About 10 to 20 years ago, I would see the same typical creditors in a bankruptcy case. I would likely see credit card debt, outstanding medical bills, parking tickets, tax debt, and an occasional unsecured, personal loan. These are the majority of creditors that made up bankruptcy cases 10 to 20 years ago. My how things have changed. Yes, all of the above listed creditors still exist and still dominate the bankruptcy schedules. However, there is a new crop of creditors who have arrived on the scene and in full force.
The examples in the paragraph above are basically extensions of credit. The new crop of creditors are extensions of credit but not to buy something. They are extensions of credit to be applied towards other debt. What I am referring to are the payday loans, title loans and Internet loans that have inundated the marketplace in the last five years or so. People are borrowing money from online lenders sight unseen. And the interest that these debtors are paying for this credit is unbelievable. For example, I just had a potential client come into my office who has a title loan with an interest rate of over 350%. What sane person would knowingly sign on the dotted line at that interest rate? The answer: someone who is desperate. Unfortunately, these new creditors are growing in numbers.
In the past if you fell behind on credit card debt and could not make your payment, the credit card company would cut off your credit. You basically had to cut your budget and make ends meet from that point forward. But now, you have the ability to seek out other lenders who can extract a huge toll on you. This is where a bad situation turns even worse. You may think that by taking on the additional credit that you are bringing a potential resolution to your debt situation. However, more often than not, the amount of your debt increases because the interest rate makes it highly unlikely that you can pay it off. This is why I state that there is some debt that you cannot borrow to get out of. Sometimes it’s better to look at the situation for what it is and find a resolution that does not involve borrowing more money.
You may likely be in a situation where chapter 7 bankruptcy or chapter 13 bankruptcy is going to provide the best form of relief. Under chapter 7 bankruptcy law, you can eliminate unsecured debt and keep the property that you have provided it’s under the state exemption limit. In the state of Illinois you can keep $4000 worth of personal property, $2400 worth of that value in a vehicle, and $15,000 worth of equity in real estate. The majority of people who file a chapter 7 keep all of their property because it does not exceed the state exemption amount.
If you are struggling financially, before you take out a title loan, Internet loan or payday loan, talk to an experienced, bankruptcy attorney to learn your rights. You will be able to survive the bankruptcy and get credit in the future. If you try to get credit now in an effort to pay off existing debt, you might find yourself digging a deeper hole and creating an insurmountable amount of stress on your life.
