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Michael D. Hart, P.C.
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Roanoke Virginia Bankruptcy Law Blog

Pros and cons of a Chapter 7 bankruptcy

Virginia consumers who are struggling with debt might wonder whether they should file for Chapter 7 bankruptcy. In order to file for Chapter 7, they must pass what is known as a "means test". This means that their income must be below a certain amount, which is usually the median income for the state. However, there are additional considerations in determining this income. For example, certain expenses may be taken into account and deducted from overall income to determine eligibility.

One advantage of filing for Chapter 7 bankruptcy instead Chapter 13 is that it is a much quicker process. Unlike Chapter 13, which requires a payment plan that lasts either three or five years, Chapter 7 bankruptcies are generally discharged in a few months. However, a person who makes too much money may be required to convert to a Chapter 13 bankruptcy from a Chapter 7 filing.

Young adults owe more than $1 trillion to creditors

Young adults in Virginia and across the U.S. are in more debt than they've been in since 2007. In fact, Americans between the ages of 18 and 29 owe a whopping $1.05 trillion, according to a new report from the New York Fed Consumer Panel and Equifax.

However, before anyone starts picking on young people, it should be noted that older borrowers are in even more debt. For instance, the report found that Americans between 30 and 39 are buried under $2.9 trillion in debt and those between 40 and 49 are struggling with $3.4 trillion in debt. Meanwhile, Americans between 50 and 59 are shoveling their way out of $3.2 trillion in debt, those between 60 and 69 are juggling $2 trillion in debt and those who are 70 and up are towing around $1 trillion in debt.

How to file for Chapter 7 bankruptcy

Chapter 7 bankruptcy may help Virginia residents and others seek relief from debt. The process begins by filing paperwork that outlines the debts and assets a person has. Debtors may also be required to produce pay stubs and other financial information to the bankruptcy court. Documents needed to petition for protection from creditors can typically be obtained for free. Prior to doing so, an individual will need to take part in a credit counseling session.

A credit counselor can discuss options other than bankruptcy that could help a person better manage his or her finances. In some cases, a debtor may not know that other options exist without talking to a financial professional. Credit counseling sessions can be conducted online, over the phone or in person.

Medical debt still driving bankruptcy despite ACA

Spiraling health care costs and the overwhelming debt to which it can condemn families been a problem in the United States for many years, and Congress took action to address the issue by passing the Affordable Care Act in 2010. However, a recent study published in the American Journal of Public Health suggests that the landmark legislation has not had the desired effect. In the first major study of its kind since the ACA became the law of the land, researchers discovered that medical debt still plays a role in about two-thirds of the personal bankruptcies filed in Virginia and around the country.

The research team, which included academics, doctors and attorneys, studied personal bankruptcy cases filed between 2013 and 2016. After selecting 910 petitions using a random selection process, they looked to see if medical debt or lost income caused by some sort of health care emergency had been the catalyst for financial misfortune.

Bankruptcy can help forestall foreclosure

The subprime mortgage crisis is still fresh in the memory of many Virginia residents. Thankfully, the nation has recovered from the various factors that aligned to create that situation. However, it is not unusual for families to be living paycheck to paycheck and one unexpected downturn away from financial disaster. Too often, homeowners simply give up and do nothing, but there may be options available even in the most dire of circumstances.

When faced with the reality of issues such as foreclosure and bankruptcy, there may be no good choices. However, it can be said that there are certainly less bad options. Financial experts point out that home foreclosure does not begin immediately when one mortgage payment is missed. Each lender has different protocols and procedures. Furthermore, there is the possibility that the homeowner can negotiate some compromise agreement that precludes or delays foreclosure. When that is not possible, filing for bankruptcy can provide some breathing room.

Warning signs your finances are on the verge of disaster

Hindsight may be 20/20, but why wait until your finances have collapsed to see the warning signs of what got you there in the first place. When you know better, you can prepare for the future and making it secure.

Many good people find themselves struggling in serious debt with little to no options for relief. This reality is avoidable with the right preventative steps. Everyone should know the warning signs that lead to financial disaster and bankruptcy. Here are some red flags you should pay attention to when it comes to your financial habits.

The debts that can be discharged in bankruptcy

Virginia residents who are planning on filing for bankruptcy have different methods available. For those with a steady income, a Chapter 7 case involves liquidating assets and using the money to repay creditors. A Chapter 13 case involves reorganizing current debts and repaying them over the course of several years. At the end of the repayment period, the remaining debt could be discharged. Generally speaking, only those who meet the income threshold in the state can file for Chapter 7 bankruptcy.

Furthermore, it is not possible to file for Chapter 7 bankruptcy less than eight years after a previous case is discharged. A bankruptcy could stay on a credit report for up to 10 years. The type of bankruptcy a person chooses to pursue may also depend on the type of debt he or she has. Individuals who have a car or home might be able to keep these assets by filing for Chapter 13 bankruptcy.

Cancer survivors likely to have more medical debt

Anyone in Virginia who has to deal with an unexpected illness may have issues with medical debt at some point. However, financial burdens related to cancer can be even greater, especially for younger survivors. Research presented in a peer-reviewed journal further notes that privately insured cancer survivors with high-deductible plans but no health savings accounts were even more likely to face financial hardship related to medical expenses.

The study didn't focus on Chapter 13 bankruptcy although this a remedy some individuals with substantial medical debt consider. Researchers compared more than 10,000 adults with a history of cancer and nearly 125,000 individuals without a history of having this condition. The biggest difference among the two groups was with material hardship, e.g. difficulty paying medical bills, which was more likely to be a problem for cancer survivors among all age groups from 18 on up. Psychological and behavioral hardships were also somewhat higher among cancer survivors.

How to discharge a student loan through bankruptcy

Virginia residents may wonder if student loans can be eliminated through bankruptcy. The quick answer is no. However, there are some exceptions to the rule.

The current regulations were established by the Bankruptcy Abuse Prevention and Consumer Protection Act, which was signed by President George W. Bush in 2005. This act exempts federal and private student loans from discharge when a person files for bankruptcy. Some say that this stipulation is to prevent borrowers from taking advantage of bankruptcy laws.

A different solution to asset disposition in Chapter 7

Going through a Chapter 7 bankruptcy can be one of the most stressful moments in a person's life. One way that this process becomes even more burdensome is the way real estate is treated in the disposition process. While a homeowner can claim a homestead exemption, meaning the property can't be dissolved to resolve the debt, that does not prevent a home from being foreclosed upon if the borrower doesn't have the income to cover the mortgage payments.

One possible solution to this problem is to allow the disposition of property through auction similar to HUD's Claims Without Conveyance Title (CWCOT) program. Mortgagees and trustees could agree to reserve prices and set other parameters that are in the best interests of all parties. This could lead to fewer objections from the mortgagee and a reduced chance of the property going into foreclosure.


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