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Bankruptcy might benefit those harmed by the struggling economy

On Behalf of | Nov 7, 2022 | Bankruptcy |

The national economy will have an impact on everyone regardless of their financial situation. In Texas, people from a wide range of demographics can be hindered by the higher cost of goods and services and other aspects of inflation.

For those who are already in debt whether that is from medical bills, credit cards, business expenses, property ownership and more, it is important to think about how to try and clear some of what they owe and prevent their current challenges from getting worse. People whose financial landscape looks bleak may want to think about the benefits of personal bankruptcy.

Poll shows people are falling behind on their debts

A recent poll from LendingTree centered on the number of people for whom the economy is causing them personal financial turmoil. Around one-third say they have been late on paying a bill in the last six months. Six in 10 stated that it was due to not having the money available to pay it. Four in 10 said they were not as prepared to pay their bills as they were at the same time in 2021. Most were late on utilities, credit cards, cable or their internet.

This stems from inflation and the higher cost of goods. People who do not have the savings to cover for shortfalls in their income and paying more for their purchases are falling behind. In August, the average for the cost of goods and services – the consumer price index – rose by more than 8%. Much of that was due to medical expenses, food and shelter.

People find themselves in a troubling cycle of being unable to make the purchases they need out of pocket and are therefore rely on credit cards, increasing their debt load. When this trend continues for an extended period, they might eventually face the possibility of paying only the minimum and not getting their bills down or not paying anything at all.

Bankruptcy can help to get rid of overwhelming debt

For many, bankruptcy is not even on their radar despite being saddled with hefty debt they cannot pay. Often, people start out just as those who took part in the referenced poll did: they incrementally fell behind because of unexpected cost increases and expenses. That can eventually snowball and they need to forge solutions that can be effective to get into a better financial position.

The person’s individual needs will dictate which chapter to file under. Chapter 7 is a liquidation bankruptcy that will eliminate medical debt, credit cards and other unsecured bills in exchange for the surrender of valuable property. Most people who use Chapter 7 do not have a home or expensive properties that need to be surrendered to a trustee to be sold to repay creditors. They will face a lower credit score after the discharge, but there are ways to rebuild that relatively quickly.

Chapter 13 is for people who might own a home where they are behind on the payments or in foreclosure and want to retain it. If they have a job and regular income, Chapter 13 is akin to a consolidation loan where they will make monthly payments to a trustee for three or five years. Once the payments are complete, they can move on free of debt and retain their property.

For bankruptcy, having professional help is a key aspect to success

A key aspect of a successful bankruptcy filing or finding some other form of debt relief is to have a comprehensive plan and to have guidance throughout the process. The discharge of debts can help a person financially, of course, but it can also help them emotionally and professionally. From the beginning, it is imperative to nip financial challenges in the bud. If bankruptcy is the way to do that, it is useful to know that and to have assistance with moving forward.