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Wave of consumers expected to seek debt relief via bankruptcy

On Behalf of | Jun 19, 2020 | Personal Bankruptcy

The current health situation has impacted people in North Carolina and across the nation. Unexpected medical expenses, job loss and the need to rely on credit cards to make essential purchases has expanded debt significantly. For many, debt relief is a growing concern as is the prospect of losing a home. In certain circumstances, bankruptcy is a viable alternative to clear debt and improve the financial outlook.

Thus far, there has yet to be a substantial rise in the number of people who are filing for Chapter 7 or Chapter 13 bankruptcy. Still, a wave of filings is expected as the true nature of the economic damage comes to light. Statistically, there has been a consistent connection between people losing their jobs and eventually needing to file for bankruptcy. This also correlates with people who become delinquent on their mortgages. Individually, these warrant a debtor considering Chapter 7 or Chapter 13. In combination, it may be unavoidable. These connections have been consistent since 2008.

Because the current financial challenges are so pronounced with unemployment as high as it has been in nearly a century, the number of people who are delinquent on mortgages can reach 19%. There are differences in the current landscape when compared to reasons why unemployment and financial turmoil came about. In the past, economic recessions and unexpected occurrences separate from a governmental order to remain at home led to the unemployment spike. Since businesses were shuttered not due to poor performance, but due to a tacit attempt to protect people from getting sick, the future is still relatively uncertain. As the lockdown orders ease, it is believed that many people who are currently unemployed will be back at work.

Homeowners have been granted some relief through legislation, so mortgage delinquency might not be as bad as the worst-case scenario. The numbers for bankruptcy filings in 2020 have gone down with 175,000 for the first quarter of 2020. That is a reduction of around 11,000 from 2019. For April 2020, there was a 46% decrease from April 2019. Other factors could be relevant with courts closed and people waiting to see how much help they might receive from legislators.

Although there may be alternatives to achieve debt relief without filing for bankruptcy, a Chapter 7 or Chapter 13 may be preferable to those options. Both can provide a fresh start and have different requirements and benefits. With a Chapter 7 liquidation, all unsecured debt is cleared and the debtor can move forward in his or her life. Chapter 13 is a repayment plan that allows the debtor to keep a house, motor vehicle and other possessions by making monthly payments to a trustee. Whether the debt has accrued because of medical expenses, unemployment or for other reasons, it may be beneficial to file for bankruptcy. Those who are seeking a fresh financial start should consult with experienced professionals to determine the next step.


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