There is a variety of issues that cause financial struggles, but in many cases, people who are considering bankruptcy fall into one of three bankruptcy scenarios. They over-extended and used credit to pay for things they could not afford otherwise; they were hit with an unexpected medical bill; or their circumstances resulted in their falling behind on mortgage payments and they can no longer afford to pay for their home.
If bankruptcy seems like the best option and one or more of these three scenarios sounds familiar, here’s what you should know in each case:
The first of the bankruptcy scenarios is medical bills. If you are driven into debt because of medical bills or medical bills are one of several debts that triggered the need to file, you are not alone. Luckily, bankruptcy can have a profound effect on your ability to deal with medical debt. Filing for bankruptcy creates an automatic stay, which means debt collection efforts temporarily stop and creditors are not permitted to contact you.
Going forward, medical debt will be handled differently depending on whether you file for Chapter 7 or Chapter 13 bankruptcy. In Chapter 7 bankruptcy, all of your debts, including medical debt, is dismissed. Your assets might be sold and the money put toward payment of your debt, which is one of the reasons it is so important to work with a bankruptcy attorney. Regardless what you owe, you will no longer have debt once Chapter 7 is complete.
In Chapter 13 bankruptcy, you are given a payment plan that includes your medical bills. In some cases, the debt is reduced, consolidated, or eliminated completely depending on how much can be paid off by the end of the repayment plan.
Several years ago the housing market was booming and many people were approved for mortgage loans worth more than they could afford. In other cases, they were able to afford their mortgage at the time of purchase, but life circumstances changed and their monthly payments are now too much to bear. Regardless how you ended up in financial trouble because of your home, bankruptcy can help you recover and avoid foreclosure.
The equity you have built in your home over the years determines whether you will face foreclosure in a Chapter 7 bankruptcy. Many people file for Chapter 13 when they own a home because it is the best way to keep them in their home and get them back on track with their mortgage. Some states even have laws that exempt homes from bankruptcy.
It is always important to consult an attorney before filing for bankruptcy, but it is especially necessary if you are filing as a homeowner and you want to keep ownership of your home.
The last of the bankruptcy scenarios is credit card debt. Credit card debt is a problem for many Americans and one of the most common reasons people end up in bankruptcy. Credit card companies tend to be very generous when extending credit, but are often the most difficult to deal with once you fall behind on payments.
Filing for Chapter 7 bankruptcy usually results in the elimination of credit card debt. It is considered unsecure debt and is often considered a non-priority claim. Many people opt to file for bankruptcy for the sole purpose of wiping out what they owe credit card companies.
In Chapter 13 bankruptcy, credit card debt is treated like most other debts. The credit card company is able to collect its debt as part of your repayment plan, though the final amount might not be the total that you owe when your bankruptcy began.
Are your financial struggles so out of control you are considering bankruptcy? Are you tired of the harassment and stress of dealing with debt collectors? We can help. Contact the Law Offices of Robert M. Geller at 813.254.5696 to discuss your financial situation.