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Most Americans carry some debt throughout their lives. However, they work hard to keep that debt under control, even if that means surviving paycheck to paycheck. Unfortunately, one emergency is all it takes to allow this debt to get out of control. When debt gets out of control, it can affect every aspect of a person’s life. Fortunately, a Bankruptcy attorney provides help in these situations.
How Debt Becomes a Problem
Living paycheck to paycheck is when a person is able to pay their debts and living expenses out of their regular paycheck with very little or nothing left over for savings. Although many people manage to do this most of their lives, they are left vulnerable to the unexpected. This could potentially destroy their ability to even get by.
All it takes is one unexpected bill, an illness, injury, or even a loss of employment. When one of these things occurs, then the individual falls behind on their debt. This can cause an increase in costs for the debt, such as late fees, increased interest, and other charges. This makes it even harder for the individual to recover from the setback.
Eventually, the debt gets too overwhelming for anyone to get under control. This can lead to harassing phone calls from creditors and other actions taken. It can also cause a person’s credit rating to drop. This reduced credit rating not only prevents a person from getting further credit, but it can also prevent them from employment, buying, or even renting a place to live.
Fortunately, there are options available. It is always recommended that the individual attempt to work things out with their creditors first. However, certain financial situations may prevent the viability of this option. In these situations, bankruptcy may be the right option.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is an option for many individuals to help them get out of debt. This legal proceeding provides options for restructuring the way debt is paid to the debtors. This is the best option for those who have a regular income but have fallen behind on their debt.
In a chapter 13 bankruptcy, individuals create a reorganization plan for their finances. This helps to protect their assets from repossession and foreclosure. It also allows them to create a payment plan that is more affordable to get their debt paid off. This payment plan is structured over 3 to 5 years. After the term of the bankruptcy, some remaining debt may be discharged.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is an option for those will little or no income. This is often the best option for those who have lost their job and have no real means to repay the debt they hold. There is no repayment plan involved but individuals do have to present to the court all their finances and assets to be assessed.
If a person is below a certain income threshold, they can qualify for this type of bankruptcy. Any assets beyond what is excluded, such as a car and home, can be sold to help pay down any owed debt. Any remaining debt at the end of the court process will be discharged.
Although bankruptcy can have serious negative effects on a person’s credit, it can help alleviate the problems associated with overwhelming debt. It can often provide individuals a fresh start and allow them to gain better control of their financial situation.
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