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Gastonia Bankruptcy Law Blog

Why waiting to file bankruptcy can be costly

Many people often struggle with debt for many years and never consider bankruptcy due to a belief there is a stigma of being a failure related to it. Often though, the real failure is struggling with financial problems for a long period of time without ever considering the option of bankruptcy.

If you are one of the people who has been putting off filing for bankruptcy and believing that things will change for the better instead of staying the same, you may be interested in a recent report citing others who are in the same situation as you.

Basics of Chapter 7 and 13 plans

Consumers who live in North Carolina who find themselves under a growing rather than diminishing mound of debt may wonder if filing for bankruptcy is right for them. In assessing this, they will also need to understand the two types of consumer bankruptcy and how they differ so that they can make the right selection for their current situation and for their future.

As explained by Experian, a Chapter 7 bankruptcy is perhaps the most commonly used and known. This is often called a liquidation bankruptcy as some assets may be seized and sold, or liquidated, in order to repay some creditors for secured debts like automobile loans. For things like credit card debt that have no associated collateral, this liquidation process does not take place.

Building a better financial future after bankruptcy

If you are one of the many consumers in North Carolina who is struggling with debt and considering filing for bankruptcy, it will be important for you to understand how to move on past your bankruptcy to create a solid financial future for yourself. The purpose of bankruptcy is to allow you to become free of the debt that weighs you down today so you can start over. There are specific steps you will want to take to achieve this.

As explained by NerdWallet, you should plan on monitoring your credit scores on a regular basis. This will help you gauge how you are doing as you re-enter the world of obtaining and using credit. Your first type of new credit might be a secured credit card. This is a card which requires you to pay upfront the amount of your credit limit, almost like collateral. You should use this type of card for modest expenses on a regular basis and repay promptly. Eventually you may then qualify for an unsecured credit card.

Chapter 7 and unsecured debts

Consumers who live in North Carolina may well be looking at their credit card statements in January and feeling concerned about how they will pay off their holiday debts. This is not an uncommon situation but if those people went into the holiday period already struggling to keep up with their debt, the problem could make them consider filing for bankruptcy.

Bankruptcy can offer people a fresh financial start but before rushing into making the decision to pursue this path, it is important to understand what type of bankruptcy plan might be right for them and why. This starts with understanding the two primary types of debt.

Understanding debt consolidation

Debt struggles can afflict anyone in Gastonia, leaving them feeling as though the prospects of re-establishing a sound financial status are remote at best. The trouble that most encounter is that as they accumulate debt, it becomes more difficult to pay it off while also being to able to afford the everyday costs of living. Often, consumer debt is the culprit in causing financial woes. Indeed, per the American Economic Statistics Office, the average American household has over $15,700 in credit card debt. 

Many may feel their debts leave them with little choice but to seek bankruptcy. However, it is often encouraged that one seek other options before turning to such action. One of the more common alternatives to bankruptcy is debt consolidation. The website NerdWallet.com lists two distinct types of debt consolidation: using a balance-transfer credit card to pay off all debts, or securing a debt consolidation loan. The end result of both options is the same: combining all liability expenses into a single monthly payment. 

What is the bankruptcy means test?

If your struggles with debt have pushed you to the point of considering bankruptcy, many in Gastonia may advise you to file under Chapter 7. The main reason for this is it allows certain debts to be discharged and offers you a faster path back to financial solvency. It also may allow you to keep certain assets (such as your home) due to bankruptcy exemptions. However, the protection and benefits afforded through a Chapter 7 bankruptcy must be qualified for in order to keep people from abusing them. Your qualification is determined by evaluating your financial situation using the bankruptcy "means test." 

Prior to applying the criteria of the of the bankruptcy means test, your current monthly income must be determined (this is your net income, not your gross). If that number is lower than the median for your particular demographic group in your state, you automatically qualify for a Chapter 7 bankruptcy. If it is not, then the means tests is applied. According to the website for the Administrative Office for the U.S. Courts, your income is projected out over five years. If it is greater than $12,850 or 25 percent of your nonpriority unsecured debts (e.g., credit cards, medical bills, utility costs), then abuse is presumed and you cannot file for Chapter 7. 

Keep an eye on your holiday debt, spending

With unemployment at a record low and a decade of lean years in the rear-view mirror, analysts say Americans are likely to spend more on their kids’ Christmas presents this year than in recent history. Correspondingly, that means more debt this year than before, and it’s a trap experts say should make Americans wary.

A recent survey shows that more Americans plan on using credit cards to finance Christmas purchases than last year, Another survey shows that the increased credit card debt will take an average of one month more to pay off, adding more in interest payments to those bills.

How Chapter 13 bankruptcy works

When hearing about a bankruptcy, most people in North Carolina may automatically think about a program via which they may lose precious assets in exchange for being released from debt responsibilities. This is essentially what can happen in a Chapter 7 bankruptcy and is the reason that even the U.S. Courts call this type of bankruptcy a liquidation plan. However, there may well be an alternate type of plan for consumers who need relief from excessive debt but also want to keep their homes or other assets. 

A Chapter 13 plan is often referred to as an individual debt adjustment or even a wage earner's plan. In essence, this form of bankruptcy is a type of organized debt repayment and consolidation program. It allows consumers the ability to restructure their debts and make payments over time while avoiding foreclosure or other loss of assets.

Creditor attempts to foreclose on reality TV star's home

For people in Gastonia who are struggling with debt, a personal bankruptcy might be the best option for them to regain a firm and stable financial status. Yet which form of personal bankruptcy is best? That may only be determined on a case-by-case basis. If one has fallen behind on their mortgage payments, a Chapter 13 bankruptcy may be their best option. Once foreclosure proceedings have been initiated, a Chapter only stays a foreclosure while the case is still active (which is usually only a few months). The lender can then proceed with the foreclosure once the case is over. In a Chapter 13 case, however, mortgage arrears can be included in a payment plan, meaning they will eventually be settled if the debtor continues to make their regular mortgage payments while their case is still open. 

This may be one of the reasons why former reality TV star Paul Teutul Sr. opted to file for Chapter 13 earlier this year. Teutul hopes to keep his New York mansion, yet the bank holding the loan has recently asked permission to proceed with the foreclosure. Its claim is that it would experience irreparable harm if barred from this action, as Teutul not only has defaulted on his mortgage, but also a $15 million loan issued to him earlier. 

Can you stop a foreclosure from happening?

Your pressing financial problems have left you scrambling to figure out a solution to keep your home in North Carolina from going into foreclosure. With deadlines closing in, you are wondering if there are any other options for preventing this situation from happening. Fortunately, there may be alternative options to prevent a foreclosure or at the least, slow the process to allow you time to figure out your next step. 

According to HGTV, your creditor will probably begin to get uneasy if you have missed more than three of your mortgage payments. When this happens, they are legally able to begin the process of taking your home back as it is still under their ownership. Some of the ways you may be able to stop this from happening to you include the following:

  • Bankruptcy: Your home will immediately be protected from foreclosure if you file for bankruptcy protection. If this is the option you choose, there will be repercussions that you will need to manage, but at least you can keep your home and not have to worry about finding another place to live. 
  • Renegotiation of your contract: This option requires you to be on good terms with your lender and willing to show tenacity in reconciling your debts. However, you may be able to renegotiate your original contract to work out a payment method that will allow you to catch up on any missed payments and keep your home. 
  • An assumption of mortgage responsibilities: Another option you may consider is working with your lender to find another buyer who can comfortably assume the financial obligation of paying your mortgage and release you from any debt associated with your home. However, most lenders are hesitant to accept these types of offers as payment problems may be prolonged if the new buyers run into the same problems as you have. 
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Sigmon & Henderson, PLLC
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Gastonia, NC 28054

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