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Personal bankruptcy rates are on the decline, but why?

Filing for bankruptcy is often the most effective way for struggling Connecticut consumers to deal with their overwhelming debt. Despite this, fewer people are pursuing personal bankruptcy than just a handful of years ago. Experts have a few ideas as to why this is, including things like improved health care coverage and the costs associated with filing.

Back in Sept. 2010, there were approximately 1.6 million bankruptcy filings, 1.53 million of which were consumer cases. Fast forward to Sept. 2018 and the story is much different. There were only around 770,000 bankruptcy filings that month, a significant drop off when only eight years earlier many more consumers seemed to be struggling to repay their debt. Although this was in the middle of the Great Recession, there is probably more at play in these changing numbers.

Personal bankruptcy an option for people with over-due car loans

Debt can be a significant burden for Connecticut consumers who can no longer manage their obligations and make payments on time. For many, a significant portion of their debt burden is a result of auto and other similar personal loans. When a person is no longer able to make payments and is struggling with the consequences of overdue debt, personal bankruptcy may be an option by which he or she can discharge the debt and secure a better financial future.

Experts note that consumer debt increased in the last months of 2018 at a higher rate that many estimated. There are many reasons for this, including consumer confidence bolstered by tax cuts, a strong economy and more. Nonrevolving debt, such as car loans, increased by more than $17 billion.

Can I get out of foreclosure without filing bankruptcy?

Virtually no one plans to fall behind on their mortgage, and learning that you may lose your home because you did can be devastating. While bankruptcy is a valid choice for Connecticut homeowners who hope to stop foreclosure, it is not the only option at their disposal. Loan modifications and short sales can keep you from dealing with foreclosure without going down the bankruptcy path. 

Loan modifications involve directly notifying the bank of your inability to make your monthly mortgage payment. This is normally best done as soon as you realize that you cannot keep up with your mortgage and before you miss a payment, although you can still request a modification even if you are behind. This process allows you to modify various aspects of your loan to make payments more affordable. These modifications may include: 

  • Reduced interest rates 
  • Reduced principal amount 
  • Extended loan terms 
  • Adding missed payments back into the principal 

Drowning in medical bills? Personal bankruptcy could help

Having health insurance is an important part of being able to access and afford necessary medical care. Unfortunately, it is not always enough. For some people in Connecticut, health insurance policies still leave gaps that leave them burdened with so much medical debt that filing for personal bankruptcy is the only option.

An out-of-state couple is currently working five jobs in an attempt to repay their astounding medical debt. In the 10 months since they welcomed their firstborn child into the world, they have racked up approximately $12,000 worth of medical bills. The in-network hospital that the mother delivered at billed them $4,000 for what was a routine delivery. They were hit with more medical costs when the baby was hospitalized at only 2 months old.

Personal bankruptcy and stopping the wage garnishment process

When Connecticut consumers have an overwhelming amount of debt, it can lead to various consequences that impact almost every area of their lives. From threats of losing the family home to phone calls from debt collectors, a consumer may feel overwhelmed and unsure of what to do next. One of the most unfortunate effects that debt can bring is wage garnishment, but personal bankruptcy could be the solution.

Wage garnishment occurs when a creditor moves to have the employer withhold a portion of a person's paycheck. The amount withheld goes toward the repayment of the debt. It can be difficult for a person already struggling with debt to lose part of his or her paycheck. However, there are limits to wage garnishment, and a consumer has certain options through which it's possible to put a stop to this process.

Rising credit card balances could lead to Chapter 7 bankruptcy

Americans have been working hard to pay off their credit card debt. Consumers in Connecticut and across the rest of the nation paid off a collective $40.8 billion in the first quarter of 2018 alone, but it still might not be enough to dig themselves out of debt. When working hard to pay back debt is no longer enough, Chapter 7 bankruptcy might be the smartest financial path.

The first quarter of 2018 was the second ever largest payoff of debt in U.S. history. Despite this, the average household now carries $8,284 in credit card debt, up 2 percent from 2017. Collectively, credit card users owe a total of $974.2 billion. But if everyone is paying back more than they owe, will the problem eventually get better? Maybe not.

Will growing consumer debt lead to more personal bankruptcy?

Since the financial crisis that rocked consumers in Connecticut and across the country 10 years ago, there has been a renewed focus on national consumer debt levels. In recent years, consumer debt has been growing, but not everyone is worried. Some experts believe that the current stronger economy can support the growing levels of debt. However, there are always exceptions to these generalities, and some people might find that personal bankruptcy is their best solution to overwhelming debt.

Consumer debt -- which does not include mortgages -- hit $3 trillion in 2013. It is expected to pass the $4 trillion mark by the end of 2018. At least $1 trillion of this debt is wrapped up in credit card balances, while things like student loans, auto loans and other debts account for another $2.93 trillion.

Chapter 7 bankruptcy may not as widely used as you may think

The Bankruptcy Abuse Prevention and Consumer Protection Act -- BAPCPA -- of 2005 cut off a significant number of Americans from pursuing Chapter 7. However, many people in Connecticut might be surprised to learn that not only do they still qualify for Chapter 7 bankruptcy, but that they could greatly benefit from filing. According to one expert, it is a vastly underused tool for dealing with debt.

A professor of economics who studies bankruptcy at an out-of-state university was initially surprised when she learned of the relatively low number of annual filings. In 2005, there were fewer than 500,000 people who filed for Chapter 7. However, this could be in part due to confusion about who qualifies as well as barriers to filing.

Should I file for Chapter 13 or Chapter 7 bankruptcy?

The absence of a repayment plan is one of the biggest ways in which Chapter 7 differs from Chapter 13 bankruptcy. There are many other differences as well, including an income cutoff regarding eligibility to file for Chapter 7 bankruptcy. In Connecticut, individuals who earn under a certain income threshold may qualify for Chapter 7 while still being curious about the benefits of Chapter 13. Here are a few key differences to consider.

Whether a person owns a home and a car or rent a home and uses public transportation can influence which bankruptcy to choose. In Chapter 7, assets such as motor vehicles and houses must usually be given back to the bank, unless it is possible to reaffirm them. Those who file for Chapter 13 can typically keep these types of property so long as they adhere to their payment plan.

Can your neighborhood type predict your foreclosure risk?

Most people in Connecticut will experience a financial emergency at least once in their lives. Whether a financial crisis leads to foreclosure can depend on a variety of factors, including a person's other debts, income and even savings. Some researchers say that the type of neighborhood a person lives in could also affect one's risk of losing a home to foreclosure.

The researchers from an out-of-state university looked at the housing diversity in 14 different metropolitan areas in the United States. They took into account not only the existing homes in a neighborhood, but also what the zoning ordinances allowed between 2005 and 2013. Their conclusion? Neighborhoods with more diverse housing options had fewer foreclosures.

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