOES DEBT MANAGEMENT WORKS?
Having received a financial advice from a financial counselor and consequent upon your decision to choose the debt management option. The following procedures are typically followed in debt management service:
- Your preferred debt management consultant/counselor will notify your creditors of its debt management plan and make himself or the organizations he represent the payer of your debt.
- Your financial counselor now proceeds to renegotiate all your debts with individual creditors or lenders, with the aim of lowering the debt. Having consolidated all your debt, the financial counselor now start paying your creditors or lenders and you are constantly updated with a progress report every month.
- You are now only obligated to the debt management company and you are required to distance yourself from taking up other debt, in fact your credit report is delivered to your creditors on a regular basis.
- Your debt management advisor expect you to consistently meet your obligations to the organization in order to maintain the debt management plan. Any slip on your duty may attract cancellation of the plan or other sanctions.
- WHAT IS CHAPTER 7 BANKRUPTCY?
Liquidation under the chapter 7 bankruptcy filing happens to be the most common type of bankruptcy or insolvency filed in the united state courts. It involves the appointment of a trustee or administrator who collects the non-exempt property or properties of a debtor (individual or organization who can no longer meet their financial obligations to their creditors) sell such property or properties and distributes the proceed among the identified creditors. Chapter 7 bankruptcy cases are often referred to as “no asset” cases meaning that the debtor has no non-exempt asset any longer to fund the creditors or lenders. In the US, chapter 7 bankruptcy is usually discharged after 10 years of filing.
- WHAT ARE THE PROCEDURE FOR FILING FOR BANKRUPTCY UNDER CHAPTER 7?
The typical work flow and procedure for filing for bankruptcy under chapter 7 includes:
- Approach qualified credit counseling and undergoes an assessment and counseling session.
- Find your preferred Attorney who is versed in bankruptcy laws.
- With the advice of your attorney, gather necessary document and file the necessary papers.
- Upon submission of your petition, the trustee takes charge of the remaining process. The appointed trustee organizes and holds a stakeholder meeting i.e. meetings between you, your attorney and identified creditors.
- After review of the submitted document, your eligibility for bankruptcy or not is confirmed by the trustee.
- The trustee determines the worth of non-exempt assets.
- Property held as collateral is then transferred to the creditors in other to resolved secured debts
- It is mandatory for the person filing for bankruptcy under chapter 7 to undergo a counseling for which they have bear the cost.
- Discharge under the chapter 7 bankruptcy usually comes 3-6 month after filing for bankruptcy if eligible which then means your eligible debt are forgiven.
- WHAT IS THE ELIGIBILITY CRITERIA FOR FILING CHAPTER 7 BANKRUPTCY
In other to file for bankruptcy under chapter 7 individuals must
- Pass the Means test
- Undergo a credit counselling course (compulsory by law)
- Undergo the debtor education course.