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Edmonds Bankruptcy Law Blog

Study shows that bankruptcy has a better outcome when filed early

In Washington state and throughout the country people who struggle with overwhelming debt also struggle mightily against filing a bankruptcy that will give them dramatic relief from that debt. The reasons have to do with appearances and mistaken impressions that permeate much of society. Some people believe that bankruptcy is to be avoided at all costs due to its negative stigma and the mistaken belief that one's credit will be ruined.

Now a 2018 law review study confirms the belief of many consumer advocates that the longer one waits to file for relief the longer will be the struggle post-bankruptcy to get back to financial security. The pre-bankruptcy period is analogous to a pressure cooker that can't be shut off. During that period a number of factors depress both the spirit and the resources of the individual or the married couple.

Bankruptcy is being filed in record numbers by senior citizens

Several national publications have recently reported that people over the age of 65, including here in Washington State, are filing bankruptcy at three times the pace that they did nearly 20 years ago. For those who have been taking a close look at the economy and the real income of our older citizens, this trend was to be expected. The fact is that many older residents are living on meager Social Security checks without additional income. Even those with additional income are not making enough to keep up, resulting in skyrocketing bankruptcy filings.  

Many pensions and retirement funds never panned out for a large numbers of struggling Americans. The exponential growth of health care expenses and efforts to cut down on universal health care insurance, including recent apparent reductions in Medicare benefits, have rocked the financial stability of a large number of elderly Americans. Experts point out that these types of problems have been building for years.

Bankruptcy: Credit score improves with time and regular payments

Washington state follows the same rules regarding credit scores that are applied nationwide. Generally, a bankruptcy filing will be a great relief in terms of the debt load that has been taken off the consumer's back. It is also expected, however, that there will be problems with one's credit score post-bankruptcy.

Getting one's credit record back up to respectable levels is a common challenge that is expected in return for the elimination of unsecured debt and, in some cases, the stabilization of secured debts such as a car loan or a mortgage. Remember that in most cases the bankruptcy filer had a horrendous credit record prior to filing bankruptcy. The existence of a large amount of delinquent medical bills and/or credit card debt created a rock-bottom credit score. The entry of judgments, lawsuits and foreclosures will of course exacerbate the situation.

Requirements for filing Chapter 13 bankruptcy

Deciding that filing for bankruptcy is the right decision is only half of the process. Washington debtors must also figure out which form of bankruptcy they should file for. Although most people like the potential for a full discharge of most debts through Chapter 7, many do not qualify for this process. However, Chapter 13 bankruptcy is still an effective and smart choice for those who are unable to handle their current debts. 

Chapter 13 bankruptcy requires that a person commit to a repayment plan that has been approved by the court. These plans last anywhere from three to five years and involve repaying a portion of debt to some or all of a person's creditors. Unlike in Chapter 7, those seeking Chapter 13 will not have to give up their property to repay creditors. Being able to hang on to second vehicles or certain items of value is a big plus to many people who choose this form of debt relief. 

Facing financial problems due to medical debt?

Whether you are the type of person who likes to plan your future as much as possible or would rather live spontaneously, just sort of taking things as they come, there are several things that happen to throw you off track. Especially where finances are concerned, even if you consider your financial portfolio organized and usually relatively stable, a few out-of-the-ordinary circumstances may arise that cause you to crash. Throughout Washington and the rest of the nation, medical debt is a top issue that reportedly has caused many people serious financial problems.

If you or a loved one in your household experiences a health crisis that requires repeated medical attention, you may find that bills are piling up and you are not prepared to meet the costs. Medical care is expensive. Even those with good insurance plans can have trouble handling major medical crises as those without insurance, once non-covered issues and additional expenses are factored in.

Chapter 13 plans prohibit large balloon payments at the end

In Washington state and all other jurisdictions, a Chapter 13 bankruptcy is based on making periodic payments to the Chapter 13 trustee over a three to five-year period. The trustee then pays administrative expenses and divides the net funds among the person's creditors. A Chapter 13 bankruptcy is a valuable tool and sometimes a life-saver for those who want to hold onto their home despite being in default and owing substantial arrearages.

The monthly payments are usually the same each month although there is some creativity allowed in setting up the schedule of payments. With respect to secured accounts such as a first mortgage on the person's home, the arrearages are generally paid prior to any funds being distributed to unsecured creditors. Also, unsecured creditors are paid only a small percentage of the amount due, which will be higher if the person has nonexempt assets to protect. At the same time, the borrower must keep up the regular mortgage payments in full each month.

Bankruptcy filings continue to rise for older Americans

Nationwide and in Washington state, there is a new crisis -- in the need for debt relief -- that appears to be mushrooming out of control. Tens of thousands of elderly Americans are finding that the promises of a secure retirement have disappeared into a puff of invisible air. As a result, the number of people over retirement age filing bankruptcy has increased substantially and continues to grow.

The government has not helped matters; instead, it has taken steps to decrease various programs on which older Americans were previously able to rely. Also, it has imposed increases of out-of-pocket expenses for vital life-saving programs such as Medicare, while at the same time taking away or severely reducing once-reliable programs such as food stamps. Increases in Social Security benefits to keep up with inflation have stopped or grown by tiny, negligible amounts. At the same time, inflation continues to grow, and wages continue to be stagnant.

Bankruptcy may be more beneficial than consolidation loan

Many residents of Washington state, like people throughout the country, are struggling with how to pay down their debt load when they don't make enough money. They didn't set out to get in that kind of a predicament but usually an unforeseen setback occurred. It may have been a medical disability, extraordinary medical expenses, unemployment or a similar unforeseen mishap. Now that the problem has built up and real difficulties of survival are being confronted, there are several steps to take, including in some instances consideration of a bankruptcy to reorder one's debt status.

Many possible modifications to one's debt accounts may help to weather the storm. Start by taking care of the necessary debt first. Do not ignore the mortgage payment in favor of a retail credit card. Where possible, get creditors to rewrite loan terms and to extend the term of the debt.  Refinancing existing loans may work but only if the new loan has a lower interest rate.

Bankruptcy may be the answer to overwhelming debt load

The most popular type of bankruptcy that is filed in Washington State and elsewhere is a Chapter 7.  This chapter of the federal law provides for discharge of all unsecured debt and, in theory, for liquidation of assets and applying the proceeds to paying creditors. In the vast majority of bankruptcy cases, however, filers do not lose their assets due to state and federal exemption provisions.

One must consult with an experienced consumer bankruptcy attorney to determine whether any assets would be exposed to seizure. In some instances, the individual may want to relinquish to the court certain assets that are the subject of secured loans. If there is an automobile, for example, that is only worth $1,000, but it is secured by a loan with a $12,000 balance, the individual may return the property in the bankruptcy and discharge the loan as though it was an unsecured debt.

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.