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Edmonds Bankruptcy Law Blog

Debt relief may involve weighing and choosing the best options

Debt consolidation in the state of Washington involves taking on new debt to pay off old debt. This may entail taking an equity line of credit on one's home to pay off existing credit card or other unsecured debt. Using balance transfer credit cards to pay off old debt is also a form of debt consolidation. This form of debt relief may work out for some people by lowering the interest rate and simplifying one's monthly payments.

If the loan actually comes with a higher interest rate and has unattractive repayment terms it may be counter-productive. For those with a burgeoning debt load and not enough income to make a dent in the balances due, taking on new debt may be another ticket to frustration and a higher ultimate debt burden over the long run. Where the debt is so overwhelming and so burdensome that it cannot be paid off by new refinancing, bankruptcy may turn out to be the most attractive option.

There are several ways to approach burgeoning medical debt

Medical debt is a critical problem in the state of Washington just as it is nationwide. Many people with health insurance are negatively impacted by medical debt that they should not owe. In other cases, they may be saddled with legitimate bills that are simply not covered by their medical insurance policies.

A new model for credit bureaus does not give much influence to medical debt. However, that model is not apparently required by law and is not universally applied at this time. There are other tools that one can use to fight medical debt that is hurting one's credit score and causing stressful collections activities. For one thing, the bills can be negotiated with the medical provider, especially where there is no way for the patient to pay without great economic hardship.

Despite misconceptions, bankruptcy offers powerful remedies

What causes a person or married couple to consider the bankruptcy option in Washington for debt relief? Unexpected layoffs, job loss, medical expenses, divorce and disability are just some of the causes that put innocent, good-intentioned people in the position of considering bankruptcy. The strange thing is that many persons dismiss the idea because they believe some of the misconceptions widely disseminated about bankruptcy.

One thing that scares many persons is the stigma of being seen as a "deadbeat." That is incorrect and far from the truth, as the foregoing causes of financial problems have nothing to do with borrower's fault. Furthermore, there have been so many millions of consumer bankruptcy filings in the past three decades that it is almost impossible to not know someone who has used this remedy from the federal government for what it is worth.

Credit card debt, student loans weigh heavily on consumers

For many Washington consumers, debt is an inescapable part of life. Recent studies indicate that people are currently taking on more debt than ever, and it's not all for big purchases, like homes. Credit card debt and student loans in particular are especially troubling for people who are trying to rise above their ever-growing debt. 

The total consumer debt and mortgage levels were listed at $14.7 trillion 10 years ago. Now, these levels are on track to hit $15.7 trillion by the end of 2018's second quarter. That's a full $1 trillion more than the peak levels of debt during the Great Recession. So what's to blame for all this debt? 

Waiting too long to file bankruptcy may create long-term damage

Many people in Washington state and elsewhere throughout the country are inclined to want to put off a bankruptcy filing as long as possible. The perceived stigma of bankruptcy still perpetuates a feeling that filing for relief marks an end to a valiant fight to survive financially. However, a 2018 law review study has found that consumers can suffer considerable personal and financial damage by waiting too long.

The report concludes that the longer that people wait to file bankruptcy, the more intense their struggle, which has a negative impact on their fresh start opportunities. The struggle to avoid filing is so compelling in some persons that they end up sacrificing on food and other necessities to try and keep paying their bills. They may struggle for a number of years against all odds.

Bankruptcy attorney explains the consequences and the choices

In Washington state and elsewhere, choosing to file bankruptcy is an important decision that weighs heavily on most people. Most persons now looking into bankruptcy once had a sparkling credit record and paid their bills on time consistently for many years. Unfortunately, a streak of bad financial times may follow a serious illness, an accident or a medical disability. It may also be a case of being laid off from a full-time job. Through the turmoil of serious financial problems, the family inevitably uses credit cards to cushion the immediate blow.

Unfortunately, this ignites the conflagration of piling debt upon debt. There are many promotions that the struggling couple or individual may be tempted to try for "debt relief." One should beware of these programs because many of them are scams, or they may simply be ineffectual in bringing about any substantial change in one's debt situation after the expenditure of thousands in an attempt to do so.

Chapter 7 bankruptcy engages certain credit score reporting rules

A Chapter 7 bankruptcy filed in Washington state forgives all unsecured debt, and there is no payment plan. It is filed and discharged typically within three to four months. The record of a Chapter 7 bankruptcy can stay on one's credit record for up to 10 years. However, the individual debts that are discharged are removed after seven years.

Discharged accounts may stop appearing on one's credit record in less than seven years, but there is no way to assure that outcome. Generally, an accelerated self-restorative process may be triggered when the individual is paying on credit accounts post-bankruptcy on time for an extended number of months. That is why it is always helpful to keep one's payments current on a car loan or house loan that was taken out and paid regularly for some time before the bankruptcy filing.

Chapter 7 and Chapter 13 provide different bankruptcy remedies

One important issue that is always discussed in the first meeting with a consumer bankruptcy attorney in Washington is whether to file Chapter 7 or Chapter 13. Several other critical issues must be evaluated at the same time, including whether the individual or married couple are qualified under the means test to file a Chapter 7. Generally, one who makes too much money to file a Chapter 7 bankruptcy will still likely be qualified to file a Chapter 13.

Chapter 7 is the preferable route for people with a large load of unsecured debt, such as credit cards, medical bills and other unattached extensions of credit. Chapter 7 is dubbed the liquidation chapter because the nonexempt assets of the individual will be sold, and the funds distributed to creditors. However, with appropriate pre-bankruptcy planning and the proper assignment of one's assets to the proper exemption categories, most Chapter 7 consumer filings do not involve the seizure of assets.

Chapter 7 bankruptcy is the strongest debt relief remedy

In Washington and elsewhere, when the economy is relatively healthy and credit somewhat easy to obtain, people tend to get carried away with credit card charges. Indeed, the pressures of intensive product marketing have a great influence in encouraging people to continually buy consumer products. These societal factors play a key role in keeping unsecured debt burdens skyrocketing among many consumers. It is only after the financial abilities of the consumer to repay become depleted that the creditor takes on a new face, a much more demanding and fearful face. This sets the stage for many persons to select bankruptcy as the best way to resolve the problem and start over. 

When an individual becomes burdened with overwhelming unsecured debt, and is being dunned by multiple creditors, the situation has reached the point of no return. Despite the many debt relief organizations that offer a way out, their entreaties are more in the way of aggressive sales pitches rather than hard facts. Many consumers end up trying debt relief, and after months of struggling under impossible circumstances to make their money stretch far enough, they realize the futility of the effort.

Chapter 7 bankruptcy is a powerful way to erase consumer debt

In Washington as elsewhere, two broad categories of bankruptcy filings that are most often used are those for businesses or for consumers. Chapters 7 and 13 are used most often for consumer filings whereas businesses commonly make use of Chapter 7 and Chapter 11. The dichotomy is sometimes described as the difference between a business filing and a personal bankruptcy.

These lines can be crossed at times, but the circumstances for doing so are complicated and are best understood in consultation with a bankruptcy attorney. Chapter 7 is the simplest kind of bankruptcy to plan or chart out. It does not generally involve paying back debt; instead, the process discharges permanently and quickly all unsecured debt owed by the individual or married couple.  After filing a Chapter 7, a meeting is scheduled and held with a bankruptcy trustee and the discharge is issued not long thereafter if there are no complications.