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Heavy financial debt and filing for bankruptcy

Financial challenges and overwhelming debt are problems for many Mississippi residents. Struggling with debt may lead to physical and emotional exhaustion, especially if the person has to moonlight. Paying back creditors is a weary task. However, many people choose to go this route because they think filing for Chapter 7 bankruptcy or Chapter 13 bankruptcy may cause additional financial struggles.

Some debtors do not realize that choosing a route other than bankruptcy could mean losing funds in a retirement account because of the need to pay back creditors. In most cases, a bankruptcy filer does not need to relinquish assets held in an Individual Retirement Account (IRA) or a 401(k) plan. These types of funds are typically protected by bankruptcy regulations. Consulting with a bankruptcy attorney can help clarify the pros and cons.

What to know about filing for bankruptcy

Consumers who are having trouble keeping up with their debts may want to think about filing for bankruptcy. This could be especially true for Mississippi residents who have no savings or assets to pay off their debts with. Those who want protection from creditors may be able to file for Chapter 7 bankruptcy. In a Chapter 7 case, an individual is allowed to sell assets and use the money to pay off their debts.

If there is a remaining balance on an unsecured debt after assets have been liquidated, it may still be discharged. To qualify for a liquidation bankruptcy, a debtor must have a household income less than the state median. It may also be necessary to pass a means test, which looks at a person's disposable income to determine if he or she qualifies for a Chapter 7 bankruptcy.

Planning for bankruptcy and divorce together

For many people in Mississippi, there can be a close relationship between divorce and financial problems. Existing financial difficulties can lead to tension and distress in a marriage. In addition, the extra challenge of property division can be devastating for people with little income and substantial debt. Therefore, a number of people decide to file for bankruptcy at the same time that they file for divorce. They may wonder whether it is better to make a bankruptcy filing before or after the divorce is finalized.

Some divorcing couples may want to file jointly for bankruptcy because they can discharge both of their debts before proceeding to the divorce. If they are filing for Chapter 7 bankruptcy, the entire process can be finalized in a few months. On the other hand, people filing for a Chapter 13 bankruptcy, often because they bring in over the median income in their area, may want to wait until after the divorce. This type of bankruptcy involves a years-long repayment plan, and it can be challenging to divorce while handling the plan as well. For example, the final property division outcome of a divorce can be delayed extensively.

Holiday debt solutions

Many people living in Mississippi and around the country struggle with being able to pay off holiday debt. However, experts do have some possible options for individuals who would like to pay off their debt more efficiently.

One suggestion is to simply reduce costs. Many families set limits on how much they will spend on gifts for immediate family and agree with friends and extended family to avoid gift exchanges and instead get together at each other's homes for holiday snacks and well wishes.

Court rules against student loan discharge

Many people struggle to pay their debts and living expenses each month because of health issues. Missing days at work can mean a much smaller paycheck for those who do not have sick leave. In some cases, filing bankruptcy may be the answer to lowering the number of bills coming in so that a person can afford living expenses.

However, filing bankruptcy is not likely to eliminate student loan payments, according to a recent court ruling.

Emergencies and daily expenses can drive people into debt

A medical emergency or a costly car repair can begin a Mississippi resident's slide into debt. A survey from CreditCards.com showed that various emergencies, medical bills, auto repairs and daily expenses resulted in one-third of respondents leaning on their credit cards too much. On the whole, the nation has accumulated over $1 trillion in credit card debts according to WalletHub.

In the second quarter of 2019, consumers added another $35.6 billion to their card balances. Analysts at WalletHub expect consumers to incur a total of $70 billion in extra credit card debt by the end of the year.

Why people don't file for bankruptcy

Many people living in Mississippi are aware that bankruptcy is one option for debt relief. However, national statistics show a decline in bankruptcy cases in recent years.

While reasons for the decline are not entirely clear, many attorneys have put forth some ideas. Some have noted that the reasons why individuals file for bankruptcy in the first place have been mitigated. Unemployment numbers are down, which means people have more income they can apply toward debt. In addition, the Affordable Care Act has provided people with health insurance coverage, possibly reducing high levels of medical debt.

Bankruptcy rates double when health insurance is lost

Mississippi had the fourth highest per-capita rate of personal bankruptcies in the nation in 2018, and the data suggests that more than two-thirds of them were filed because of overwhelming doctor and hospital bills. Comprehensive health insurance provides protection against spiraling medical debt, but many Americans find themselves without this crucial coverage each year after going through a divorce or losing their jobs. A recent study conducted by University of Missouri and University of Denver researchers reveals that individuals are twice as likely to file a Chapter 7 or Chapter 13 bankruptcy after going without health insurance for just two years.

The researchers made this discovery after analyzing data on 12,500 bankruptcies from the Bureau of Labor Statistics. Millions of Americans currently have health insurance because of the Affordable Care Act, but the future of the landmark 2010 law is uncertain. Attorneys from 18 states filed a legal challenge to the ACA after Congress voted to eliminate the individual mandate. If the litigation is successful, up to 20 million Americans could lose their health insurance.

Different bankruptcy types have different credit impacts

One of the main concerns for people in Mississippi who are considering bankruptcy is how long the filings will stay on their credit report. Depending on the type of bankruptcy filed and the other specific facts of the case, the filing might be listed on a person's credit report for up to 10 years. There are two main types of bankruptcy for individual filers, Chapter 7 and Chapter 13, and each of them has different impacts on the filer's credit report.

Filing for bankruptcy under Chapter 7 will eliminate most personal debts, including those from medical bills, personal loans and credit cards. Any debts that are discharged via Chapter 7 bankruptcy will be noted on the person's credit report, and the bankruptcy itself will be listed as well for a period of 10 years from the date of the filing. A Chapter 7 may negatively impact a person's credit score by as much as 200 points, but it will also eliminate debts.

3 mistakes too many people make before filing for bankruptcy

Many people will end up filing for bankruptcy before the end of 2019, and research suggests many of those will come from the South. Mississippi has one of the highest divorce rates in the country, with 4.25 bankruptcies occurring for every 10,000 residents, compared to the national average of 2.5 for every 10,000. 

Bankruptcy can help you get your finances back on track in the long run, but there is no guarantee a court will approve your bankruptcy in the first place. You have to set yourself up for success, and that requires ensuring you avoid these common mistakes too many Mississippi residents make right before filing. 

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