On October 1, the latest set of economic indicators seemed to be yet another sharp reminder that the US economy is in for a tough time over the years to come. With higher unemployment figures (although a slowing of job loss number is expected) and slowing manufacturing data, it should come as little or no surprise that people with debt trouble are going to look at bankruptcy as a way to escape the financial pressures facing them.
With many people right now still on pins and needles where their employment is concerned, Chapter 13 Bankruptcy might not be the great solution the American Government intended for it to be. While it may be nice to retain control and possession of important assets, the demands will continue to exist that any structured debt program under Chapter 13 be adhered to. Consequently, Chapter 7 bankruptcy filings should be expected to rise.
Typically, people with seriously debt trouble during these difficult and dark economic times are more concerned about providing a safe housing environment for their family. This means food for meals (and yes, “soup kitchen” establishments are seeing a rise in traffic through their doors), roof for shelter, and transportation for school and other activities for their children. While Chapter 7 bankruptcy does not allow for a family to stay in their “current” home, it does wipe out all debt.
And people can live just about anywhere. As such, Chapter 13 with its strict expectations may be a lost cause for many who are dealing with debt trouble these days. After all, if any part of the repayment agreement is missed, the Chapter 13 bankruptcy can swell into a Chapter 7 bankruptcy. This may pose too high a risk for many people right now.
In terms of whether one should file for Chapter 7 or Chapter 13, consider whether or not payments on the “kept” assets can be maintained. If there is any question about whether they can, perhaps liquidation under Chapter 7 is a more-wise avenue. Ultimately, the decision will come down to the individual (or couple), but not taking a cold, hard look at the economic possibilities over the next couple of years would not only be silly, but possibly irresponsible.
Chris has more than 16 years of experience in the financial services industry, having helped thousands of clients fix their personal finances. He maintains a debt blog that aims to help people with debt trouble find ways to manage their credit and debt.
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