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Forghany Law P.C.

Lawrence Bankruptcy Law Blog

Chapter 7 and Chapter 13: which one is right for you?

Anyone who has ever struggled with debt will tell you how awful the situation made them feel. With so many financial obligations and perhaps even receiving harassing phone calls from creditors, it’s no surprise that many people feel overwhelmed when they face this kind of hardship.

Thankfully, bankruptcy provides a way of relieving some, if not all, of the stress associated with debt. But with so many bankruptcy options to choose from, you might be wondering which one is best for you. To provide clarification to our Massachusetts readers, we wanted to touch on two options in this post: Chapter 7 and Chapter 13. By highlighting the differences between the two, we hope to give you an idea of what might be the best option in your situation.

Do your mortgage bills place you at risk of foreclosure?

The recent economic downturn broadly illustrated that even fiscally responsible Americans may find themselves struggling mightily with their finances from time to time. Individuals may find themselves on the brink of foreclosure or filing for bankruptcy for any number of reasons. For example, the number one reason why Americans currently file for personal bankruptcy is overwhelming medical debt tied to unexpected illness or injury. No matter what kind of job you hold or what kind of life you lead, the fact of the matter is that you may end up struggling with overwhelming debt at some point, despite your best efforts to stay on top of your finances.

Recently, Realty Trac reported that over one million U.S. homes are currently affected by some stage of the foreclosure process. Countless others are within months of being targeted by foreclosure professionals. If you are struggling with overwhelming debt of any kind, your home could be at risk of being foreclosed upon should you ever find that you cannot make your mortgage payments in a timely fashion.

Are you 'effectively' underwater on your mortgage?

Not long ago we discussed the possibility of debt relief for homeowners whose home equity has increased while the property was in foreclosure. If you are in this situation, then you may be able to stop foreclosure by selling the property at market value. You can read more about the matter in our previous post, "Real estate rebound may render some foreclosures unnecessary."

While positive changes have happened in the real estate market, millions of Americans are still underwater on their mortgages, and according to the database Zillow, millions more are "effectively" underwater.

Unpaid medical bills are disproportionally harming credit scores

We have previously written about the fact that unpaid medical debt is now the number one reason why Americans file for personal bankruptcy. Overwhelming medical debt can be uniquely frustrating, as it only adds to the stress caused by illness and injury. In order to heal, patients need rest and calm. When debt collectors are calling incessantly, it is difficult to achieve that necessary and healing rest.

Unfortunately, large medical bills can cause more than just stress. Unpaid bills may significantly harm your credit score. If you cannot immediately pay a medical bill, it may be possible to negotiate a payment plan with your hospital or other healthcare provider. However, even repayment plan amounts may be too steep for you to pay. In this scenario, your medical bills may end up in collections. And when that happens, your credit score will almost certainly take a hit.

Real estate rebound may render some foreclosures unnecessary

One of the most common threads between our blog posts is the economic recession and the broad range of effects it’s had on the country. In addition to the financial pressures created by elevated unemployment rates, the residential real estate market also took a plunge during the downturn. Homeowners, who may have been dealing with other debts, suddenly had an underwater property, meaning that they owed more on their mortgage than the home was worth. In this situation, lenders may have moved forward with foreclosure action.

Now that it seems as though the economy has turned around, real estate markets have also recouped lost value. As a result of this, individuals who are entangled in foreclosure proceedings may now suddenly have positive home equity.

Losing your job can lead to some tough financial choices

When Massachusetts residents are considering filing for bankruptcy, it often isn't because they are out of a job. It can be relatively easy to build up large amounts of credit card debt, or other types of obligations, that can lead people to seek a way out and get a fresh financial start. However, if people do become unemployed, then financial pressures can become overwhelming in a hurry.

Depending on the situation, people might be tempted to live off their credit cards for a while if they can't gain employment relatively quickly again, and put off actions such as Chapter 7 bankruptcy for the time being. However, it's worth determining if this is a wise choice in the long run.

Restructuring student loan payments is tough under current rules

Student loan debt has been a significant source of discussion across the country and on this blog. This isn't surprising, especially considering that average student debt loads are climbing to new levels. The problem, for many people, is that payments are simply too high relative to monthly income.

In general, most student loan payments begin to kick in six months after people leave school (whether or not they've graduated). Unemployment or underemployment can cause a person to fall behind -- or come very close to it. Bloomberg reports that the federal government has six options for restructuring payments. Four of the six options are reportedly quite confusing, which might provide an explanation as to why participation the restructuring programs is low.

Declaring personal bankruptcy will halt wage garnishment

Many people eagerly await pay day. For those living under tight financial conditions, losing a portion of a paycheck means that meeting basic expenses for rent and groceries might be impossible. Many people, unfortunately, can face wage garnishment from creditors if they fall behind on bills, which can put them in an even tighter financial bind.

Wage garnishment occurs when a creditor seeks and receives a court order to withhold a portion of a person's wages. If the legal order is granted, employers must follow along.

Changes to medical billing guidelines could help ease debt burden

For many people, going to the doctor or hospital isn't a pleasant experience. No one wants to deal with medical issues, but oftentimes it's necessary to take action. Concerns about paying for medical visits and treatments only compound this stress. Thankfully, a new set of medical billing rules created by the federal government and medical industry could help ease the pressure created by health care expenses.

On a basic level, the new medical billing standards provide guidance for patients looking to resolve disputes. Oftentimes, people find themselves dealing with issues in their hospital bills when their top priority should be getting healthy again. Observers believe that the rules should ease the burden for patients by making dispute resolution and payment processes fairer, which would hopefully prevent overwhelming medical debt from accumulating.

Same-sex couples can now file jointly for bankruptcy

When a couple is considering bankruptcy, it's likely that they just want to find relief. For many couples, however, it wasn't possible to make a joint bankruptcy filing -- that is, until recently. U.S. Attorney General Eric Holder recently announced that the federal government will provide same-sex couples will additional legal recognition, including the ability to file personal bankruptcy together.

Massachusetts led the nation as the first state to legalize same-sex unions, but couples married in the state were previously unable to declare bankruptcy together because it is a federal legal procedure. Thankfully, many couples will no longer feel restrained from taking the steps to eliminate debt and move forward.

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