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Improving credit score as part of debt relief

Credit card debt is among the most insidious and tenacious forms of debt facing American citizens today. In Connecticut and elsewhere, many families and individuals are on the lookout for debt relief due to a high-interest balance on one or more credit cards. Of course, such balances can negatively affect credit scores, which in turn influence an individual or family's ability to secure additional loans, mortgages and other financial assets crucial to long-term stability. Thankfully, there are a variety of ways to improve a credit score, even after a Chapter 7 bankruptcy filing. 

Some 35 percent of credit scores are based on the consumer's ability to pay his or her bills on time. Bill history is measured by the ability to pay down credit, as well as the frequency with which an individual does so. Late notifications, insufficient funds fees and other indicators of a failure to pay on time can negatively affect a credit score. Paying bills in full, especially in advance, can help to repair a score affected by previous late payments. 

Debt relief begins with understanding of debt

It is no secret that many American families struggle with debt. Credit card debt is particularly difficult to pay down, leading some Connecticut residents to seek debt relief options. However, before considering restructuring or bankruptcy, it is important to understand one of the foundational myths about credit cards and their impact on American lives.

Many people erroneously believe that carrying a balance on a credit card has a positive influence on credit scores. In fact, some 43 million Americans carry a balance specifically for this reason. Unfortunately, the opposite is often true. The higher the balance on the credit card relative to the limit, the lower a credit score might turn out to be.

How Chapter 7 bankruptcy works

There is a great deal of misinformation circulated about bankruptcy in the American consciousness. For many Connecticut residents, the prospect of declaring Chapter 7 bankruptcy can be daunting or even frightening. It can be very helpful for individuals struggling with debt to understand how the process actually works, in order to determine whether it is the right financial move for them.

In order to file for Chapter 7, certain criteria must be met. First, the individual or business must not be eligible for a Chapter 13 filing, which involves debt restructuring and allows the debtor to pay back creditors without liquidating assets. If the debtor's income is above the median income in his or her state of residence, a means test is applied to determine whether Chapter 7 is the more viable solution. In any case, a debtor must attend credit counseling prior to filing for bankruptcy.

Waiting to file Chapter 7 bankruptcy can be problematic

It is a common misconception that filing for bankruptcy represents some kind of personal shortcoming on the part of the individual or the family, but many experts would argue that it can be a valuable tool in debt reduction. In Connecticut and across the country, a Chapter 7 bankruptcy filing can actually help get someone out of debt faster and more effectively than attempting to slowly dig out of a financial sinkhole. However, waiting on a necessary filing can cause more harm than good.

The period prior to a bankruptcy filing is often known as the "sweatbox," wherein a debtor will drain his or her finances even further in an attempt to stave off bankruptcy. This can result in depletion of key assets, as well as the stress of debt collection and even lawsuits. In extreme cases, some people even elect to go without food and other necessities to avoid filing.

Seeking debt relief from credit card debt

Credit card debt is among the most frustrating types of debt to pay down, as some American citizens can speak to from personal experience. Here in Connecticut, many families seek debt relief options to mitigate the weight of spending debt. Thankfully, there are a variety of strategies to help any family, from those with minor debt to those considering bankruptcy.

Much of debt mitigation involves creating and maintaining positive habits. One of the most important is to stop paying only the minimum due on a balance. Paying only a minimum amount on a credit card with nearly 20 percent interest means an individual or household will be beholden to that debt for years or even decades. Making payments in full, if possible, can help to lessen the debt load.

Determine whether Chapter 7 or Chapter 13 bankruptcy is best

Most people in Connecticut or any other state have experienced financial challenges at some point. How swiftly or easily one is able to overcome such problems often hinges on the types of resources available and what specific solution is chosen as a best course of action. The problem is that determining the answer to that question is often difficult. For instance, the average person may not understand the differences between Chapter 7 and Chapter 13 bankruptcy; therefore, figuring out which one best fits a particular situation can be challenging.

With a bit of research and, perhaps, consultation with someone well-versed in bankruptcy law, a financially struggling individual can explore various options toward debt relief and restored financial stability. A person may qualify for one type of bankruptcy but not the other. Both Chapter 7 and Chapter 13 include eligibility requirements; however, that must be satisfied before submitting an application.

The link between credit cards and debt relief

Apart from student loans, credit card debt is one of the biggest sources of money owed by the American population. Here in Connecticut, individuals and households facing serious debt problems are constantly on the lookout for debt relief options. Interestingly, there are ways to leverage the very credit card that accrued the debt in the first place. Of course, for those with crippling debt problems, multiple other options are also available. 

Before anything else, the first thing a person or household in debt must do is to face up to it. Many people choose to ignore bills until they become an unavoidable problem -- this is true of medical bills, car payments and, of course, credit card debt as well. However, it is extremely important to take stock of all accrued debt and come up with a plan to pay it down. 

Student loans and Chapter 7 bankruptcy

It is generally understood that in the world of bankruptcies that certain debt cannot be discharged by the court. Connecticut students may already be aware that the hardship standard for discharging student loans through Chapter 7 bankruptcy is challenging, to say the least. However, it is important to know that in some cases, it is possible to discharge student debt through a bankruptcy. 

Federal and private student loans have been difficult to discharge since 2005 when Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act, which categorized student loans as inapplicable in cases of bankruptcy. However, it is possible for the filer to prove that the loan is causing "undue hardship." This is defined through use of a test developed back in 1987. 

Removing Chapter 7 bankruptcy from a credit report

There is something of a misunderstanding when it comes to how Americans perceive bankruptcy. In popular culture, Chapter 7 bankruptcy is often portrayed as a desperate act that can ruin a Connecticut resident's credit indefinitely. Thankfully, neither of these things is true: a bankruptcy filing can be an extremely important financial decision that can lead to reduced or cleared debt, and there are many things one can do to improve credit even while the bankruptcy is still on the books. 

Chapter 7 is commonly known as a liquidation bankruptcy, and involves selling assets to pay down creditors. The court will discharge any remaining unsecured debt like credit cards bills and medical debt. This type of bankruptcy typically stays on a credit report for 10 years from the date of filing. However, this is not always the case, as it is important to note this is the maximum amount of time a bankruptcy can stay on a credit report, not a mandatory date. 

Restaurant owned by prominent rapper files for Chapter 7

It is common for celebrities to branch out into areas of business outside of the industry that made them famous. This was the hope for T.I., known to Connecticut fans as an actor and rapper, who opened a restaurant in another state in an attempt to broaden his brand. Unfortunately, the restaurant has fallen on hard times, but thankfully the rapper's business partner recently filed for Chapter 7 bankruptcy. This will help both entrepreneurs to recoup and move forward effectively. 

According to the bankruptcy paperwork, business partner Charles Hughes filed for Chapter 7 bankruptcy on May 1. Hughes and T.I., whose real name is Clifford Harris, each own a 40 percent share in the restaurant, with the remaining 20 percent split four ways between minor partners. Documents list the assets for Scales 925, the restaurant they jointly own, at some $5,000. Liabilities are listed as $0, but there are several lawsuits pending against the company.