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Bankruptcy rates dropping

Bankruptcy is an effective method to resolve overwhelming debt and for consumers to have a fresh financial start. Still, the number of people filing for personal bankruptcy under Chapter 7 and other types

has dropped since 2010, that is, during the peak that occurred following the 2008 recession.

Chapter 7 bankruptcies are the most common type of bankruptcies. Under Chapter 7, known as liquidation bankruptcy, a debtor can liquidate their debt within three to six months. These filings dropped since the enactment of the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act.

There was a rise in Chapter 7 filings in 2005, while the laws were more lenient, in anticipation of the 2005 BAPCPA which imposed additional restrictions on these bankruptcies. Chapter 7 constituted 61.65 percent of all bankruptcies in 2017.

Under BACPA, consumers can file for Chapter 7 only if they earn less than their state's median income or pass a means test indicating that they cannot comply with a debt repayment plan. If they do not meet these requirements, they must file for Chapter 13, which involves a three to five-year repayment plan.

Most debtors declare bankruptcy because their credit is overextended, they suffered a sudden income loss, or they faced unexpected expenses. Other causes included job loss, sickness or injury, divorce, birth or adoption of a child, a family member's death, retirement and identity theft.

Tennessee was ranked second in this nation for bankruptcy filings per 1,000 residents in 2018. There were five bankruptcies filed per 1,000 state residents. Tennessee's population was 6.77 million in July 2018.

Southern states, in general, had more bankruptcy filings. The four states with the highest number of filings were in the South. These bankruptcies could be partially attributed to more seasonal work and fluctuating wages along with median incomes that are below the national average.

African Americans, older debtors and debtors with lower incomes have been more vulnerable to bankruptcy. Also, African Americans and Southern debtors file Chapter 13 at much higher rates because the up-front expenses are cheaper.

Consumers struggling with debt should consider their options. An attorney can help devise a plan that allow them to resolve their debt.

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Mark T. Young & Associates
2895 Northpoint Blvd.
Hixson, TN 37343

Toll Free: 888-376-0282
Phone: 423-933-1606
Fax: 423-877-0363
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