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What Are the Most Common Financial Issues That Lead to Bankruptcy?
Every year, millions of Americans find themselves struggling to make ends meet. For many, this struggle eventually leads to a decision to file for bankruptcy. This decision is never an easy one, and bankruptcy is often the last resort after a person or family has tried everything else to get their finances under control. In many cases, people are hesitant to pursue bankruptcy because they believe that they will be seen as financially irresponsible. However, understanding the reasons that people most commonly file for bankruptcy can provide insight into the situations where debt relief may be needed.
The Most Common Reasons People File for Bankruptcy
While financial mismanagement is one reason why people may choose to file for bankruptcy, it is far from the most common issue that families in the United States experience. In actuality, the causes of financial problems that often lead to bankruptcy include:
When Can a Chapter 13 Bankruptcy Be Severed During Divorce?
Debt can be a significant issue for many couples, and in many cases, spouses may choose to pursue bankruptcy so that they can eliminate certain debts and regain financial stability. Chapter 13 bankruptcy is the preferred option in some cases, and it may allow various types of debts to be discharged while avoiding a home foreclosure or the loss of other property. This type of bankruptcy will require a couple to make ongoing payments for several years, ensuring that some of their debts will be paid off and allowing them to get caught up on missed payments, interest, and late fees. However, if a couple chooses to get a divorce prior to the completion of their Chapter 13 repayment plan, they may need to determine how this will affect their bankruptcy case. One option in these situations involves dividing a joint bankruptcy into two separate bankruptcy cases. By understanding the option to sever or bifurcate a Chapter 13 case, a couple can determine whether this is the right solution for their situation.
How Is My Credit Score Affected by Medical Debts?
Debt can affect people in multiple ways. Those who have struggled to repay their debts due to financial issues have a number of options for debt relief, including filing for bankruptcy. However, those who have eliminated debts through bankruptcy or who have used other methods to address the amounts owed will want to understand how their credit scores may be affected by this issue. For those who have medical debts, it is important to understand how these debts are reported to credit agencies. Fortunately, some recent policy changes may benefit people with medical debts and reduce the negative impact on their credit scores.
Changes to Reporting of Medical Debts
Medical debt is often a significant concern for people who are experiencing financial difficulties. Medical treatment may be necessary in certain situations, such as when a person requires treatment for a serious injury or when care is needed for an illness such as cancer. Medical treatment can be very expensive, and a person may be required to pay large medical bills, even when they have health insurance coverage. As a result, many people end up with medical debt, and this can have a significant impact on their credit scores.
What Happens if I Miss Payments in a Chapter 13 Repayment Plan?
While debtors have multiple options for addressing debts through bankruptcy, many people may choose a Chapter 13 bankruptcy, which will allow them to avoid the loss of certain types of property. In a Chapter 13 case, the debtor proposes a repayment plan to the bankruptcy court that details how they will repay some of their debts over a three- to five-year period. However, even though a repayment plan may make sense at the time a person files for bankruptcy, financial difficulties may arise in the future that can affect their ability to make ongoing payments. In these situations, debtors will need to understand what will happen if they fail to make the required payments.
Addressing Late or Missed Payments in a Chapter 13 Case
During a Chapter 13 bankruptcy, a debtor will be required to make all payments in their repayment plan on a monthly basis. If payments are late, or if the debtor misses one or more payments, the bankruptcy trustee may take action to address this issue. In some cases, the bankruptcy case may be dismissed. This means that the bankruptcy protection that the debtor was enjoying will be ended, and creditors may resume seeking collection of debts. In addition, if a foreclosure was halted by the bankruptcy, the mortgage lender may resume the foreclosure process.
What Are the Pros and Cons of Filing for Bankruptcy? (Part 2)
While bankruptcy is an option that can help people who have encountered financial difficulties address debts and regain financial stability, if you are considering bankruptcy, you will need to understand both the pros and cons of this legal process. In our most recent blog, we looked at some of the benefits that bankruptcy can provide. However, we also want to make sure you are aware of the ways you may be negatively affected by taking action to pursue this form of debt relief.
Potential Drawbacks of Filing for Bankruptcy
The bankruptcy process can be complicated, and you will be required to compile a variety of financial information, fill out forms, and appear during court proceedings. Some of the potential drawbacks that you may face if you choose to file for bankruptcy include:
What Are the Pros and Cons of Filing for Bankruptcy? (Part 1)
Millions of Americans struggle with debt. In many cases, debts are necessary, and they can ensure that a person will be able to buy a home, vehicle, or other important items. Other debts may come about because of unforeseen financial difficulties, such as credit card balances that may become impossible to repay because a person lost their job after making a large purchase. If you have significant debts, you may be looking at your options, including the possibility of filing for bankruptcy. As you review your finances and consider the path ahead, it is important to understand the potential benefits and drawbacks of pursuing debt relief through bankruptcy.
Benefits of Bankruptcy
While the primary reason to pursue bankruptcy is that it may allow you to eliminate your debts, there are a number of other benefits that you may also be able to realize. These include:
What Are the Debt Limits for Chapter 7 or Chapter 13 Bankruptcy?
If you are struggling with debts due to financial issues that have affected your ability to repay what you owe, you may be considering bankruptcy. By filing for bankruptcy, you can put a stop to creditors' attempts to collect debts, and when you complete the bankruptcy process, certain debts may be eliminated, allowing you to receive a fresh start. However, there are requirements that must be met in order to qualify for different types of bankruptcy, and debt limits may apply in some cases. Recent changes to the bankruptcy laws may affect whether you can qualify for a Chapter 13 bankruptcy or whether you may need to file for Chapter 7 bankruptcy.
How Have Chapter 13 Debt Limits Changed?
In June of 2022, Congress passed the Bankruptcy Threshold Adjustment and Technical Corrections Act, which changed the debt limits for Chapter 13 bankruptcy cases. Previously, different limits applied to secured and unsecured debts. However, the passage of this law eliminated this distinction, and now, the total debt limit for Chapter 13 cases is $2.75 million. If a debtor's total debts are under this limit, they will be able to file for Chapter 13 bankruptcy.
What Are My Options for Defending Against Home Foreclosure?
Financial issues can affect anybody, and if a person or family experiences setbacks such as the loss of a job, they may have difficulty paying different types of ongoing expenses. In these situations, the most important expenses may need to be prioritized, such as being able to buy food and pay for electricity, water, and other utilities, and a homeowner may be unable to also make mortgage payments. If a family falls too far behind on their mortgage, they risk the possibility of foreclosure. This can be an incredibly stressful situation for a person who is concerned about losing their home, and a family will need to determine their best options for defending against foreclosure and resolving other financial issues they are facing.
Steps Homeowners Can Take to Address Foreclosure
A lender may initiate a foreclosure if a homeowner is at least 120 days delinquent on mortgage payments. For homeowners who have been unable to make payments and are concerned about a looming foreclosure or those who have received notice that a lender is proceeding with the foreclosure process, multiple options for defense may be available, including:
What Is the Process Followed During a Chapter 7 Bankruptcy?
There are multiple options available to those who are struggling with debts. In many cases, bankruptcy is the best way to eliminate debt, and Chapter 7 bankruptcy is often the preferred option. This type of bankruptcy will allow most debts to be completely eliminated within a few months. However, filing for bankruptcy can be a complex process, and it is crucial to work with a skilled attorney to ensure that all of your requirements will be met. By understanding the basics of the Chapter 7 bankruptcy process, you can be sure you will be fully prepared to take the correct steps to eliminate your debts.
Steps Followed in a Chapter 7 Bankruptcy Case
Prior to filing for Chapter 7, you will need to gather all of the necessary documentation. This will include information about your income, the assets you own, and all of your debts. Pay stubs, tax returns, and other documents can be used to show the income you earn and ensure that you pass the means test to qualify for Chapter 7. Listing all of your assets will help determine what is exempt from liquidation and what assets you may be required to turn over during the bankruptcy process. By listing all of the debts you owe, you can ensure that the requirement to repay these debts will be discharged once you have completed the bankruptcy process.
Moving Forward From the Emotional Difficulties of Debt and Bankruptcy
Debt can be a touchy subject for many people. Some forms of debt are unavoidable, such as the requirement to take out a mortgage loan in order to buy a home. Other debts are considered to be frivolous, such as using credit cards to purchase items that a person would not normally be able to afford. Many debts fall in between these two extremes, and while most people have some debts, they will often be able to manage their finances in a way that ensures that they can make affordable payments. However, debts may become unmanageable, and this is often due to unforeseen circumstances, such as the loss of a job or a serious illness.
If you are in this type of situation, bankruptcy may be able to provide relief. However, you may encounter significant stress and other emotional issues as you determine your options for dealing with your debts. By understanding the best ways to address these issues, you can make sure you will be able to move forward successfully and maintain financial stability. Here are some tips on how you can address your emotional concerns as you work to eliminate your debts:
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