Many Americans on verge of financial collapse, report says

March 09, 2013

The economic difficulties of recent years have affected Americans in many different ways. On one hand, many of those who were lucky enough to keep their jobs were relatively unscathed. However, many fared much worse. The plight of this group was recently echoed by a report from the Corporation for Enterprise Development.

According to the report, about 43.9 percent of U.S. households are on the brink of financial collapse. The report found that this group of people is "liquid asset poor," meaning that this group of Americans does not have enough money to live at the federal poverty level for three months in the event of a job loss, sudden healthcare needs or a similar financial emergency. In addition, in about 26 percent of households, debts outweighed assets ("net worth asset poor").

Even more shocking is that the report found that financial strife is not limited to the poor. It was found that many of those who considered themselves in the middle class, with annual incomes of $55,465-$90,000, fell into the "liquid asset poor" group. Many of these households did not have emergency savings. The report noted that households with emergency savings, unsurprisingly, were much less vulnerable to foreclosures or homelessness.

Bankruptcy as an option

Many people who find themselves unable to keep up with their bills or overwhelmed by debt find that bankruptcy is often the best way to get back on their feet. Bankruptcy works by providing a fresh start by eliminating the obligation to pay many types of debt, such as medical bills and credit cards.

Individuals who file bankruptcy typically have two options: Chapter 7 and Chapter 13. In Chapter 7, the debtor's--the person who files for bankruptcy--property is sold by a bankruptcy trustee to pay off his or her debts. Although the debtor may lose some property in Chapter 7, the majority of important property (e.g. primary residence or car) cannot be sold by law. Once the debtor's property has been sold, the court grants a discharge, relieving the debtor of the responsibility to pay many types of debt.

In Chapter 13, the debtor's debts are consolidated into a repayment plan. The debtor makes a payment each month to a trustee, who uses the money to pay down the debts. Payments are made under the payment plan for three to five years. As long as the debtor makes the payments, no property is sold. At the end of the payment plan period, the debtor receives a discharge of many types of remaining debt.

The decision to file bankruptcy should not be made lightly. The type of bankruptcy that would be right for you depends overwhelmingly on your personal situation. An experienced bankruptcy attorney can recommend the best debt relief option for you.

Article provided by Charles E. Covey, Attorney At Law
Visit us at www.peoriabankruptcylaw.com