Bankruptcy’s more popular than ever these days. Just within America filings are nearing close to two million per year, but, even as the practice grows more common, credit reports and FICO scores are taking on primary importance within our lives. Declaring Chapter 7 or Chapter 13 bankruptcy protection stays upon a credit report for up to a decade and could prevent borrowers from certain types of employment, security clearance, apartments or mortgages, new vehicles, and all sorts of potential life choices. Even if the bankruptcy does save money in the short term by liquidating debt, most people find the inevitable costs far outweigh any temporary advantages.

After bankruptcy, it’s nearly impossible for the debtor to find any sort of financing. For ever after, lenders will avoid working with anyone whose credit report lists a bankruptcy. Secured financing - that is, car loans or home mortgages; anything that could be repossessed or foreclosed upon - will offer the highest rates imaginable while unsecured financing - credit cards and the like - won’t even be available without hefty fees and deposits equal to the credit limit. Employers, more and more, will demand credit checks as a guarantee of stability and truthfulness. There are even stories of engagements faltering once the fiancée learned of a bankruptcy in her mate’s past! Certainly, it’s all too common for the stresses that accompany financial difficulty (particularly of the embarrassing sort caused by bankruptcy) inspiring problems within relationships that lead directly to divorce.

Obviously, with hindsight, it’s easy to see what could’ve been done in almost all situations. Simply living within your means and, except when absolutely necessary, not borrowing tomorrow’s paychecks for a better life today should prevent most of the troubles from occurring. For day to day expenses, make sure never to charge credit cards. The regular accumulation of household debts combined with compound interest may quickly make debt-loads unbearable. In the same way, borrowing from one card to pay another or using credit to pay necessary utilities is a fast track to financial insolvency.

Of course, understanding the problems that led to current debt crises won’t get the collection agencies to stop calling. The most important step’s just to understand that you have a problem as regards spending and financial management. After that, a plan must be implemented to repair credit and minimize payments. Looking closely at your income and determining what you can count on each month (aside from bonuses or overtime or seasonal over-compensation) and what’s actually needed for yourself or your family to maintain the barest support, try to figure out a budget that allows repayment of all credit lines - highest interest rates paid first. Successful budgeting should eventually even allow for savings accounts and protection against future debt woes.

Still, we understand that not every situation allows for a quick re-evaluation of a lifetime’s poor planning. Also, anyone to have suffered such genuine financial hardships such as lingering unemployment or unforeseen medical procedures shouldn’t blame themselves for not having taken precautions. When your debt-to-income ratio - minimum revolving debt payments as compared to gross monthly income - nears forty-five percent, something must be done. At a certain point, there’s just no way for the ordinary wage-earner to ever get back on top without assistance from the government or a professional debt counselor. Talking directly to the creditors might help temporarily. Many borrowers begin a fire-sale of their possessions and assets, however much they’re losing in real costs, just to meet minimums. At the end of the day, though, the horrors of compound interest and regulated minimum payments always force some greater solution after a certain point has been passed.

Bankruptcy’s always a possibility for the truly needy. Changes in the bankruptcy program after 2005 legislation has made the program far more treacherous, as most people have heard, but, should your annual income be less than your state’s median, Chapter 7 protection will eliminate most of your unsecured debts. Secured debts, anything involving collateral to be foreclosed on or repossessed from (like home mortgages and car loans), are a different story. While most states feature exemptions for cars and homes with a certain amount of equity and certain length of ownership, their bills will not change, and, after bankruptcy declaration, their lenders will resist attempts to refinance. Other sorts of debt - student loans, tax liens, child support, financial penalties ensuing from criminal proceedings, and several others - are also not to be touched. More troubling, Chapter 7 bankruptcy requires you to compile a complete list of all family possessions - from toys to hardware to home entertainment systems to a grandmother’s wedding ring - for potential seizure by government authorities so that they may be auctioned off to partially repay creditors.

Nevertheless, Chapter 7 protection will immediately halt collection agency actions and prevent creditors from garnishing your wages. The eventual effects upon your credit score and the FICO credit score used by lenders to analyze credit worthiness may last up to a decade - during which, you or your family may be unable to secure loans for vehicles, housing, education or just about anything - and this does give the courts access to seize virtually all of a family’s possessions for auction to repay creditors. Nevertheless, this does offer a much-needed salvation for many debtors otherwise unable to even imagine repaying their assembled creditors. The lengthy and expensive (paid by the borrower) debt management classes required by the courts before filing and again before final discharge are yet another burden, but, for the economically crippled, they may have no other choice.

Should the borrower actually make a decent living, though, things get more complex. The 2005 legislation forced most debtors toward the Chapter 13 bankruptcy program which, though it contains all the same credit consequences as the Chapter 7 debt liquidation, intends instead to simplify the debtors’ repayment schedule. Depending upon the specific situation, there may be a reduction of balances affected, but most borrowers will still have to submit to a court-mandated budget program and accept the same negative repercussions regarding their credit report and FICO scores as if they had gone through the debt liquidation program.

Fortunately, various ways to avoid bankruptcy have emerged in the past few years as more and more Americans find themselves unable to meet mounting debt-loads. The new availability of credit cards and the uncertain economy have combined to send bankruptcy rates sky-rocketing in recent years even as the new laws make such a decision ever more difficult and financially ruinous. The consumer could, once again, try to talk to his or her creditors individually, but, without experience in the various habits of each specific corporation and without ability to guarantee that every creditor will be treated equally, such discussions rarely result in significant savings.

Consumer credit counseling, despite the spiraling advertisements promoting their services, mostly seek to lump together existing balances in a manner similar to Chapter 13 bankruptcies but with far less hope of balance reduction or government protection and yet with similar consequences regarding debtors’ credit reports and FICO credit scores. Also, not so coincidentally, most consumer credit counseling companies receive fees from the credit card companies as well as the consumers. While they’re still meant to achieve a fair and equitable approach, many critics have questioned their actual master - and, for that matter, the benefits of a credit-wrecking payment system never promising an elimination of debts that depends upon the lenders for payment.

The rapidly-emerging debt settlement industry, on the other hand, works directly for the consumer as client to negotiate significant reduction in overall balances from each creditor in exchange for a payment plan. Borrowers must commit to a regular schedule of payments, of course, and there would still be negative implications upon credit reports (though far less damning than bankruptcy notations). Most importantly, the professionals in debt settlement are trained and certified to only aid the debtor. They understand what argument will best convince each lender, exactly how much they could expect each lender to slash funds owed, how to treat collection agencies (after signing with a debt settlement agency, all attempts to collect debts must go through the counselor in charge of negotiation by penalty of law) and, most helpfully, how to rebuild credit reports and FICO scores once the initial lenders have been repaid.

As we’ve shown, it’s always best to simply work out a money-management system that ensures every creditor will be repaid. Even if it takes several years and means tight-belted living or a second job, avoiding bankruptcy should always be the primary concern for every consumer. However, if there’s honestly no way for borrowers to climb out of debt, other alternatives do exist, and it’s the responsibility of every borrower to investigate each option. Much as anyone should strive to avoid bankruptcy, there are times where professional counsel is needed and, beyond all else, debtors must choose a debt-management plan that helps them avoid ever repeating this situation.

To get the help you need with debt relief and debt settlement please visit debtrelief.us.com Use the debt calculator to see exactly how much money you can save.