One of the most disturbing trends in money management is overuse of debt consolidation loans. Sure, they may be the perfect solution for people who have gotten into unforeseen financial trouble, but debt consolidation loans are too often used to treat symptoms instead of addressing an underlying problem. One of the greatest myths about these loans is that they save money on interest. The only way interest rates get cut is when someone borrows against home equity, but home equity loans can become a crutch as well.
Bankruptcy attorneys have seen many clients come into their office after thinking they had "fixed" their finances through debt consolidation, only to find out later on that the old habits are still there. They just "moved" the debt to a different collector. It's a bad idea to think you can borrow your way out of debt. A true fix will be neither quick nor easy, but it will have a lasting effect.
People who find themselves in debt frequently are likely to avoid addressing its real source, which is overspending and undersaving. Financial coaches rarely recommend a debt consolidation loan for clients because they know it doesn't work.
Statistics about debt consolidation
Some debt consolidation firms estimate that more than 78 percent of the time, after a client consolidates credit card debt, it gradually grows back. The reason for this is the client hasn't developed a game plan to prevent it from happening, such as saving for unexpected events or paying cash all the time.
When a debt consolidation offers lower monthly payments, most people feel like they've "won," but they soon find that the lower payment isn't coming from lower rates; just a longer payment term. Staying in debt longer usually means you pay the lender more money, which explains why so many lenders jumped into the debt consolidation business.
For example, say you've accumulated $30,000 in unsecured debt, including a four year loan for $20,000 at 10% and a two-year loan for $10,000 at 12%. Your monthly payment on the $20,000 loan would be $583 and you would pay $517 on the $10,000 loan, with monthly payments totaling $1,100. A debt consolidation company comes along and tells you they can lower your payment to $640 per month and by negotiating with your creditors lower your interest rate to 9% because all of your loans would be rolled into one. While this may sound tempting, what they don't tell you is now it will take you six years to pay off the loan. Instead of paying the $40,392 you would have owed on the original loans, now you're paying $46,080, even with the lower interest rate of 9%. Not such a great deal after all. But now do you see why these debt consolidation companies are so profitable?
How Can You Really Get Out of Debt?
The solution is not in the interest rate. You will need to change your spending habits by committing to a written game plan and sticking with it. If needed, get a second job and start paying down your debt. Figure out how to live on less than you earn and be frugal! Changing your habits isn't easy, but it will put you on the path to financial freedom and out of bankruptcy court, which is where you want to be.
Will a Debt Consolidation Damage Your Credit Score?
A lot of people think that a debt consolidation will make their credit report look better because it will show a lot of closed, paid-off accounts. But the answer really depends on what you do afterwards. If you get the debts consolidated and then start using your old credit cards again it will hurt your credit score. The best thing to do after a debt consolidation is to cut up your cards and stop filling out credit card applications. Make your loan payments on time every month and check your credit score regularly for any changes.
Consolidating credit cards with high balances using an installment loan — a loan with fixed monthly payments — may actually benefit your credit rating, especially if you use the loan to pay off credit cards that are near their limits. At the same time, any new loan can cause a short-term dip to your credit scores — so don't be surprised if that happens.
Transferring a high-rate credit card balance to a card at a lower rate can be another way to consolidate. If you decide to go this route it's important to be disciplined in your approach. Otherwise, you may fall into traps such as getting stuck with a balance at a high interest rate after the introductory period ends. If you use a substantial portion of the available credit on the card to consolidate balances from other cards with lower balance-to-available-credit ratios, your credit scores may drop.
Remember, moving around debt is not the goal here. The goal is to pay off those balances to free up cash flow as well as to help build strong credit. A consolidation loan, used correctly, can help you get there just a little faster.
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Whether you're struggling to make mortgage payments or seriously behind, foreclosure is a scary proposition. Not only would this be devastating to your lifestyle, but you may be concerned about its impact on your credit. But isn't every major financial problem going to damage your credit? When it comes to your FICO score, is it much different to go through foreclosure or bankruptcy, complete a short-sale, or request a loan modification from your bank?
While it may seem to be a minor, there is actually a significant difference between these options. Before you decide what to do, find out which activity will have the greatest impact on your credit score.
Your credit score
Every person is assigned a number by a credit scoring company that predicts your likelihood of default on payment obligations. This number is called a FICO score. Each credit reporting agency uses a different set of factors and calculations to get to this score, but most of the information they use is contained within your credit report. For this reason, it is very important to look at your credit report often, just in case there are any errors in reporting.
A FICO is required in 90 percent of all mortgage applications, so it is a number that could impact both your buying power and interest rate.
What influences your FICO score?
Payment history accounts for 35% of this score, which means if you pay your bills late your number will be lower. The more recent the problem, the more it will affect your score.
Outstanding debt accounts for 30 percent. If the amount you owe to a creditor is close to the credit limit, this will negatively impact your credit score. Also, carrying a balance on several accounts will reduce your score because it will seem like you are overextended.
Length of credit history accounts for 15 percent, which means the longer you've had an account open, the better it is for your score. However, new credit (10 percent) shows you've been applying for many new credit limits, which could negatively impact your score.
Finally, the type of credit you have will account for 10 percent. FICO looks for a healthy mix, including both revolving and installment loans, but this will only be important when there is little information available to determine your score.
What happens when you file for bankruptcy?
A bankruptcy filing will show up on your credit report for 10 years, which is three years longer than most other negative information, such as short-sales, foreclosures and loan modifications.
The impact of foreclosure on your credit score
If your credit score is high to begin with, any kind of financial distress will cause a deeper dive than if your score was already low. In fact, borrowers with higher FICO scores could see a drop of 100 or more points. Additionally, it will take longer to get back to an original score if that score is high, but the number of years it takes to rebuild will largely depend on your future payment history and debt load.
If you have excellent payment behavior and your available credit increases, your score will improve more quickly than if you continue to make some late payments and are remain overextended.
Foreclosure, bankruptcy and short-sale often impact borrowers' scores so dramatically because borrowers only resort to these measures when they are seriously delinquent.
What about loan modifications and forbearances?
If your lender reports that you are "paying under a partial agreement," this could have a negative impact on your FICO score, but a lot depends on how your loan modification is reported. Either way, if you are no longer paying your mortgage as originally agreed, it will have some impact on your score.
Bankruptcy is worse for your credit score
Statistics from FICO indicate that bankruptcy is slightly worse for your credit score than foreclosure, forbearance, short-sale, or a loan modification. When comparing foreclosure to short-sale, borrowers who faced foreclosure took longer to rebuild credit than those who completed a short-sale. This can be attributed to the fact that foreclosure is normally triggered by such life events as a job loss, divorce or medical problem, conditions which will likely continue long after the foreclosure.
Keep in mind, however, that these statistics reflect the average situation, and everyone's financial situation is different. ¬¬
Photo Courtesy of Stuart Miles / FreeDigitalPhotos.net
If you are facing foreclosure, it won't be long before your friends and family start offering advice. You may hear about some proven strategies to keep the mortgage company at bay, and other actions that may help you avoid foreclosure. But first it is important to understand foreclosure.
What is foreclosure?
A bank foreclosure is a legal process through which a mortgage lender can take possession of your home when you are not making the monthly mortgage payments. While it is different in every state, it usually follows that when you miss a few payments on the mortgage, the lender will send a default letter. This letter usually urges the borrower to make payments to catch up or to make some alternative arrangement with the bank. However, if the situation is not fixed within a few months of this letter, the bank will begin the foreclosure process.
What is the foreclosure process like?
After a loan has been in default for a month or two, the bank will send Sheriff's Sale Notice. Usually, this sale is scheduled to take place within four weeks of the date of the letter. Sheriff's sales are auctions where people can bid on the house; however the lender is usually the winner of the auction. In certain situations, the lender can attempt to collect any balance of the loan above the price paid at the sheriff's sale. This debt is called a "deficiency" but it usually a dischargeable debt in bankruptcy.
On the day of the sale, the lender assumes ownership of the property and the "redemption period" starts. This period of time is designed to protect the borrower's from abuse by the lender and it usually lasts for six months. During this time, the borrower can remain in the home, but doesn't have to pay the mortgage or property taxes. The borrower may also buy back the home at the price paid at the auction, but this might be impossible since lenders won't give loans to people right after a foreclosure. At the end of the redemption period, the borrowers can be evicted from the home.
How can bankruptcy help?
Filing for bankruptcy during a foreclosure can help in a couple of ways, but it must have been filed before the sheriff's sale. For one, a Chapter 13 bankruptcy can help you catch up on payments if you fell behind on your mortgage. Secondly, Chapter 7 allows you to stay in the home longer while stopping the lender from collecting a deficiency after taking the home.
Chapter 13 and foreclosure
If you fall behind on your house payments but you still have a large enough income to pay the mortgage, then Chapter 13 might be the ideal solution. This is particularly true when you have some equity in the home and want to hold on to it. A Chapter 13 bankruptcy allows you to pay back the amount your fell behind over the period of three to five years, while continuing to make regular mortgage payments. Once the arrears are paid, the mortgage will no longer be in default.
Chapter 7 and foreclosure
If you fell "underwater" on your mortgage because the balance is higher than the value of your home, or you can no longer afford to make monthly mortgage payments, then Chapter 7 may be just the fix. Chapter 7 bankruptcy legally protects you from any actions taken to collect a debt, including the sheriff's sale on a foreclosed home. While the lender can still ask the court to hold a sheriff's sale, the protections of Chapter 7 can last up to three months. In the case of a Chapter 7 bankruptcy, you can gain an additional 1 to 3 months in the home without paying a mortgage.
Perhaps more importantly, a Chapter 7 bankruptcy discharges any deficiency debt that may result from the house selling at auction for less than the balance of the mortgage. In cases where the deficiency judgment is quite large; which can occur when the house is remortgaged or underwater, a Chapter 7 filing can be quite helpful.
That's it, you've had it! After struggling for months, or even years, to pay your debts, you are ready to consider filing for bankruptcy. The time has come to find a bankruptcy lawyer but you have no idea what to look for, or which questions to ask. It's not uncommon to see a bankruptcy attorney advertise on television. Some even advertise on billboards, but you can't be sure. It might be awkward to ask friends and family for a recommendation, so most people opt for an online search.
Believe it or not, a lot can be learned just by reading through an attorney's web site, but you shouldn't stop there. Filing for bankruptcy is pretty serious and it requires the right representation. Here are some ways to find, and then select, the best bankruptcy lawyer for you.
Look for signs of professionalism
Before you get started, it makes sense to check in with some professional organizations. Membership in organizations such as the National Association of Consumer Bankruptcy Attorneys, is a good indication that the firm or attorney is up to date on the latest developments. Once you locate a few members in your area, visit the web site for your state's bar association and check their certification. Most states will have special certification requirements for practicing bankruptcy law. A certification is given when the lawyer has been practicing for a minimum number of years and spends at 50 percent of the time on bankruptcy cases. A peer review and a passing score on a written exam will also be required.
Credentials and association memberships will give you the assurance that an attorney has all the practical knowledge necessary to help you, even if your case gets complicated. It will also tell you that the attorney takes professionalism seriously.
Prepare to interview a few bankruptcy lawyers
After you have found a few firms or lawyers that look interesting, take a look at their web sites. They should include a clearly written statement of educational information about bankruptcy, plus financial forms that you can download and in preparation for filing.
Schedule a few appointments and as for a free consultation. It may be tempting to go with the first one you like, but plan on seeing more than one. You should feel perfectly comfortable with the attorney and confident in his or her abilities. To save time, complete any forms you find on the web site and bring them along. Bring a list of questions you might have and use the same list of questions with each attorney. The answers you get may help you determine which one to hire.
What should you look for in a bankruptcy lawyer?
While professionalism and rapport are important, it is also essential that you trust the person you hire. Look for the following qualities during your initial consultation.
Do they discuss with you the alternative bankruptcy solutions? For example, an attorney should tell you that a Chapter 7, or complete cancellation of eligible debts, isn't the only answer. Other options should be explored whenever possible, such as credit counseling or negotiation with creditors. A Chapter 13 bankruptcy might also be on the table if you have enough income to support at least some of your liabilities, or if you own property that could be seized in a Chapter 7 filing. It is important to understand the full range of possible resolutions before making a decision that you could later regret.
Does the attorney express a passion for his or her profession? It is important that your lawyer is personally involved and enthusiastic about the process. Many attorneys find their work rewarding and fascinating. Find out what drove them to specialize in bankruptcy law and listen carefully to the response. To be honest, there are few other practice areas where an attorney can do so much good for a client in such a short period of time.
Do they listen to you closely and understand your situation? Declaring bankruptcy can be a painful decision and there are plenty of emotions involved. You will want an empathetic attorney who is interested in helping you reach your goals, but who also shows a willingness to ask you probing questions. If the lawyer doesn't ask you how you about your biggest concerns, or what got into your financial predicament, he or she may not be viewing you as an individual. You should walk out of your meeting feeling like the attorney really wants to help you.
Filing for Chapter 7 bankruptcy can be stressful enough, but then your Colorado bankruptcy lawyer informs you that you must attend something called a "Meeting of Creditors" before your debts can be discharged? That might be enough to make you wonder what you got yourself into. Good news! There is no reason to fear this hearing when you have an experienced bankruptcy attorney by your side.
What is a Meeting of Creditors?
When you file for Chapter 7 bankruptcy, the meeting of creditors is a short court proceeding where the bankruptcy trustee and your creditors can ask you questions about your finances and the information you supplied in your petition while you are under oath. This meeting, which is also known as a 341 hearing, is essential in determining whether the papers you filed are accurate and complete.
Who Will Be at Your Chapter 7 Meeting of Creditors?
Typically, the Chapter 7 bankruptcy trustee will moderate the meeting of creditors, which means there will be no judge present. In fact, most Chapter 7 bankruptcy filers don't see a judge unless they are facing an objection or reaffirming a debt. In any case, all of your creditors will be invited to attend this meeting but they rarely show up. This is because creditors have a very short period of time in which they will be allowed to ask questions so they don't benefit much from being there. However, if a creditor has reason to believe you are hiding assets or committing another form of bankruptcy fraud, they may show up to present such evidence.
What Happens at the Meeting of the Creditors?
In most cases, you will only be examined by the bankruptcy trustee, but remember, your meeting of creditors is open to the public and several hearings are held within the same time period so you may have other debtors observing your hearing as they await their case.
When your case is called, you will go before the desk of the trustee to be examined under oath. You will be asked to provide the trustee with your full name and provide identification as well as your social security number. Since Chapter 7 bankruptcy authorizes the court to sell your nonexempt assets, most of the trustee's questions will focus on these assets.
After the trustee questions you, your creditors are allowed to examine you as well. If a creditor comes to the hearing, you may be asked about the nature or location of your assets; however a creditor will not be allowed to conduct a lengthy investigation at this meeting.
After the trustee and creditors have finished their examination, the trustee will conclude your hearing. Unless the trustee requires more information, you won't have to come in for another hearing like this. You can expect to receive your discharge once all the other requirements are satisfied.
If you have more questions about the process of filing Chapter 7 bankruptcy in Colorado, schedule a consultation with a Colorado Springs bankruptcy attorney.
Photo Courtesy of Stuart Miles / FreeDigitalPhotos.net
In some circles, bankruptcy is viewed as a taboo subject. People immediately assume that those who file for personal bankruptcy are simply irresponsible with money or they are trying to escape from paying their bills. In reality, however, this is rarely the case.
Bankruptcy attorneys and other financial experts are quick to point out how many successful people they know who have filed for bankruptcy in the past. The fact is that bankruptcy offers an individual protection from creditors who might otherwise place an enormous burden on them.
Without bankruptcy protection, people who are saddled with debt would be at the mercy of their creditors, who could file judgments, garnish wages and place liens on their property. Bankruptcy allows an individual the opportunity to prove to their creditors that he or she is not capable of meeting expenses, while allowing him or her to make an attempt at restitution.
Why is an attempt at restitution so important?
Bankruptcy filers are often judged harshly by those who assume they are just trying to escape debt. They wrongly believe that one's personal bankruptcy allows them to get off the hook completely. While some of the filer's debts may be discharged in Chapter 7 and Chapter 13 bankruptcy, the court still requires them to make an attempt at restitution. In a Chapter 7 bankruptcy, the filer must forfeit any assets that are not protected, or exempt, by state bankruptcy laws. The proceeds from the sale of these assets is then used to pay back creditors. In Chapter 13 bankruptcy, filers are expected to create a repayment plan with the court, which essentially settles their debts over a period of 3 to 5 years.
While restitution may not be complete, it is an important aspect to bankruptcy protection because it requires the filer to bear some responsibility instead of walking away debt-free. Personal bankruptcy is certainly not something one should aspire to, but for most people it is a much better alternative than hiding from creditors. It offers protection from creditors and it offers a means to a fresh start. It is wise for those seeking protection to work directly with a Colorado Springs bankruptcy attorney for advice on starting the process.
How will bankruptcy affect your credit score?
Even those who are willing to deal with the emotional repercussions of bankruptcy might not be so thrilled about the damage it will do to their credit score. In fact, other than emotional stress, credit score is what filers worry about the most. It is true that a bankruptcy filing can show up on your credit score for up to ten years, so If you find that bankruptcy protection is the best option for your financial future you will want to start repairing your credit score as soon as possible.
The following are a few considerations to help Colorado residents with repairing their credit score.
Finally, if you are considering bankruptcy in Colorado, consult with an experienced Colorado Springs bankruptcy lawyer. Be prepared to ask questions and learn about all of your options before making a decision.
Money may not buy happiness, but the lack of it can certainly inspire negative emotions. When we lack financial stability it often causes sadness, grief, and shame, but these are just the beginning when it comes time to file for bankruptcy. There is something about admitting defeat and formalizing that defeat in a court of law that makes a financial disaster even more palpable.
The most common form of consumer bankruptcy in America is Chapter 7, which involves handing over one's non-exempt assets to a trustee, who liquidates them to pay the filer's creditors. This normally eliminates all or most of their debt. Another form of bankruptcy, Chapter 13, is where one's debt is paid off through a financial reorganization, with the goal of preserving certain assets. People who file for Chapter 7 are usually in such a state of financial ruin that it's not worth filing for Chapter 13.
While we often focus on the financial consequences of bankruptcy and the damage it does to one's credit score, the mental burden can be more overwhelming. In fact, its far-reaching effects can become psychologically burdensome, causing undue stress on important family relationships. It is important to acknowledge this and be proactive about preventing permanent damage because family support is so important during this process.
Focus on finances and emotions simultaneously
It is important to take the appropriate financial steps when facing bankruptcy, such as compiling a list of debts and hiring a bankruptcy lawyer, but try not to neglect your emotional well-being. Many people find that by the time the file for bankruptcy they have juggled debt for so long that they are emotionally spent. According to one financial counselor, "In many cases, a person's self-esteem takes a stronger hit than their finances."
As more people cope with the fallout from a struggling economy, the financial therapy industry is gaining a foothold. People are in need of emotional support when they go through a monetary crisis, and while many general psychologists offer treatment, it might not address all the concerns involved with bankruptcy. Financial therapists can help address a patient's worry about their family's anger, as well as their anxiety and fear about the future. Bankruptcy may present some obstacles in life, but for many people it is also a great relief. Even the black marks on a credit report will eventually disappear, and in the long run people look back and realize it was their only option.
Bankruptcy attorneys will often provide solace to their clients by telling them they are not alone; that in fact there are plenty of other people who have fallen into bankruptcy and it is not the end of the world. Statistics prove this out, and it's important that people realize this. In reality, filing for bankruptcy gives them the breathing space to make a fresh start. Oftentimes, once the decision is made to file for bankruptcy, clients are in a much better frame of mind than they were at the first meeting with their attorney.
According to a recent article in U.S. News and World Report ("Surviving the Emotional Toll of Bankruptcy"), many perceptions about bankruptcy are falls. Financial therapists say that while many general psychologists offer help in this area, it is not always the right kind of support. Some bankruptcy filers often worry that they have accumulated so much debt that even a bankruptcy won't be enough. Others worry that the poor economy will continue to get worse, or that their credit score is permanently destroyed. Such misguided fears only make the process of bankruptcy more disturbing. In reality, no matter how much someone owes, bankruptcy is always a viable option, and the effects of it will eventually be erased.
Blame is another part of the grieving process. While many people know that the poor economy caused their situation, they still must take ownership of what things they did have control over. In this case, a financial therapist will try to help a client separate their own worth from their personal worth. This can be difficult for many people, who have been trained to believe that their financial success is the only success that matters.
Ultimately, relief from the mental burdens of bankruptcy is dependent upon how well a person prepares to handle finances in the future. Setting smaller, achievable goals can be a great way to rebuild confidence because individuals can celebrate minor victories along the road to recovery.
A lot has been written about restoring one's financial fitness after bankruptcy, but bankruptcy does just as much damage to a person's psyche. After bankruptcy, anger and shame are natural emotions, but they don't need to last forever. Many people find that a financial catastrophe like this it is just what they needed to get a fresh start. While this doesn't negate the fact that bankruptcy causes long-term damage to their credit report, one that won't go away yet for seven years, it is still better than continuing along the path they were on.
Even if your friends and family tell you it's going to be okay, the experience can still be bruising to your ego. "The creditors make you feel like you failed, you are a loser and you are worthless," says Robin Hardy, a person whose company, the Moosey Group Inc., filed for bankruptcy.
According to many bankruptcy "survivors," a common reaction is a feeling of failure. The shame of having to declare bankruptcy can be crippling at first, particularly for successful entrepreneurs and business leaders. Feelings of failure go beyond one's personal bank balance and extend to include family relationships, business alliances and one's professional reputation. Needless to say, this impact is felt beyond the individual. This is why it is so important to take any necessary steps to avoid bankruptcy entirely.
Secrets of surviving personal bankruptcy:
Here are some "survival tips" to help you stay out of trouble before you contemplate bankruptcy:
Don't bite off more than you can chew. Every time you make a purchase with a credit card, put away the amount of that purchase in a separate account and pay the bill in full every month. This may be a difficult habit to form but it will keep you from accumulating more debt.
Downsize your lifestyle. Get a roommate or find a less expensive place to live. Avoid the dining out trap and learn to cook delicious meals at home. Bring your lunch instead of going out every day. Cut back on "extras," like premium cable channels, satellite radio, regular massages.
If you do have to declare bankruptcy, don't wallow in guilt. A lot of people find that they get a second chance at life through bankruptcy. Take this time to reinvent yourself and take this opportunity to get a fresh start with your financial future. From a business perspective, bankruptcy forces you to explore who you really are and embrace the opportunity to reinvent yourself.
Why do women file for bankruptcy?
Other than women who have overspent on credit cards, there is another set of circumstances that affects women more than men. It is the dishonesty of a significant other or spouse.
In many cases, a woman's husband may have convinced her to put her home in her name only, but then when the relationship fell apart she was stuck with the burden of paying the mortgage. In other cases, a woman may have added a fiancé or significant other to her credit card, then after breaking the engagement she was forced to file for bankruptcy because of the bills he racked up.
Other than dishonesty, some common causes include a bad economy, medical bills and job loss. Many women have found they needed to file for personal bankruptcy after a divorce if their job wasn't sufficient enough to sustain their current debt load.
No matter how you landed in bankruptcy court, it isn't a death sentence. Many people find that after bankruptcy they are happier, more grounded in their personal lives and careers, and better able to navigate their financial future.
Who is filing for bankruptcy?
According to one of our recent blogs, "What Are The Patterns of Bankruptcy Filers" the most common reasons for bankruptcy are often related to circumstances beyond the control of the filer. For example, a study from 2005 revealed that 46 percent of bankruptcies were related to medical expenses from a serious illness not covered by insurance and the resulting loss of income. Shortly after this study was completed, drastic changes in the economy caused bankruptcy from unemployment, underemployment and credit card debt.
At the time of petition, the average age of the filer seems to be rising. Since the early 90's more senior citizens are declaring bankruptcy while fewer filers are under the age of 25. In fact, since 2007 those under 25 made up less than 2% of all filers. During that same period of time, the percentage of older petitioners more than doubled, now accounting for nearly 20% of all filers.
We've all heard the statistics about job loss and credit card spending, and many believe these are the main roads to bankruptcy. During the recession, many families faced extended unemployment, which led to foreclosure and enormous debt loads. Perhaps this explains why unemployment is often touted as an obvious bankruptcy culprit. Many people are surprised to learn that the most common cause of bankruptcy in America is not unemployment or credit card spending; it is medical debt. When an unexpected emergency comes up and a family is uninsured, medical debt is enough to wipe out their assets immediately. A recent report from the American Journal of Medicine said more than 60% of bankruptcy filings were directly resulting from unforeseen medical bills. Not only are these bills expensive; they also involve long-term costs that can push a family's finances over the cliff.
Is all medical debt incurred by the uninsured?
Surprisingly, many of the recent bankruptcy filings were from people who had some form of insurance, but not enough. As if the hospital bills are not enough, serious illnesses often require missed time at work for the family breadwinners, which can be debilitating all by itself. Many of the more affordable insurance policies have high co-payments, exclusions and deductibles, plus other coverage loopholes.
If you are struggling under the weight of overwhelming hospital charges, doctor bills or any other kind of medical debt, bankruptcy may be the only reasonable solution. Depending on the type of bankruptcy you choose, your bills could be eliminated entirely or significantly reduced. Of course, bankruptcy is not without its challenges. It can have a long-lasting impact on your creditworthiness and it could complicate many areas of your financial life.
Hiring a bankruptcy lawyer
There are few legal petitions that require the use of an attorney; so many bankruptcy filers feel confident representing themselves. While this may seem like the more practical choice, it is not recommended for bankruptcy. Bankruptcy needs to be handled by someone with experience handling Chapter 7 and Chapter 13 petitions. An experienced attorney will be able to show you the best way forward and protect your interests in bankruptcy court. When a medically-related bankruptcy is complete, you may find that your medical bills are either eliminated or significantly reduced.
Chapter 7 or Chapter 13 bankruptcy
Filing for Chapter 7 bankruptcy usually wipes out all unsecured debt, which includes medical debt. However, it is important to note that once you have filed for bankruptcy you may not do so again for another six years. This means that should you get sick during that time period you may be more vulnerable to legal issues and liable to pay all related bills. Most bankruptcy lawyers will recommend a post-bankruptcy strategy that includes maintaining medical insurance with full coverage.
Filing for Chapter 13 bankruptcy is another option when you are "under water" with medical bills. This type of filing will consolidated all of your debts into a manageable repayment plan. Similar to business reorganization, this option allows you to repay the bills over a 3 to 5 year time frame. While it may not be as forgiving as the Chapter 7 model, Chapter 13 allows you to hold onto most of your property. In many cases, this option is only viable for individuals with a stable discretionary income. The key benefit is the extra time it allows individuals to overcome their financial burdens.
As hospitals and providers raise their prices each year, medical bills are becoming a major issue for thousands of households. The high cost of health care continues to be the most stressful financial burden for United States citizens. If you find yourself in a predicament with excessive medical debt, a Colorado Springs bankruptcy attorney will be able to help you eliminate or reduce the amount of your bills. Contact an experienced bankruptcy lawyer for more information.
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