More Americans prefer filing for Chapter 7 bankruptcy
Relying on credit cards to cover most needs is not a good decision. Many Americans, including those here in Long Island, New York, have filed for bankruptcy because of credit card debts. In fact, 32 percent of those who filed for bankruptcy cited credit card debt as the reason they did so; 13 percent said it was because of home foreclosure, and 12 percent said it was due to job loss.
For instance, a woman had to face overwhelming debt after finishing her Masters degree. She had used her credit card for her needs and ended up with thousands of credit card charges. She landed a job with an annual salary, allowing her to purchase a car to travel between home and work. However, her accumulation of credit card bills, car payments, and daily expenses resulted in overwhelming financial challenges.
It had been difficult for her to be current in paying her credit card bills and she accumulated $20,000 from interest and late fees. After losing her job, she sought the help of a bankruptcy lawyer, a courageous first step.
Low income, unemployment and credit card debts are the leading causes of bankruptcy filings. Around 64 percent of American consumers file for Chapter 7 bankruptcy or liquidation. Consumers prefer liquidation because it completely discharges unsecured debts without a payment plan.
Although bankruptcy may have some implications on a person’s credit score, having a fresh financial start is very possible. An application for an FHA-approved home loan can be done after two years from filing Chapter 7.
One way to determine the eligibility for Chapter 7 is by inventorying all liquid assets and determining whether outgoing cash flows exceed the value of the assets. If it does, debt relief options are viable.
Source: MainStreet, “This Kind of Debt Can Lead to Bankruptcy,” Juliette Farley, Dec. 12, 2013