Going Broke

Independent Living

What are some issues that lead individuals and families to go “broke”? 1. Medical Expenses 2. Unemployment/job loss 3. Poor/excess use of credit 4. Divorce/Separation 5. Unexpected Expenses/Events-Uninsured Impulse buying Gambling Pay cut Alcohol problem Bank failures Debt Society Kids Legal trouble

Ways you can get out of debt…

Start selling things you own (electronics, lawn mower, cars, etc)

Call creditors and see if they will work with you

What is bankruptcy?

Bankruptcy is a federal court process where a debtor gets the chance to eliminate or reorganize his debts through sale of assets or by following a repayment plan.

Consumers typically file either Chapter 7 or Chapter 13 personal bankruptcy depending upon their financial situation.

Young Americans now have the second highest rate of bankruptcy, just after those aged 35 to 44. The rate among 25- to 34-year-olds increased between 1991 and 2001, indicating that this generation is more likely to file bankruptcy as young adults than were young boomers at the same age.

7 Reasons to avoid bankruptcy

Your credit is badly hit: Chapter 7 and Chapter 13 bankruptcy have a negative effect on your credit. It brings down your credit score by around 200-250 points. Moreover, the negative entry stays on your credit report for 7-10 years depending on the type of bankruptcy you file, thereby making it difficult for you to qualify for new loans and credit for the next 3-4 years.

You may lose your property: There are certain assets that will be sold to repay your debts under a Chapter 7 bankruptcy plan. Depending on your situation and your state's laws you may end up losing your home and your car.

Not all debts can be eliminated: It's a myth that bankruptcy can get rid of all of your debts. Back taxes, student loans, child support, alimony/spousal support, and a few other debts cannot be gotten rid of through bankruptcy. Therefore if you are looking to get rid of these kinds of debts, you should avoid bankruptcy. What you should do is, negotiate a debt settlement or an alternative payment plan with your creditors.

Creditors/lenders may repossess property: 30 Days after your bankruptcy case ends, any creditors whose debts have not been discharged can sue you for the debt if you are behind on your payments. If you have reaffirmed your home and car loans and kept the property, you are not relieved of the personal responsibility to pay on the mortgage or the loan and their liens remain on the property.

Adverse effect on your finances: Bankruptcy has an adverse effect on your financial situation. For instance, you won't be able to buy or even rent a home or car. Filing bankruptcy can also influence the status of your security clearance if you don't inform your employer about your bankruptcy and why you've filed for bankruptcy.

You may not qualify for new credit: Getting approval for new loans/credit is tough after you've filed bankruptcy. It'll take at least 2-4 years for you to qualify for a secured loan (such as mortgage or car loan) unless you apply for a secured credit card with a high interest rate. Even unsecured loans are hard to qualify for if you cannot avoid bankruptcy.

Not all retirement plans are protected: Depending on your state's exemption laws, your 401ks, IRAs, government pension, social security, or other retirement plan may be tapped to repay your debts during Chapter 7.

Minimum Payment, Maximum Cost Consider having a balance of $5,000, at 14%

APR, and minimum payment as 2% of your credit card balance ($100/month). Making minimum payments only, it would take you 22 years and $5,887 in interest payments to pay off this debt.

Increasing your payments to $125 a month would allow you to pay off the same debt in less than 6 years and spend only $1,775 in interest.

Not only does increasing your payments allow you to pay off the balance sooner, you also save money in interest.