Going Bankrupt or Filing for Bankruptcy What Should You Do?
A large percentage of Baby Boomers are going bankrupt. Jack Williams, a scholar at the American Bankruptcy Institute, warns the situation will "be a lot worse before it gets better." ABI recently gathered data from courts and public records to track bankruptcy filings. The ABA Journal study reported the percentage of filings by Americans aged 45 and older increased nearly 30 percent during the past eight years. The study also revealed the sharpest increase in Chapter 7 filings occurred among people older than 55.
Experts claim the increase of people going bankrupt is tied to the housing and healthcare crisis. Baby boomers are more vulnerable to growing mortgage debt and higher healthcare costs. Add in investment losses caused by Fannie Mae, Freddie Mac and the stock market and we're certain to see an unprecedented number of bankruptcy filings in the upcoming months.
The American Bankruptcy Institute states," In 2007, Chapter 7 bankruptcy filings increased by 63-percent, while Chapter 13 filings rose by 70-percent." Experts predict more than 1.5 million Americans will file for bankruptcy protection by the end of 2008. The number of Americans going bankrupt could more than triple in 2009.
Currently, many homeowners with subprime and adjustable-rate mortgages are no longer capable of making higher mortgage payments. The decline in home values and current credit clog has nearly eradicated financial flexibility for homeowners who were once able to use their home equity to consolidate debt.
Homeowners who can no longer afford monthly mortgage payments and unable to refinance or obtain a second mortgage are forced into going bankrupt. Part of the problem stems from new bankruptcy laws enacted in 2005, which made filing for bankruptcy protection considerably more difficult and costly. To make matters worse, bankruptcy courts are still undergoing a period of adjustment from the new laws.
Now the bankruptcy courts are clogged with new filings as more homeowners are forced to file in an effort to save their home from foreclosure. Homeowners who file for Chapter 13 bankruptcy can temporarily halt foreclosure proceedings, giving them an opportunity to negotiate with their lender.
If homeowners can work out an affordable payment plan, they can retain their home as long as they adhere to the repayment plan. Although Chapter 13 can help homeowners avoid foreclosure, if they aren't able to maintain their mortgage payments they will fail out of bankruptcy and end up losing their home.
People who are going bankrupt because of excessive credit card debts will find it harder to file for bankruptcy protection. The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) states that all debtors must repay a portion of their debts whenever possible. Anyone filing for bankruptcy protection must undergo the 'means' test to determine the amount of debt to be repaid.
If debtors fall below their states' median income level derived through the 'means' test, the debtor can file for Chapter 7. This bankruptcy chapter requires liquidation of non-exempt assets to repay outstanding debts. Any remaining debts not paid through liquidation of assets are discharged by the court, giving debtors a fresh financial start.
Going bankrupt is never a happy event. While it can be stressful and emotional, it is important to keep a positive outlook and continue to search for options and solutions to overcome financial hardships.
If you are facing bankruptcy or foreclosure, we invite you to browse our comprehensive article library and learn more about available options. Simon Volkov works with individuals who are facing challenging situations and may be able to provide solutions to your problems.