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Stratford Bankruptcy Blog

Bankruptcy can help worried consumers address debts

Household debt has been growing for over a decade, but it does not all come down to consumer spending. Much of the consumer debt that people in Connecticut now live with is the result of borrowing just to survive the ongoing aftermath of the Great Recession. Experts are cautioning that the growing household debt could cause serious problems for some people should the country hit another recession. Economic decline could be a common factor among those who choose to file for bankruptcy.

Many people borrow money out of necessity rather than for frivolous expenditures. Since the end of the recent recession, people have been borrowing at higher and higher rates, causing consumer debt to balloon to record highs. These debts are often student or auto loans, mortgages and credit card balances. When those affected by the recession could not find new, better-paying jobs, many ended up borrowing money just to pay the bills.

How personal bankruptcy affects retirement and bank accounts

Most people want to know what will happen to their homes and vehicles during bankruptcy. It is understandable to feel concerned about two things that are so integral to the safety and security of a person. However, it is important for people in Connecticut to understand how personal bankruptcy will also affect their financial accounts.

Bank accounts are treated differently in Chapter 7 and Chapter 13 bankruptcy. When it comes to Chapter 7, filers can expect to keep their accounts, but not necessarily most or even all of the funds. A person may be able to keep some of the money in the account should it meet certain exemption criteria. In Chapter 13, filers usually keep their accounts and the money in them. This is because Chapter 7's goal is liquidation while Chapter 13's is repayment.

Medical debt, student loans frequently cited in bankruptcy

No matter how healthy a person's diet may be or how often he or she exercises, it is nearly impossible to avoid serious medical problems. Whether because of an illness, accident or other unexpected event, at some point in time most people in Connecticut will need to seek medical care. Even for seemingly minor health issues, the resulting medical bills can be debilitating. Those medical bills are a driving factor in many personal bankruptcy filings.

There were approximately 12.8 million personal bankruptcy filings between Oct. 2005 and Sept. 2017. The vast majority of these filings were due to unexpected changes in financial circumstances. A sudden loss of income due to job loss is just one of those unexpected changes, but emergency medical problems are a much bigger issue. According to a study from the American Journal of Public Health, medical issues and bills are at least partially responsible for 66.5% of all personal bankruptcy filings.

Can bankruptcy address five-figure credit card debts?

Consumers in Connecticut generally do not want to carry a balance on their credit cards. Still, many have trouble when it comes to actually paying those balances off. Consumers who have higher balances might struggle more than others when it comes to paying down debts, and some may benefit from considering bankruptcy.

American consumers currently owe over $1 trillion on their credit cards. Some of these consumers owe as little as $1,000 or even less, which can be paid off relatively easily with a bit of sustained effort and a modest income. By the time that balance reaches $5,000, paying it down becomes a lot harder. However, it is the consumers who are carrying $10,000 or more on their credit cards that face the most hurdles to paying everything off. A 17% interest rate on a $10,000 balance translates to an extra $141.66 in monthly interest.

The student loan crisis is influencing bankruptcy

Attending college often feels more like a requirement than an optional move after high school graduation. Not only do many jobs now require even entry-level employees to have graduated from college, but having a college degree often feels like job security in highly competitive fields. Unfortunately, that security comes at a cost. An increasing number of personal bankruptcy filings are being blamed on student loan debt.

A study from LendEDU determined that 32% of people who file for Chapter 7 bankruptcy have student loan debt. Of those, student loans made up nearly half of total debts. With student loan debt reaching a recent record high of $1.5 trillion, this may come as no surprise to college students and recent graduates in Connecticut.

Even confident consumers may need bankruptcy

Is ignorance really bliss? Not when it comes to personal debt. A surprising number of people in Connecticut might not even realize how much debt they have. While this might feel like a coping mechanism to prevent stressing over finances, it can ultimately land consumers in a difficult place. For some, delving into the details of debt and addressing it through bankruptcy can be a smart way to get back on track.

It was recently reported that 21% of American consumers are not even sure if they have any debt. Another 31% know they have debt, but do not know how much they are paying in credit card interest. Since 24% of consumers who have credit cards currently owe over $10,000, the interest these individuals are paying is probably fairly steep. Those who carry debt on more than five different cards -- 12% of consumers -- may also be shelling out a significant amount in interest alone.

Can I buy a house after bankruptcy?

Debt can complicate dreams of buying a home. When adults are busy scrambling to make ends meet or juggling which bills to pay and which to put off, saving for a down payment can feel impossible. Even though bankruptcy could help address that type of debt, many people in Connecticut still do not take advantage of the process. This is partly due to the fear that bankruptcy will prevent them from buying a house in the future.

Having a bankruptcy on a credit report can seem like an impossible barrier to get past. However, once people have their debts discharged through either Chapter 7 or Chapter 13 bankruptcy, getting their finances on track is generally much easier. Most people even rebuild their credit despite having bankruptcy showing up on their credit reports.

How Chapter 13 bankruptcy can help you

You might be making what others describe as a living wage, but that does not mean you are not struggling. Many people in Connecticut who earn living and middle-class wages are faced with more debt than they know how to handle. Sometimes, it is through the slow accumulation of smaller debts that are hard to notice until things have piled up. In other cases, a single financial disaster can throw people into a difficult situation. Either way, filing for Chapter 13 bankruptcy could help you deal with your debt.

Having a lot of debt may not be a reason to file for bankruptcy, especially if you are keeping up with all of your payments. However, if you are falling behind on payments and watching balances balloon because of interest rates, bankruptcy can be an instrumental tool. In Chapter 13 bankruptcy, you will be put on a repayment plan that lasts anywhere from three to five years.

Growing delinquencies could push young adults towards bankruptcy

There is little denying the financial impact that the Great Recession had on certain generations. Compared to their parents, both Gen Z and millennials entered adulthood with more conservative attitudes toward finances and debt. However, as time has gone on and memories of the early 2000s are falling away, more and more people in these younger generations could find that bankruptcy is their best bet for handling debt.

According to the Federal Reserve Bank of New York, student loans are the right kind of debt for people in Connecticut to get into. The bank makes this assertion by pointing out that those with college degrees earn roughly 80% more than people who never graduated college. College graduates also have lower rates of unemployment. However, by 2016, 18% of the U.S. population had at least some student loan debt. That figure was only 10% back in 2004.

Is social media getting in the way of debt management?

Debt is nothing new, but the levels of debt that many Americans now have are much higher than in the past. Credit card debt reached a record high of $834 billion in 2018, and student loan delinquency rates are not looking good either. The reasons behind these growing debts can vary from person to person, and those reasons will also affect how any given person will approach debt management. Figuring out where some of their debt comes from can help Connecticut consumers in this decision.

The psychologist Elizabeth Lombardo believes that some of the increase in debt could be blamed on shifting societal values. She thinks that society is focused on instant gratification much more than in the past, which could be driving up debt for people who might be better off waiting to make certain purchases. But is this the fault of out-of-control consumers with no self-control? Probably not.

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