Bankruptcy

I receive many questions on the topic of bankruptcy. So let’s get into that topic.

There are two main types of bankruptcy, chapter 7 and chapter 13. Let’s look at the differences between the two.

Chapter 13 will allow you to restructure your debts at better terms, such as a lower interest rate. But it will not delete your debts.

This may be a suitable option for a business-owner who took a dive with his income and he can no longer afford to make the regular payments to his creditors.

He will have generally up to 5 years to repay his debts. Again the key here is to have some regular income.

Chapter 13 will stay on the credit report for up to seven years.

Let’s talk about chapter 7. It will discharge most of your debts. But some will not be eliminated, like tax claims, alimony, child support, most student loans, and fraudulent debts.

Chapter 7 is for people in real financial hardship – who barely have enough to cover their mortgage and food and they are getting sued by their creditors.

you will have to show your hardship but you will be able to keep certain things, such as your retirement plans and certain amount of equity in your home.

Chapter 7 bankruptcy will stay on your credit for 10 years. During this time, you will most likely qualify for loans but with higher interest rates.

As you can see, these options have the ability to provide you with some relief… but there is a steep price to pay in the long run.

Approach this with caution and consult a bankruptcy attorney before you dive in.

“I work with people who have a lot of medical bills and are considering medial bankruptcy. Is there a way to prevent this? Is bankruptcy a solution?”

ANSWER:

62% of personal bankruptcies are in fact related to medical bills and majority of the filers had health insurance coverage. (Source: American Journal of Medicine).

Some things that people can do to reduce the risk of medical bankruptcy is looking at supplementing their health insurance policies. The two types of supplemental plans are dread-disease insurance and catastrophic health insurance.

Dread Disease Insurance covers against specific diseases such as cancer. The money can be paid directly to the policyholder, regardless how much the individual actually spends on the care. These plans are typically offered through a payroll deduction at work.

Catastrophic or Secondary Health Insurance is a form of insurance coverage that keeps deductibles very high, with lower and more affordable premiums. With this type of plan, you pay for almost all medical care until you reach the annual deductible amount. After that, traditional health insurance coverage begins.

Obviously, if you are currently sitting on pile of medical bills, try to negotiate with the hospitals. Often times you will receive a good size discount for lump sum payments. If bankruptcy protection is inevitable, make sure to consult bankruptcy attorney.