Could Millions of Americans Be Better Off Filing for Chapter 7 Bankruptcy?
February 5th, 2019 by Bunch & Brock
Statistics show that many Americans today are in potentially serious financial trouble. A recent Pew Charitable Trust survey found that 55% of households report spending as much or more than they make each year. And, according to a November, 2018, report from the New York Fed Center for Microeconomic Data, household debt rose 1.6% in the third quarter of 2018 — to a staggering $13.51 trillion.
Fighting mounting debt with inadequate income is a losing battle, and those who try will usually reach a point of no return. Penalties from missed payments and high interest rates add to debt balances, as the stress from creditor harassment affects family harmony, health and motivation.
Could millions of Americans be better off filing for Chapter 7 Bankruptcy? Revealing facts from the New York Fed report indicate this may be the case:
- An estimated $683 billion in debt was considered delinquent as of Third Quarter 2018.
- About $415 billion was categorized as “seriously delinquent,” or at least 90 days late.
- The flow into 90+-day delinquency for auto loans is on an uptrend, and has been since 2012.
- For credit card debt, 90+-day delinquency rates rose in 2018 and remain elevated.
Chapter 7 Bankruptcy Relief
If you are consistently falling behind in debt payment, life can quickly become very challenging. Chapter 7 bankruptcy was designed to help Americans who find themselves trapped in financial quicksand. Bankruptcy laws provide protection from creditor harassment (effectively stopping it in its tracks) and, when the case is discharged, eliminate the filer’s responsibility to pay a majority of debts.
In Chapter 7 liquidation, you may lose some of your property, but most filers actually lose very little. There are many legal exemptions in place that protect assets from sale, including amounts dedicated to saving equity in your house, your car, household property, work-related equipment, and retirement funds. (Retirement accounts are, in fact, fully exempt from Chapter 7 liquidation.)
Of course, not all debts are wiped away in Chapter 7. Child support and alimony obligations will remain, as will tax debts and student loans, in most cases; but outstanding medical bills, credit card balances and other loans can be renegotiated or discharged in bankruptcy.
When to File Chapter 7 Bankruptcy
The decision to pursue bankruptcy is never an easy one. Your credit score will certainly be impacted by a Chapter 7 filing, but your credit score will also be negatively affected by missed payments, repossessions, lawsuits and residential foreclosure. (Many people don’t know that a foreclosure on your record prevents you from getting a new mortgage loan for a longer period of time than does bankruptcy discharge.)
Studies have shown that when financial disaster is inevitable, waiting too long to seek bankruptcy relief ends up being detrimental, overall. Delayed filers often lose more assets and end up with a higher debt-to-income ratio than those who pursue bankruptcy protection earlier.
There are many reasons people wait, but often it is because they are ashamed to file for bankruptcy. The fact is, many responsible Americans face unforeseen circumstances, such as illness or accident, loss of a job, divorce, or a business failure. Bankruptcy has lost some of the stigma of days past, and there is no reason to dwell in shame and regret. Many Chapter 7 filers go on to restart their lives and rebuild finances to ultimate success.
If you are struggling with unmanageable debt, seek the help of a professional who understands and can offer concrete help. Please don’t hesitate to contact the experienced bankruptcy attorneys at Bunch & Brock for a free consultation.