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Consider all risks before filing for bankruptcy debt relief

For Appleton, Wisconsin, residents, the struggle to reduce debt can be embarrassing and frustrating, but various resources can help ease the challenge. However, it pays to be cautious when considering what kind of debt relief can help meet the financial challenges of a fresh start. Instead of a good start, a debtor may end up with a headache due to more financial problems.

In September 2013, the Federal Trade Commission ordered mortgage relief and debt relief companies to pay $13.5 million for making false promises, charging high up-front fees and violating telemarketing laws. Although these institutions help settle debts, there are risks involved with obtaining their help.

Credit counselors help anyone understand his or her finances and offer assistance if a person is considering filing for bankruptcy as an option. However, finding a trusted advisor may be difficult because some credit-counseling firms usually refer directly to credit repair companies and some of these agencies ask for voluntary contributions despite labeling themselves as not-for-profit.

Additionally, a debtor may consider a debt relief, debt settlement or debt elimination company. A debt relief company acts as the intermediary between the debtor and the creditor, negotiating terms of the loan for a fee. However, although the company can save the debtor money, those savings can be taxed as income and also affect the debtor's credit score.

Lastly, a debtor may consider debt consolidation, which means the debtor has to take another loan to pay off debts. The risks here include losing the equity used to secure that loan.

Finally, for Oshkosh residents with unmanageable debt, the ideal solution may be filing for bankruptcy. However, not all debts can be discharged by bankruptcy. A person must be eligible to file for a Chapter 7 or Chapter 13 bankruptcy. A bankruptcy lawyer can provide sound financial and legal advice regarding eligibility and the process for filing.

Source: Chicago Tribune, "Beware debt relief scams," Anya Kamenetz, Jan. 28, 2014

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