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Lexington Bankruptcy Blog

Mounting credit debt can be addressed through Chapter 7

With the holidays just around the corner, many Americans are planning their gift purchases for friends and loved ones. However, here in Kentucky and elsewhere in the nation, many households are still paying down accrued credit card debt from last holiday season. Credit debt is a major problem for many American families, but thankfully there are a variety of options available to address it, from debt consolidation and credit counseling to Chapter 7 bankruptcy.

Finance experts have previously noted how easy it is to get caught up in the spirit of the season and to spend well over an established holiday budget. This is made even easier with credit cards, which allow consumers to borrow against an extremely high interest rate but are also extremely convenient to use. This year, some 73 percent of Americans plan to pay for their holiday purchases using a credit card.

Using Chapter 7 to handle medical debt

Of all the debt that can be accrued by Americans, medical debt can be the most crippling. While it is still considered unsecured debt, the amount of an individual's medical expenses can quickly outstrip his or her ability to pay for it, especially in the event of a prolonged recovery period or deteriorating condition. This is why, for some Kentucky residents, a Chapter 7 bankruptcy filing might be the best way to shield the family from the financial repercussions of a long illness or severe injury.

Of course, few people expect to accrue medical debt in their lifetimes, but the truth is it is much more common than some people believe. Depending on one's state of residence and health care plan, it is common for only a fraction of the costs associated with recovery or support to be covered. In these cases, many people find themselves paying out-of-pocket for support and racking up credit card and personal loan debt at an alarming rate.

Understanding and surviving Chapter 7 bankruptcy

Bankruptcy is the legal process of relieving debt, which is used by both businesses and consumers in Kentucky to handle unmanageable debts that have accrued. A Chapter 7 filing is referred to as a liquidation bankruptcy. However, it is important to understand how this process works before proceeding, ideally with the support of an experienced attorney.

Possibly the most important part of bankruptcy is what debts can and cannot be discharged by the court. Typically, the court can discharge what is called "unsecured debt," which can include credit cards, medical bills and even personal loans. However, not all debt can be forgiven in this way. Most student loans, alimony payments and most tax debt cannot be discharged.

Dealing with Chapter 7 bankruptcy

Bankruptcy is a vital tool in the fight against debt, but it can also be an extremely complicated process that involves many moving parts. Kentucky residents considering Chapter 7 bankruptcy to handle unmanageable debt have already taken the first step toward financial health, but the road can be treacherous to navigate for those who do not already know the way. This is why it can be so helpful to secure the support of a dedicated bankruptcy attorney to act as a guide to financial freedom. 

Generally speaking, a Chapter 7 filing is the best fit for an individual or family with a great deal of unsecured debt. This can include, but is not limited to, credit card debt, medical debt and personal loans. This type of debt can be discharged by a bankruptcy court if the funds or assets do not exist to pay them down. While it is true this can affect an individual's credit for up to 10 years, the benefits often outweigh the detriments. 

I have debt. Should I tap my retirement?

Indebted Americans seeking financial relief often get creative when searching for ways to get out from under their mounting piles of bills and expenses. Some may be tempted to tap into retirement funds like a 401(k).

In general, this is not a good trade-off to make. Unless you are pushing 60, in most cases, you will be penalized 10 percent for accessing these funds early. On top of that, you face federal income tax repercussions when you go to file your tax return.

Chapter 7 versus Chapter 13 bankruptcy

For Americans facing serious debt problems, bankruptcy can be a viable solution to pay down debt and recover financial ground. However, many Kentucky residents are not fully versed in the different types of bankruptcy, particularly the difference between Chapter 7 and Chapter 13 filings. In order to make an informed financial decision, it is important to understand these differences. With the support of an experienced attorney, the resident can move forward confidently into the bankruptcy process.

Chapter 7 bankruptcy is also known as liquidation bankruptcy, as the elimination of unsecured debt comes mostly through selling off nonexempt assets to pay down creditors. Chapter 7 bankruptcy typically allows the discharge of unsecured debts. This is considered the "quick" way to eliminate large chunks of debt.

Filing for Chapter 7 bankruptcy

Filing for bankruptcy can be a challenging and difficult decision. Kentucky residents struggling with debt can benefit from filing for Chapter 7 bankruptcy, but it is vitally important for them to understand the specifics of such a filing and how it will affect their finances moving forward. The support of a dedicated bankruptcy attorney can be helpful in tackling this complicated process.

Generally speaking, Chapter 7 bankruptcy is filed when an individual or family can no longer handle debt payments required by creditors. In advance of filing, the federal Bankruptcy Code requires anyone filing for bankruptcy to complete mandated credit counseling as well as debtor education programs. Once these courses are complete and the petition is filed, the court assigns a trustee to take a thorough accounting of the overall financial landscape of the filer, including accrued debts and assets. Some of these assets may be liquidated to pay down existing debt, though some exemptions under state and federal law often preclude the necessity to liquidate specified assets.

Handling Chapter 7 bankruptcy

It is no secret that debt is a major issue for many American families. From credit card and medical debt to student loans and back taxes, there are many sources of possible debt for Kentucky residents, and in some cases that debt can become insurmountable. That is why nearly 800,000 Americans chose to file for Chapter 7 bankruptcy last year. Before making such a significant financial decision, it is equally important to understand the basics. 

Chapter 7 bankruptcy is also known as a liquidation bankruptcy, wherein a court assigns a trustee to handle an individual's proceeding. Once the bankruptcy petition is filed, the filer's assets and debts are reviewed to determine what debts can be discharged. Often, unsecured debt like credit card and medical debt meet those criteria. Other kinds of debt, like alimony and student loans, are rarely dischargeable. 

Chapter 7 bankruptcy vs. debt consolidation

Debt is an integral part of everyday American life, for people of all backgrounds. Here in Kentucky, credit card debt and other forms of unsecured debt can make life miserable for people laboring beneath it. Thankfully, there are a variety of ways to handle debt, depending on the individual situation, from debt consolidation to Chapter 7 bankruptcy. However, it is important to understand the differences between the two in order to make an informed decision about which option will work best for a given situation. 

Debt consolidation, simply put, is the act of rolling up multiple debts into one. This means that instead of paying down multiple creditors at once, a consolidated payment can be created and a payment plan developed to pay back the amounts in a single monthly payment at a time. Lines of credit and balance transfer credit cards are common tools in debt consolidation, which often feature lower interest rates. 

3 keys to debt management

Unfortunately, one of the lessons they do not teach in school is how to effectively manage debt. For most people, it is something they figure as they step into adulthood and open their first credit card account. While it often starts small, with that first low-limit card, as we get older, we tend to enter into more debt.

For instance, your first car loan was probably a major jump in your overall debt. Then came the home loan and perhaps another car and various credit cards. In fact, most Americans live their lives paying on one debt or another. For some people, the debt might remain at a manageable level compared to income, but for many others, this is not the case. In an economy full of downsizing and layoffs, it is easy to find yourself in a position where you can no longer manage your debt.