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Should I Repay my Credit Card Debts or Is Working with a Chapter 7 Bankruptcy Lawyer Right for Me?

In today’s world, it seems that an individual’s or family’s margin for error is constantly decreasing. A single financial mistake, medical event, divorce or family situation, or another life event can push a person or family from relatively sound financial footing to crisis. In many cases, hardworking Californians will attempt to stave off dealing with a difficult financial situation by charging various debts and obligations to credit cards. While this approach can provide for additional time before you are forced to address your finances, relying on credit cards to “make ends meet” can result in a long-term financial drag on your household. In time, the debt may grow to a point where servicing the existing debt is a financial reach. If you are merely treading water or falling further and further behind each month, bankruptcy may be appropriate for your situation.

However, the bankruptcy attorneys of The Bankruptcy Group understand that each and every financial situation is unique and usually new to the affected persons. Because of this, we always approach every matter individually, taking the time to understand each concern, goal, and preferred approach to handling excessive debt. To schedule a free, confidential consultation at the Folsom or Roseville law offices of The Bankruptcy Group, call 1-800-920-5351 or contact our law firm online.

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Bankruptcy Attorneys Discuss When a Chapter 7 Filing May Be Appropriate

Described above is one of the most common scenarios in which Chapter 7 bankruptcy is most appropriate. When an individual or a family takes on too much credit card debt and has trouble servicing the debt, it is typically a sign that bankruptcy will likely provide a path to a fresh financial start. And yet, people often do not consider the various scenarios through which credit card debt can accumulate.

In fact, many people seem to consider bankruptcy through the lens of excessive spending on luxury goods. Still, over our years of practice, we have found that most people who consider filing for bankruptcy did not intentionally or mean to overextend themselves. Rather, circumstances of life pushed them to use credit cards as a means for keeping their households afloat.

For instance, significant medical bills can seemingly arise overnight following a severe injury. A hospital stay can cost tens of thousands of dollars or more for even a single night’s stay. Although one may have health insurance, there is no guarantee that the insurance company will pay all or part of the claim.  In fact, while having health insurance may appear to reduce the incidence of medical bankruptcies, it is not a guarantee against bankruptcy. A medical issue cannot only create significant new debt, but it can also reduce or eliminate an individual’s ability to work and earn income.

Shouldn’t I Just Consolidate or Refinance My Credit Card Debt?

Many companies advertise debt consolidation and refinancing options for Californians who have fallen behind. In some situations, these types of arrangements are worth exploring. However, individuals should educate themselves about the consolidation process, its impacts, and how it differs from a straight bankruptcy filing.

Generally, debt consolidation providers will offer to roll all of the individual’s payments into one that the company or provider then distributes to the appropriate creditors. The debt consolidation process will simplify the steps you have to take to pay your bills, but plans of this type are accompanied by extended repayment terms and increased interest rates. A longer term of repayment coupled with the same or higher interest rates mean that the individual will pay more over the life of the debt.

In contrast to the bankruptcy process, debt consolidation lacks several features that are often highly beneficial for individuals with significant amounts of debt. Consider this: a debt consolidation plan means that you will stay in debt for several more years. This means you will be paying interest on your past obligations the entire time. By contrast, an appropriate and comprehensive Chapter 7 bankruptcy filing can eliminate your unsecured and other dischargeable debt in as little as six months to a year.

While every situation is unique and must be evaluated on its own merits, if you are considering debt consolidation you should also explore bankruptcy. Working with an experienced bankruptcy attorney can help you compare and contrast the likely disposition of a bankruptcy, debt consolidation, or another approach to significant credit card debt.

Will I Qualify for Chapter 7 Bankruptcy to Eliminate Credit Card Debt?

Some people do not explore whether Chapter 7 bankruptcy is the right option to eliminate their credit card debts because they have questions about the legal process. However, an experienced California bankruptcy lawyer can help individuals understand whether their situation is likely to allow them to qualify for a Chapter 7 bankruptcy discharge.

To start, a bankruptcy attorney will usually ask whether you have previously filed bankruptcy and received a discharge of debt through either the Chapter 7 or Chapter 13 process. While there is no specific bar on filing multiple bankruptcies in one’s lifetime, if you have previously received a discharge you will need to wait until a sufficient amount of time has passed to receive a subsequent discharge. For instance, individuals who were previously granted a Chapter 7 bankruptcy discharge must wait until eight years has elapsed before (s)he can qualify for a second discharge of debt.

Passing the Chapter 7 Means Test to Eliminate Debt

Aside from questions about previous bankruptcy filings, a bankruptcy lawyer is also likely to ask about your household income. This is due to changes in the bankruptcy law that were introduced as part of the 2005 reform efforts. Thus, you level of income will be used to determine whether you can satisfy the Chapter 7 means test. The means test is intended to screen out individuals with significant disposable income who could repay their debts through a Chapter 13 bankruptcy or other means.

The first step of the means test involves comparing your income to the median for your area and household size. If your income is less than the median, you automatically qualify for Chapter 7 bankruptcy without engaging in any further analysis. For instance, based on 2016 median income information, a family of four can immediately qualify for Chapter 7 bankruptcy when the household income over the previous six months is less than $41,506 ($83,012 in income annually). A household of two can qualify for Chapter 7 bankruptcy when its income is less than $34,685 over the previous six months ($69,370 annually). These values are updated each year to keep pace with inflation.

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If you do not pass the first step of the means test, you may still qualify for Chapter 7 bankruptcy on the basis of minimal disposable income. Disposable income is the money you have left over after paying your bills and other household expenses and obligations. Even if you cannot qualify for Chapter 7 bankruptcy, Chapter 13 provides a favorable option for many individuals with significant debt. While the process is less expedient, there are certain advantages that are not available through debt consolidation or even Chapter 7 bankruptcy.

Work with a Sacramento Chapter 7 Bankruptcy Attorney if You Have Too Much Credit Card Debt

If you are concerned about an inability to meet your credit card payments, are skimping on necessities just to pay interest, or are experiencing other signs of financial stress, the lawyers of The Bankruptcy Group can help. To discuss how you can use bankruptcy to address credit card debt, medical debt, and other potential high-interest rate debt, call The Bankruptcy Group at 1-800-920-5351. Initial bankruptcy consultations are free and confidential. We have offices conveniently located in the Sacramento-area, in Folsom, and in Roseville, California.

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