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Are You Heading Toward Bankruptcy?

August 10, 2014
Plain English Version

Bankruptcy

If you cannot pay your debts, federal law allows you to declare bankruptcy. Hundreds of thousands of Americans declared bankruptcy during the Great Recession. Many fewer are doing so today.

However, even filing for bankruptcy costs money in legal fees. Some people cannot afford to file.

If you are declared bankrupt, you do not have to pay most of your debts. You may lose your house, but you will not have to pay off the mortgage. You cannot get out of paying off student loans by filing for bankruptcy.

Signs that you are facing fiscal distress that might lead to bankruptcy include the following:

You are missing payments.  You cannot pay big bills, such as mortgages, auto-loans and credit cards, as they come due.

You do not have enough assets and income to get help with debt management. Groups are available to help you manage your debt. However, they will not help you if you cannot make payments.

If you have a home-equity loan, you have run through it. That is, if you have a home. These loans can be used to pay off credit card debt. They have a lower interest rate

You are getting phone calls from debt collectors. More than one-third of Americans get calls from debt collectors.

You have maxed out on your credit cards. This is the end of the line for credit. It means you used the cards for everyday expenses. No one will give you another credit card.

You are getting payday loans. It means you are paying high-interest rates.  You are usually paying off one loan by getting another. Bankruptcy is the next step.

You have no money for emergencies. Any problem — losing a job or illness — can be the end.

Some people do not have to worry about bankruptcy. They have no money and no assets to attach or collect. This is called poverty. It is not recommended.

Source: The Arizona Republic August 4, 2014

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