August 4, 2011

Bankruptcy – When You Can’t Raise Your Debt Ceiling

Posted in Bankruptcy tagged at 2:23 pm by demetriagraves

It is an interesting comparison to watch what has been going on Washington with raising the debt ceiling and comparing that to one’s own debt issues. The government has bills to pay, no money, and so it can get its credit line increased to be able to make ends meet. Unfortunately, that’s not an option for the average person. When there’s bills to pay and no money, credit cards work for a while, but eventually the credit card must be paid. And as you may have experienced, asking the credit card company to raise your debt ceiling often results in the opposite – a reduction in your credit line.

When your debt ceiling is maxed out and you can no longer deal with the debt issues, bankruptcy can be an option. Bankruptcy is very effective at dealing with credit card debt, medical bills, car loans, and even helping you deal with your mortgage.

It seems like bankruptcy was invented for handling credit card debt. If your main financial problem is large amounts of unpaid credit card debt a Chapter 7 bankruptcy filing will generally eliminate it completely. There is no payment plan and the credit card company will not be able to pursue you for this debt down the road.
Like credit card debt, medical bills are eliminated through a Chapter 7 bankruptcy filing. Those that have gone through serious medical issues often have large amounts of debt – even those with health insurance. This is an area where I see people go through the most conflict as to whether to file bankruptcy or not. It is often easy to file bankruptcy on the credit card companies due to their constant collection calls, but with medical bills the services received were usually very helpful and needed. There does come a time when reality sets in that despite your appreciation for what was done to help you in your time of need, the bills are simply too large and there is no realistic way for you to pay them. At that point bankruptcy is a good option as they will be completely eliminated.
If you are being sued the bankruptcy filing will eliminate the lawsuit and discharge the debt that you are being sued on. This will help you avoid having a judgment entered against you and eliminate possible garnishment of your wages.

Sometimes it is a bad car loan that pushes people into bankruptcy. Or more often a bad car loan that has already been repossessed and now the bank is coming after you for the balance. If you still have your car and can continue to make the monthly payment you can keep your car in a Chapter 7 bankruptcy case. Also, in a Chapter 7 you may be able to reduce the amount you pay on your car through a process called redemption. Redeeming your vehicle means that you pay your bank the value of your car, not what you actually owe on it (assuming you owe more than the car is worth). For instance, if you owe $15,000 on your car, but it is only worth $7,000, in a Chapter 7 bankruptcy you could redeem your car by paying the $7,000 to the bank and the remaining balance would be discharged. You have to pay it all at once, and usually people have to get new financing to do this.
Debt wouldn’t be such a big problem if every time we needed to loan more money we could simply raise our credit limits. But that is not how the world works for the average person. We can’t raise our personal debt ceilings. If you are dealing with the stress of debt, give me a call. I offer a free 30 minute telephone bankruptcy consultation. Where you can get your questions answered and learn what your options are. Having information on what is available will help you in regaining control over your financial life and help you sleep at night.


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