I came across an article this morning about Debt Settlement on Yahoo. It has a good explanation of what to REALLY expect from the Debt Settlement companies.

http://finance.yahoo.com/banking-budgeting/article/108975/can-you-settle-credit-card-debt-for-pennies?mod=bb-creditcards

Yes settling a debt for less than you owe will save you money but it is not going to save you as much as you think.

When you settle a debt with your credit card or other creditors for less than you owe the amount forgiven is taxable income.

For example if you owe Bank of America $20,000 and they forgive $10,000 the forgiven $10,000 is treated as income to you which you will pay taxes on at year’s end.  The creditor will issue you a 1099.

Also debt settlement for less is reported on your credit report and can negatively impact your credit score.

In bankruptcy debts are discharged through a court order. Discharged debt in bankruptcy will not be taxed or reported as income.

As you may have heard there are several new credit card regulations. One such regulation prohibits banks from charging over draft fees unless you “opt in.”

If you chose not to “opt in” to the service your credit card or debit card transactions will be declined if they exceed your limit or would over draw your bank account. However you cannot be charged an over draft fees.

Before this change banks allowed most customers to over draw their accounts or exceed their credit limit and then charge fees for exceeding the limit.

Banks will no longer be able to do this UNLESS you tell them it is okay to allow you to over draft your account and to charge you over draft fees. Some banks are currently undertaking marketing campaigns to convince customers to opt into over draft fees.

Banks make a lot of profit on over draft fees and they do not want to lose them.

It’s up to you to opt in or not but it will cost you if you do. In my humble opinion, do not opt in save your money and do not pay banks extra fees.

When contemplating filing bankruptcy, sometime individuals will max out their credit cards right before filing. This is a mistake, and could jeopardize your entire case.

Some debts in bankruptcy are non-dischargeable, meaning you will still be responsible to repay your debts even after your bankruptcy case is over. This includes luxury items charged to your credit cards within 90 days of filing. Someone may think, max out the cards and wait 90 days and then file. This too will not work.

Any debt that you ever incurred without the intent to repay is also non-dischargeable.  

By maxing out your cards you may risk the discharge not only on the maxed out cards but all your debt.

If you are thinking about filing bankruptcy stop using credits and talk to a lawyer.

If you filed bankruptcy under chapter 7 you will be able to obtain a new credit card very shortly after filing. Most banks will want your business, because (1) you have reduced your debt, (2) cannot get another bankruptcy discharge for 8 years, and (3) the bank will be able to charge you a high interest rate.

Most individuals are able to get unsecured credit cards, however, in some cases the bank my require you to get a secured credit card. A secured credit card is much like the traditional unsecured card, however you will be required to secure the card with a deposit. This is different than a prepaid card. With the secured card you will still need to pay the monthly bill.

If you are in chapter 11 or 13 you are not permitted to get a credit card or other loans until after the case is over.

In either chapter getting a new card and using it responsibly will increase your credit score and rehabilitate your credit score. Using your card responsibly should include paying your bill on time and never charging more than 30% of your credit limit.

Filing bankruptcy does not prevent you from buying any property, including a new home or cars. However, the better question is; when will a bank give me a mortgage for a new home?

Chapter 7 bankruptcy will be listed on your credit report for ten years after you file bankruptcy. The listing of the bankruptcy on your credit report is not a legal bar to obtaining credit; however, it is a factor that a bank will use in determining whether or not to extend you credit.

Smaller loans, such as credit cards, will be available to most debtors shortly after filing. Most debtors start getting solicitations for post-petition credit cards within a month or two of filing.

Car loans may also be available right after the case is filed but you should expect a very high interest rate.

As for home mortgage, it will likely take 2 – 3 years until you can expect to be approved. However, some individuals get a new home mortgage in as little as 1 – 2 years or sooner.

The bank’s decision to extend credit is unique based on your situation, the bank will look at factors such as, credit reports and score and income to debt ratio to determine to extend credit to you.

If you can no longer meet your financial obligations bankruptcy may be able to relieve the stress related with too much debt.

There are two concerns if you have recently charged a lot on your credit cards prior to filing bankruptcy.

First, luxury goods charged on your credit cards that exceed about $450 within 90 days of filing bankruptcy are not dischargeable in bankruptcy. Luxury items are not defined in the bankruptcy code, however, the law tells us that luxury items do not includes charges for things that are reasonably necessary for the support of you and your dependents. Therefore, food, gas, and clothing for you and your family are not likely viewed as luxury items.

If you have recently charged luxury items on your cards then you may need to wait up to 90 days until you should file bankruptcy.

Second, anything charged to your credit cards without a present intent to repay is non-dischargeable in bankruptcy. This is a more difficult issue. This means that at the time you made the charge to your card you thought to yourself that you would never repay the debt. This is very difficult to prove for creditors.

If you are considering bankruptcy I would be happy to sit down with you to discuss all your opinions.