If you are accumulating too much debt, you may think about filing for bankruptcy. While it may sound intimidating to go bankrupt, it may be a good option for you. It can help you get free from crippling debts and start over.
However, before you rush into filing for bankruptcy, there are some things to handle. Here are some steps you should take before declaring bankruptcy.
1. Review your finances
You should have a clear picture of your financial situation before filing. At the very least, you should understand your income, expenses and total debts. Figure out what is causing your debt. You should also request your credit report for free before filing for bankruptcy. Not only will your credit report be an indication of your financial troubles, but it will also give you a good list of the creditors you owe.
2. Avoid racking up more debt
If you gather too much debt too close to your filing, the creditor may claim you are committing fraud. Do not spend frivolously on luxury items if you are considering bankruptcy. If you take on new debt, make sure it is for necessities such as food, utilities or medical bills.
3. Stop automatic payments
You may have settings on your credit cards or bank accounts to make automatic payments. Whether you have these for utilities or monthly subscriptions, you should freeze them before you declare bankruptcy.
4. Get legal help
According to CreditCards.com, talking to an attorney is essential before moving forward with bankruptcy. It is risky to attempt to handle it by yourself because the laws are so complex. Not only do you need assistance understanding bankruptcy laws, but you need someone who will steer you on the right path and tell you about your best options.
You do not need to feel fear or shame when it comes to bankruptcy – just make sure it is the right decision and you are ready for it.
Debt is something that almost everyone experiences at one point or another. According to Goldman Sachs, the average amount of credit card debt is $5,700 for families. It is such a prevalent issue that you may feel like having debt problems is normal, or you simply ignore it.
Now, the path into debt struggles is often complex. If you understand some of the most common reasons people go into high levels of debt, you may be able to better protect yourself and know when taking action to address debt issues can be particularly important. Here are some causes of debt problems.
1. Health care expenses
Medical costs are on the rise and are crippling for too many Americans. You may fall into medical debt even if you have health insurance. Injuries, illnesses and other health conditions can suddenly cause bills to pile up. It is impossible to predict when a sudden medical problem will strike.
2. Losing income
If a primary source of income goes away, your bottom line will suffer. Examples of losing income include the following:
Whenever any of these things happen to you, you may face an overwhelming number of expenses and bills with no way to cover them.
3. Sudden emergencies
You may end up in debt when something bad and expensive occurs. Here are some costly emergencies you may encounter:
Without a substantial emergency fund, these kinds of occurrences may leave you facing significant financial difficulties.
No matter how you end up with high debt levels, you may think it is impossible to get out. However, in some circumstances, filing for bankruptcy may give you the relief you need to start over.
All types of debt could be weighing you down: credit card bills, medical payments, student loans and mortgage payments, to name a few. To avoid bankruptcy or to keep your house during bankruptcy, one option you might want to consider exploring is mortgage modifications. Are they relatively easy to get, or is being granted one a rarity?
The good news is that many people easily get a mortgage modification, but as with anything, such a move can come with downsides.
Pros and cons of a mortgage modification
The disadvantages of a mortgage modification include your mortgage possibly being reset for a 40-year period, meaning that if you had, say, 18 years’ worth of payments left, you may turn out to have 40 years’ worth at the end. Your credit score might also take a hit, although not as bad as a foreclosure mark.
The advantages include a lower monthly payment, especially for the first few years, and such a modification can help get you through a distressing time in your life. You can file for bankruptcy, and through this reorganized debt plan be able to stay in your house.
Ease of getting one
Now to the heart of the matter: Who can most easily get a modification? Generally, those who qualify show financial hardship yet demonstrate sufficient income to make the new payments. Hardship examples could be illness, death of a spouse or job loss. Applicants must be behind on their payments or about to become behind. If you are seeking a modification in bankruptcy, the fact that many of your debts are being eliminated or reorganized should show you have some increased capacity to make payments.
Some lenders have their own departments and programs for loan modification, so you can check online on your lender’s website or contact it to find out. Otherwise, there are programs such as Freddie Mac Flex Modification that may be able to help. Also, if you have no hardship to show to your lenders, they may offer you a refinance since you might not qualify for a modification.
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.
