For many people struggling under the weight of tremendous debt, bankruptcy makes good sense. For example, Chapter 7 can wipe out unsecured debts such as credit cards and medical bills. Chapter 13 reorganizes debt so it is more manageable to pay. However, there are some cases in which bankruptcy may not make sense, such as:
If all or most of the debt is not dischargeable
Not every type of debt is treated equally in bankruptcy. For one thing, it is possible for credit card bills to be wiped out, but most student loans and tax obligations must remain. So, if all your debt is due to IRS and student loan payments, bankruptcy may not make sense. Of course, it is possible you may be able to meet student loan undue hardship standards, so it never hurts to meet with a lawyer. There are also some exceptions to the IRS rule.
Other debts that remain in bankruptcy include child and spousal support payments and court-ordered payments from a criminal case.
When much of the debt is dischargeable
The good news is that many types of debt are dischargeable in a Mississippi bankruptcy, and you are able to keep assets such as retirement accounts. Your disability income and personal injury proceeds (up to $10,000 for the latter) are also protected. You are allowed to keep $10,000 worth of personal property, and for many people, that means being able to retain a car and all their savings. Equity in your house is protected, too, up to $75,000.
So, with a single bankruptcy filing, you can either wipe out or consolidate crippling credit card bills and medical bills. In such cases, bankruptcy can make a lot of sense.
Alternatives
If it does not make sense to file, or if you have some dischargeable debt mixed with non-dischargeable debts, it helps to be aware of bankruptcy alternatives. They include credit counseling and other types of debt consolidation.
The health care costs and insurance issue in the United States impacts not only the health of Mississippi residents, but often their financial stability. Medical debt is a top cause of personal bankruptcy filings.
Long gone may be the days when filing for bankruptcy was shameful or a sign of a financially irresponsible person or couple. An expensive medical situation a responsible person handles in the best possible way can land him or her in huge medical debt.
Medical debt is the leading cause of bankruptcy
As reported by USA Today, the Kaiser Family Foundation reports that the leading cause of personal bankruptcies is unpaid medical bills that turn into large debts. In 2014, about four out of 10 Americans incurred debt from a medical problem.
One might expect that this would primarily be a problem for the uninsured. However, Kaiser notes that of the 25 percent of Americans who have difficulty paying medical bills, among them are those who buy health insurance independently and those who receive group health insurance through their jobs.
Many try to solve the problem by using savings or retirement to pay debt, or by getting an additional part-time job. With today’s high-deductible medical insurance policies and those with high co-pays and coinsurance, CNBC confirms that having health insurance is not insurance against huge medical debt.
Medical debt leads to other debt and skimping on necessities
In fact, medical debt often causes substantial credit card debt. Millions of people use credit cards to cover growing medical bills and buy themselves time. The high credit card interest then causes the credit card debt to grow, and often it becomes insurmountable.
Thus, a bankruptcy that includes a lot of credit card debt may, in reality, be a medical debt bankruptcy. It may also be ironic that many people skimp on prescriptions or even more expensive healthier food to attempt to pay at least something towards their medical debt.
Personal bankruptcy can be the most effective and legal method to get that fresh start without crushing medical debt. It creates a beginning point to gain back one’s control and choices in life.
When Mississippi residents feel the burdensome strain of large debt and monthly payments relative to their financial wherewithal, the thought of bankruptcy may cross their minds. Some, in fact, get the fleeting thought and then dismiss it immediately.
The fear of having to liquidate their assets is too much to bear. However, it need not be worrisome at all for many.
Mississippi exempt assets not subject to liquidation
As stated by the Mississippi Bar Association, there are many assets that are exempt from liquidation. Such assets include $10,000 worth of personal property, such as a car or household items. Insurance payments on exempt property are also exempt. If a person is receiving disability insurance benefits, these too may be exempt, as may be pension or retirement benefits.
The home may be exempt up to $75,000 in equity beyond the mortgage balance. However, although one can keep the house, the debtor will need to keep paying that mortgage. The filing debtor of a Chapter 7 bankruptcy can also keep his or her car so long as he or she makes those car payments timely. Personal injury awards are also exempt up to $10,000, as may be workers’ compensation awards.
Personal property exemption
The $10,000 exemption in personal property does not mean determining how much it would cost to replace the item. It is not the cost of buying a new item. Rather, the figure used is the fair market value of the used item. What dollar amount can that used item bring in if sold? When using that latter definition, $10,000 may cover a lot of personal property. Also, when figuring out the car value, it is the value of the car minus the balance of the car loan to determine the equity counted towards that $10,000 limit. If the car market value is $15,000, and the owner owes $10,000 on the loan, the countable equity is only $5,000. Of the $10,000 exempt limit, saving the car would still leave $5,000 of other personal property.
In fact, many people eligible for Chapter 7 do not have any non-exempt assets. Many may already have sold valuable property to make ends meet prior to considering bankruptcy. Others just never got far enough ahead financially to gain exempt assets. This reality may make filing for Chapter 7 a relatively simple matter. It can lead to a future of financial relief and ability to live without the constant feeling of treading water.
As you consider your options for getting out of debt, you may be hesitant to choose the route of bankruptcy for various reasons. Perhaps you fear losing meaningful assets or ruining your credit. Maybe you are unsure if such an approach is even moral.
The truth is that bankruptcy comes with numerous benefits that may help ease your worries on the matter. Talk to a bankruptcy lawyer to determine if it is the right fit for your financial circumstances so you can experience these positive effects.
Asset protection
Regardless of the type of bankruptcy you claim, you will not lose all your assets. Each bankruptcy chapter comes with its own list of protected property and income, and state laws allow for additional exemptions. Which assets you want to safeguard may affect how you file.
Immediate relief from creditors
As soon as you file for bankruptcy, the court issues a stay to all your creditors, which puts an immediate end to:
The stay is temporary, except for harassment, but your attorney can help you decide what steps to take so you can retain your property and limit interaction with creditors.
A fresh start
While it is true that bankruptcy hurts your credit, the harm is only temporary and is less consequential than remaining in your current situation. You can rebuild your credit within years to better than before and even qualify for loans and credit cards in a short time. These are likely to have high interest rates, however, so you need to manage your money wisely to avoid getting into trouble again.
Peace of mind
With all your focus on numbers and legal issues, you may have put aside your emotional well-being. However, having a solid plan for eliminating debt alleviates stress from chaos and confusion. Once you file, you will have peace from taking action and knowing you are on track to financial freedom.
Are you missing payments on your home and also have credit card debt? If you are dealing with this level of financial turmoil, you are probably feeling scared and confused. You might feel like there is no way out of this situation. Thankfully, there are several options you have to save your home and help you manage your debt.
When foreclosure is near and credit card debt keeps racking up, you can start by modifying your loan or filing for bankruptcy. Here is how each option works.
1. Loan modification
If you are lucky, you might be eligible to restructure your mortgage loan. This would bring your account current and establish a more affordable payment. In certain cases, this is the best option rather than filing for bankruptcy or accepting foreclosure. Your lender may be wary of approving a loan modification, so you likely want a legal representative to help.
2. File for Chapter 13 bankruptcy
This type of bankruptcy reorganizes your debt and will bring your mortgage loan current over the next few years. You pay a portion of your debt over this period through an affordable repayment plan. Your lender will not be able to reject these payments when you file for Chapter 13 bankruptcy, and you will keep your home as long as you make your repayments.
3. File for Chapter 7 bankruptcy
If you do not have enough income for a repayment plan, you might go for Chapter 7 bankruptcy instead. Chapter 7 bankruptcy will allow you to wipe out your credit card debt. Once your credit card debt is eliminated, you can try reapplying for a loan modification. Your lender might be more lenient with modifications once your credit card debt is gone.
Both types of bankruptcy and applying for a loan modification are viable options to save your home. The exact strategy you choose will largely depend on your income and assets.
