Simone's Blog: Money Magnet

As the Director of Affiliate Relations at HomeFree-USA, I’ve always been fascinated with how people handle their money. Like everyone else, I’ve had my financial ups and downs. In fact, it took me 32 months to pay off $32,000 in credit card bills and build up a six-month emergency fund. While that was a very difficult period, I am grateful – and wiser -- for the experience.

Through my personal experiences and working at HomeFree-USA, I’ve gained a ton of insight that I feel compelled to share. You’ll find those lessons here. Feel free to take the thoughts and ideas that resonate with you most and put aside the rest for later. I look forward to sharing my journey.

Everything You Need to Know About Bankruptcy

Sometimes, when one's back is against the financial wall, especially when foreclosure is imminent, they feel like the only recourse is to file for bankruptcy. While that may be the best option for some, many don't have a full understanding of what it is nor its full implications.

There are two types of bankruptcy:

  • Chapter 7: acknowledging to the courts that you're no longer able to pay your bills and asking your creditors to forgive the debt.
  • Chapter 13: Asking the courts to help set up a payment plan with your creditors.

Both keep creditors off your back and allow a mediator to step in and begin communicating on your behalf. Although Chapter 13 hurts your credit less than 7, both have a serious impact that lasts 7 years, which is when the bankruptcy falls off the credit report. Some debts cannot be forgiven, including student loans, tax debts, and child support.

Before you declare bankruptcy, consider these alternatives:

Sell something. Can you get a less expensive car? It may not be new or look as nice, but reliable cars for $2,000-3,000 do exist. For those who can take public transportation, consider doing so until the debts can be paid down. You may also decide to sell your home. Although bankruptcy does slow down the foreclosure process, it doesn't guarantee that you'll be able to keep your home, which is why it's important to consider all options.

Negotiate. Once those large debts are out of the way, call your creditors and work out a payment plan. Set realistic expectations based on your income and expenses. If you have enough money to settle on a few debts, do so, but make sure the creditor sends you something in writing acknowledging these funds will close out the debt. Also, be ready to pay that day and do NOT give them access to your checking account.

Should you decide that bankruptcy is indeed the best option, here are a few things to note:

  • It costs a few hundred dollars to file.
  • It is highly advisable that you utilize a bankruptcy attorney.
  • Bankruptcy counseling is required.
  • You can't file again for 8 years.

If you do file for bankruptcy, your credit will take a major hit. But with time and great spending habits, you can recover.

And so it is.