Credit cards, payday loans and medical bills are by far the biggest reason that people file Bankruptcy, both Chapter 7 & Chapter 13. Since these are the most common form of unsecured debt, which shouldn’t come as a surprise.
hen people contact our office for advice about these debts, we first do an analysis of their debt relief options. If Bankruptcy is the best option, then we tell our clients to follow a rule of thumb that we call “don’t use, don’t pay.” To have a credit card with a limit still left on it is not an asset. Most people, however, don’t believe that. They believe that the remaining limit on the credit card is their property. It is important to remember that a credit card company can cut your credit limit down at any time for any reason, or no reason at all. And there is nothing that you can do about it.
But people are very attached to their credit limit. Some are obsessed with it. And if you think about the money you will save every month by not having the credit card payment, you will have more money left over than what you use the credit card for.
Here is what I mean: the typical minimum payment of $15,000 of credit card is approximately $600 per month. That is over $7000 per year. For a person making $35,000 per year, that represents 25% of your gross income and nearly 40% of your take-home income.
Yet when I give these numbers two clients one meeting them for the first time, they are still reluctant 10 to stop making the minimum payments. And the reasoning for that is “how will I live and pay my bills if they shut off my credit limit.”
This shows a significant development in the typical psychology of an American. We have become conditioned to rely I depend on credit card companies for our daily survival. And that is very sad. What we need to remember is that the credit card companies are the reason that most people are forced into bankruptcy. If there were no such thing as credit cards, it would be much less economic suffering in our country. For evidence that I am right on this, we need look no further than the amount of profits that are made every year by credit card companies from interest. It is in the tens of billions of dollars. And all that interest is charged to lower income people, who are making minimum payments.
Rich people don’t ever carry balances forward on their credit card. They pay them in full at the end of every month, and only you the credit card in return for the points that they get from them. The interest is only charge two middle and lower income people who make just the minimum payment and nothing more.
So if you eliminate the credit card companies, then the majority of Americans would have a bunch of money left over with which to pay their bills and survive. And we would be forced to live within our means rather than spend beyond our means.
Credit cards are automatically discharged in a Chapter 7 or Chapter 13 bankruptcy, unless the creditors can show that you committed fraud. This is where they can establish that you use the credit cards on the eve of bankruptcy, or when you use them in a way that establishes that you had no intention on repaying them. Be very careful when using credit cards, and do not change your pattern of usage when you decide that you were going to file bankruptcy. As a matter of fact, do not use them at all after you had made that decision. Creditors will find out, and they will get your bank if she denied.
Medical bills & Bankruptcy
Medical bills rival credit cards as the biggest reason for people to file consumer bankruptcy, Chapter 7 and Chapter 13. And they are tied in with the problem that Americans face with rising credit card usage. Because if the average American wasn’t burdened with the bath amount of credit that they had to pay every month, they could easily afford to pay for better health insurance which in turn would prevent them from devastating go bills due to lack of insurance or under insurance.
And like credit cards, medical bills are automatically discharged and Chapter 7 and Chapter 13 bankruptcy. There is no question whatsoever. And a creditor can almost never allege fraud with medical bills as they could with credit cards. It is possible, but inconceivable.
Payday Advance Loans & Bankruptcy
Payday advance loans are a cancer on our society. They should NEVER be used. For ANY reason; not even as a last resort. Yet many Americans rely on them for their survival. These debts are easy to wipe out in Bankruptcy.
But be careful. If a creditor can show that you obtained the loan knowing that you were about to file Bankruptcy, they can come into your Bankruptcy case and try to deny it. They will allege that you committed a fraud by taking your final loan from them.
If you feel yourself about to reach out to a payday advance loan company, you should probably see a bankruptcy attorney.
This article is not meant as legal advice, and Bankruptcy is very complicated depending on every persons overall financial situation. So, if you are considering any chapter of the bankruptcy code, is it called one of our attorneys for a free, same day consultation.
To learn more about Chapter 7 or Chapter 13 Bankruptcy, the federal government has excellent information about it on their website at http://www.uscourts.gov/services-forms/bankruptcy
Fairmax Law™ is a Service of Jaafar Law Group PLLC and is a designated debt relief agency that helps clients file bankruptcy under the federal bankruptcy code.