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
5. Unexpected Expenses/Events-Uninsured
Ways you can get out of debt…
Start selling things you own (electronics, lawn mower,
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
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
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
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
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
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.