Medical bills were the top cause of bankruptcy filings last year. Even with insurance, co-payments or co-insurance for treatment may pile up quickly. Combine that with time away from work while recovering and you may be left with debt you can never pay off.
In addition, the number of long-term unemployed continues to hover at 3.7 million, according to the Bureau of Labor Statistics. The long term unemployed make up about 35 percent of those looking for a job. As the economy continues to lag many people are unable to pay for their living expenses and sink deeper into debt.
A Chapter 7 or Chapter 13 bankruptcy can provide a fresh financial start by stopping creditor harassment and wage garnishment. Medical bills, credit card debts and other unsecured debt may be discharged. But if you owe child support, spousal maintenance, student loans or back taxes, bankruptcy may not provide a remedy. Before filing, you must consider how you will pay various fees.
Court filing fees are required to file bankruptcy. The federal court filing fee is approximately $300 for either type of bankruptcy. In a Chapter 7, the filing fee may be waived by the judge if an individual’s income is below 150 percent of the poverty line.
Another cost is mandatory pre-bankruptcy credit counseling and education courses. The costs average $85 according to a study commissioned by the American Bankruptcy Institute.
An attorney also must charge a fee or risk going out of business. Generally, an initial consultation is free and will provide more information about whether bankruptcy may fit your needs.
Most attorneys offer payment plans that can be used to pay off a balance before filing a Chapter 7 petition. If Chapter 13 bankruptcy is a better fit, attorney fees may be paid through the Chapter 13 debt-repayment plan.
Each year the number of bankruptcy filings increase during tax season. This is because many people overpay their income taxes through paycheck withholdings and receive a sizeable refund between February and April. A tax refund can be used to pay for a bankruptcy filing.
If there is some property you can no longer afford, such as a car or truck, a boat or your home, stop making payments. There are several things you should not do before filing for bankruptcy:
Gathering the payment to file for bankruptcy is often difficult, but it is the first step. When debt becomes insurmountable, contact a bankruptcy attorney to discuss whether bankruptcy is right for you.