Debt Relief Program Laws
Many people can relate to the situation where you have come to the point where you no longer have the capability to pay your financial debts. For others, the financial situation may be more severe as their income is far lower than what the financial debts which they need to settle. When your financial debts have reached a point wherein it already surpasses your income, then you are in a state known as insolvency. For the longest time people have been considering various ways of getting out of their financial obligations and back on their feet to financial freedom through a debt relief program. However, it is equally important to consider the laws that govern these types of programs.
Bankruptcy
Bankruptcy used to be the all in one solution to get around your financial debts. Because people fail to live within their income, they unfortunately begin to accumulate financial debts until it comes to a point where they have to file for what is known as a Chapter 7. By declaring bankruptcy in your financial situation, you are absolved of all your financial debts as part of the debt relief program. Unfortunately though since people never learn, the process of filing for bankruptcy gets repeated so many times.
Because of the blatant abuse of debt relief program laws towards bankruptcy, stricter regulations were put in place to prevent the system from being abused. Essentially, people now could no longer simply file for a Chapter 7 but rather are diverted to Chapter 13 which is also a type of bankruptcy but, with one big difference. Instead of being absolved of all your financial debts, you are obliged to go into repayment plans that can actually double your financial debts. This is not a good way for you to get back on your feet. In fact, instead of achieving financial freedom you are tied to a repayment plan that can take years to complete. What’s more, you are now legally obliged to follow the payment schedules set by the Chapter 13 bankruptcy.
Consumer Credit Counseling
The next type of debt relief program law to be introduced was the Consumer Credit Counseling. Under this scheme, consumer credit agencies began to blossom almost everywhere. These Consumer Credit Counseling agencies offered assistance to people with financial debts on their credit card. The procedure was fairly straightforward with the consumer credit agencies arranging special ways for you to pay your credit card fees. Unfortunately many of the consumer credit agencies were working with credit card companies instead of working for the debtor. So this particular plan was greatly scrutinized and resulted in the passing of guidelines defining the way how consumer credit agencies should operate. This was viewed as widely inefficient because it does not lower what to pay but rather preserves the amount you are currently paying. In essence the debtor did not benefit from this plan.
Debt Consolidation Loans
Since the Consumer Credit Counseling failed to deliver the intended result, Debt Consolidation Loans were introduced. Under this plan an attempt is made to lower what you pay by consolidating all your financial debts into a single loan that had lower interest rates. However, the problem with this debt relief program law is that a debtor usually does not have a good credit standing that will allow him to qualify for the loan. As a result, banks demanded security which commonly came in the form of remortgage or Home Equity Loan. Unfortunately, people realized too late that they were combining all their loans into a single loan that they cannot actually pay. The problem now is that not only are these people facing financial debts but they also face the prospect of being evicted from their homes.
Debt Settlement
After realizing the potential failure of the Debt Consolidation Loans, debt settlement became the standard practice. A debtor now negotiated directly with the credit card company for a lower pay to simply settle the financial debt. This however required a certain degree of skill in negotiating and not to mention that it ate up a lot of time. In this light, Debt Settlement Companies became the standard for debt relief program laws. These types of companies negotiated in behalf of the debtor to secure a favorable solution to the financial debts. Normally, the settlement was based on the current income of the debtor to determine what he can actually pay on a regular basis.
The debtor however was obligated to pay the fees of the Debt Settlement Companies for the services that they performed. Unfortunately though, many of these companies were requiring their clients to pay the fees even before a settlement could be reached. This also opened the debtor to abuse from unscrupulous companies. As a result, debt settlement laws were enacted to provide the guidelines on how Debt Settlement Companies should conduct their business. The debt relief program law also dictated the fees that can be charged by the companies to the debtor. In general, the law wanted to remove the practice of charging debtors before the settlement was finalized. This is because the interest of the debtor should be the primary concern of these companies.
As you have seen, there are many debt relief program laws that have been passed in order to help people with their financial debts. You also have read how some of these laws have been abused by unscrupulous companies which take advantage of the financial situation of people rather than help them get back on their feet to attain financial freedom. So if you are really looking for an authentic debt relief program and seriously considering Debt Settlement Companies, be sure that you will only pay fees once a settlement is reached.