Bankruptcy – Arkansas
Many families and individuals in Arkansas who find themselves overcome with credit card and other unsecured debts, such as medical bills or utilities, may be considering bankruptcy. If you are struggling with debts, facing an unexpected financial hardship, or are having trouble regaining your financial stability, you may have questions about bankruptcy: how it works, the different types of bankruptcy, and how it may give you a new financial lease on life. While bankruptcy may be a good option for some consumers, make sure you explore all of your options – including credit counseling, debt consolidation, debt management, or even debt settlement or debt negotiation –before making a decision that can have serious and long-lasting financial implications.
What debt consolidation typically involves is combining your high-interest credit card and unsecured debts - such as medical or doctor bills, and store or gas cards - into a single, more manageable monthly payment. This type of debt consolidation program may also be termed credit counseling or debt management.
Debt settlement is another common debt relief option where consumers can settle their credit card debts for much less than the full amount owed. Both debt consolidation and debt settlement have become increasingly popular debt relief options to personal bankruptcy, which can have more severe, longer lasting effects on personal credit.
To learn more about available debt relief options, in addition to bankruptcy, take a moment to answer some simple questions to get a free debt relief savings estimate.
Bankruptcy: The Basics
Bankruptcy is a legal process whereby qualified individuals and businesses have the opportunity to have their debts discharged. If an individual can prove eligibility, a bankruptcy court will protect them from creditors during bankruptcy proceedings. This debt relief option is usually intended as a last resort for individuals and businesses who are experiencing a genuine financial hardship and need a clean slate in order to get their finances and life on track. A straight bankruptcy is designed to remove your financial obligation to pay most of your credit cards and other unsecured debts. It can also afford relief from foreclosure. One of the most commonly asked questions about bankruptcy in Arkansas is whether or not financial obligations such as alimony, divorce payments, child support, or student loans are excused. These debts are not usually covered by bankruptcy.
There are three main types of bankruptcy: Chapter 7, Chapter 11, and Chapter 13.
Chapter 7 is also called straight or total bankruptcy, or liquidation. Under Chapter 7, a consumer will typically have to surrender all property. While some property will be immune from this rule (termed exemptions, i.e. homestead exemptions), exemption laws vary by state, therefore it is important to consult Arkansas laws to clarify which types of property are affected. Also, since the financial effects of bankruptcy are so serious, it is wise to consult with an attorney or financial advisor before deciding whether or not it is your best course of action.
A case filed under Chapter 11 is usually referred to as a "reorganization" bankruptcy. According to the United States Federal Courts, this type of bankruptcy is most commonly used by a company or organization that wants to stay in business, but is facing financial hardship. Chapter 11 allows the business to continue to operate, but it must pay creditors according to a court-created debt reorganization plan.
Finally, Chapter 13 bankruptcy is not a form of bankruptcy that discharges debts completely, but is a debt adjustment. Also called a wage earner's plan, it generally enables individuals with regular income to propose and follow a formal plan to make installments to creditors over three to five years.
Reasons to Explore Alternatives to Bankruptcy
Bankruptcy is a form of relief that can clear debts in situations where an individual has exhausted their options and can no longer meet their financial obligations. However, it is an option that has severe financial and legal implications, and it is the alternative that has the most detrimental impact on personal credit, so it should be considered carefully before pursuing it. Some of the more popular forms of debt relief typically include debt consolidation or credit counseling and debt settlement. Consolidating debts allows individuals to combine multiple higher-interest cards and other unsecured debts into one, smaller payment each month. Debt consolidation programs are generally created by credit counselors or debt counselors who customize a debt management plan, or DMP, providing consumers with a more predictable path to becoming debt free.
When you enter into a debt settlement program, the goal is to negotiate, or settle, with creditors on a reduced balance that will be considered as payment in full. But debt settlement is not without its risks: Your credit score will typically go down because debt settlement involves falling behind on your payments in order to save up funds, over an extended period of time, that you can use to make a settlement offer. As you fall behind in making your payments, your credit score will likely fall, especially if you had good or excellent credit prior to the debt settlement process. Also, many consumers enrolling in a debt settlement program may face legal action for defaulting on the terms of their credit card agreements. Even with its risks, debt settlement is still an acceptable alternative for many consumers seeking to resolve their debts without filing for bankruptcy.
State Resources for Low-Income Individuals
While the state of Arkansas does not have debt grants or programs to help consumers pay off credit card debts, it does have several programs for low-income families and individuals who may need help paying bills, rent or buying groceries. Examples of these state programs include the Low Income Home Energy Assistance Program (LIHEAP), Medicaid, ARKids First! Program, which provides affordable health insurance for children, and a variety of food assistance programs. To learn more, visit the state of Arkansas' official Benefits page.
Debt Relief Options
Whether you are consolidating debts through consumer credit counseling services or debt settlement negotiations, you should compare and contrast all of your debt relief options so that you can make an informed decision about what's right for you and your family.
To explore your debt relief options and how much you can save, simply answer a few questions and get your free debt relief analysis and savings estimate from a BBB-accredited debt relief provider. Start now.