Many people in Tennessee and across the country struggle with massive amounts of student loan debt. Historically, there have long been serious difficulties in discharging this debt in bankruptcy, even as the process can work effectively to handle other forms of unrepayable debt. One recent case of a law graduate, however, may indicate changing perspectives on how student loan debt can be assessed during bankruptcy proceedings.
The potential aftermath of a Chapter 7 case
Filing for Chapter 7 bankruptcy may help Tennessee residents and others eliminate some or all of their debts. However, some debts such as payroll taxes owed or back child support cannot be eliminated in a Chapter 7 filing. It is also unlikely that student loan debts will be discharged in such a proceeding unless a judge finds that doing so would constitute an undue hardship.
Student loans often aren't discharged in bankruptcy
Americans owe a total of $1.59 trillion in student loan debt. However, many Tennessee residents and others who carry student loan balances won't be able to discharge them in bankruptcy. For some, it is because they don't qualify to file for Chapter 7 bankruptcy. Chapter 7 bankruptcy allows debtors to liquidate assets and use the money raised to pay creditors. To qualify for a liquidation bankruptcy, an individual will need to pass a means test.
Medical debt pushes many toward bankruptcy
Over 137 million Americans in Tennessee and nationwide are struggling with the crushing weight of medical debt. Despite widespread concern about the broken nature of the nation's health care system and the passage of the Affordable Care Act, people continue to struggle to make ends meet or cover basic health costs, especially when emergency care is involved. According to research, the primary reason people would cash in their retirement funds or 401(k) plans, even taking a major tax hit, is to pay off medical bills that they otherwise cannot afford. In addition, two-thirds of all personal bankruptcies across the country are at least partially linked to medical bills that people cannot afford to pay.
Avoiding extra debt on Black Friday
Every year, people in Tennessee flock to the stores on Black Friday and head to their favorite websites on Cyber Monday in the hopes of saving money on holiday gifts and other products. While the deals offered on Black Friday can be appealing, they can contribute to ongoing and unrepayable debt. There are a few tips that credit counselors offer to help people resist the temptation to purchase more than they can pay for, even when exceptional savings are on offer. First, experts advise making a specific list and a budget for the items a person wants.
Bankruptcy may help debtors avoid tax bills
Until 2018, homeowners in Tennessee could cancel up to $2 million in mortgage debt without incurring a tax bill. This was true for those who lost a primary residence through a short sale or foreclosure. However, this perk expired at the end of 2017 and is unlikely to be renewed because of the political climate in Washington. Therefore, those who have a home loan balance forgiven or canceled may need to claim it as income on a tax return.
Filing for bankruptcy can cost thousands
Filing for bankruptcy in Tennessee and other states can cost up to $4,000 after accounting for filing and attorney fees. Those who are filing for Chapter 7 bankruptcy will pay a filing fee of $335 in addition to paying an attorney up to $1,500. Debtors who are seeking Chapter 13 protection will pay a filing fee of $310 in addition to up to $2,500 in attorney costs. Attorneys may charge more if a Chapter 13 proceeding is a complicated one.
Things to keep in mind when considering bankruptcy
Bankruptcy has been able to help some Tennessee residents get a fresh start financially, allowing them to save money and avoid taxes on discharged debt. However, it is not always the best move for everyone and certain precautions need to be taken.
There are no easy decisions in bankruptcy considerations
Debt has become a constant companion for most Tennessee residents. Hopefully, 'good" debt is used as leverage to further advance economic interests and 'bad" debt is minimized and managed only as a tool of last resort. Unfortunately, unexpected circumstances can occur that place the total debt, from whatever source, beyond the individual's ability to pay. No one gets to the point of considering bankruptcy lightly, but sometimes there is simply no other alternative than to seek a fresh start.
The link between medical coverage and bankruptcy
Losing medical care on even a temporary basis can double a person's risk of declaring bankruptcy. This is according to a study published by the American Bankruptcy Institute that looked at data available through the Bureau of Labor Statistics (BLS). The study found that interruptions in coverage were typically related to a divorce or losing a job. It also found that individuals could be at risk for losing their jobs because of a health condition.
