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Debt, Bankruptcy, And How to Move Forward



 Americans are facing crippling debt and bankruptcies. This article talks about debt, bankruptcy, and how to thrive despite your financial circumstances.

A guide to debt, bankruptcies, and what to do about it


What is debt?

In layman’s terms, debt is when one owes someone else money. If you borrowed money, you must pay it back and usually with interest. The practice of borrowing money goes back to the beginning of time. 


Debt is a method used by most companies and every day people to make large purchases that they could not have afforded otherwise. Debt in itself is a good thing because the borrowing person has a period of time to pay back the money owed and with interest, and so everyone wins. 


The key is to have a responsible payment plan in advance before incurring debt. Debt becomes a problem when one is living beyond their means, foreshadowing financial disaster.

How many Americans are in debt?

In our consumerist culture, debt is a way of life for many Americans. A staggering 80% of Americans are in debt. Of the 80% of Americans with debt, 44% have mortgage debt. 


The average debt load among Americans is $67,900, mostly driven by mortgages. For example, the median home loan balance is $103,000. 41 percent of millennials have student debt.


Many experts like Mark Cuban predict that student debt is the next financial bubble to burst, which could cause a major financial crisis in the nation. 


Another common debt is credit card debt. Let’s face it, the convenience of online shopping makes credit card debt effortless. At least 39 percent of Americans on average have credit card debt.

How to get out of debt on low income?

Luckily, America is a country founded upon principles and ethics. There is way out of debt for low-income Americans. A universal proven strategy throughout time has been making a budget. A spreadsheet is very useful in tracking monthly expenses and income.


There are many budget apps to choose from in the Apple Store, or Google Play, like mint. You could also use Google Sheets for free online, or Microsoft Office online, or you could download free spreadsheet programs such as WPS Office, OpenOffice, or Libre Office.


The options are out there, you just have to take the first step. You don’t have to make it perfect either, what counts is to try to be consistent with your monthly expenditures, and overall having the grit of self control with your expenses so that you could have money to pay your debts. 

Zero Sum Budgeting

One budget strategy is called zero-sum budgeting. The way zero-sum budgeting works is that by the end of the month, you don’t have a single penny left over to your name because every last cent goes to paying debts, and of course saving a bit for yourself for an emergency. This probably sounds masochistic but it works! Ultimately you cannot get out of debt if your debt keeps growing. Self control is essential with debt management. One could also find more affordable alternatives to goods that you buy.

What is debt consolidation?

Debt consolidation is a strategy to get out of credit card debt, with or without a loan. Consolidation cuts costs by lowering the interest rate on debts and reducing monthly payments. 


If you have tremendous debt on several credit cards, you can apply for a debt-consolidation loan. Then you use this loan to pay off your credit card debt, then repay the loan in monthly installments, sometimes  with a lower interest rate than you were paying on your credit cards.


 Personal loans are usually fixed-rate, in other words the APR is locked in for the lifetime of the loan, and you pay the same monthly amount until it’s paid off. This is an advantage over credit cards, which have variable APRs that can go up and down.

What do I do if I’m struggling to pay my mortgage?

Struggling to pay your mortgage is a very sad thing to go through. Imagine, your home is your sanctuary and not being able to afford it is gut-wrenching. This is even worse if you have a big family.


If you can’t afford your mortgage, your options are to refinance your home, or ultimately sell your home and find a more affordable home before you have a financial disaster.

Refinance Mortgage Rates

Refinancing a mortgage is a form of paying your mortgage by taking out another loan. Refinancing can allow one to secure a lower interest rate; for example, one can replace a loan at an 8.7% rate with one at 5.1%.


Refinancing can repay the principal if one does not have sufficient funds to do it; that is, if one has made only interest payments over the life of the loan and has not saved the principal amount when the loan comes due, refinancing can prevent bankruptcy.


There are two main drawbacks to refinancing. First, there is no certainty that one will be approved for it. One takes a risk every time one decides to make only interest payments on a loan or mortgage.


Secondly, refinancing generally resets the repayment period; that is, if one refinances six years into a 10 year loan, the one generally repays the new loan over 10 years instead of the remaining four.

Sell Your Home

Nobody wants to lose their home, but if you see the writing on the wall, then it’s time to sell. Maybe you’re lucky and it’s a buyers market, or the home interest rates are in your favor and you could sell. Perhaps in the near future your financial situation improves and you could always buy a house again.

What is bankruptcy?

Bankruptcy is a legal declaration that one is unable to pay one’s debts and thus needs to have debts forgiven or reorganized. There are five different types of bankruptcy including individual bankruptcy for liquidation or debt, farming bankruptcy, municipal bankruptcy, and corporation bankruptcy.

What happens to your credit score after bankruptcy?

Bankruptcy will have a long lasting effect on your credit score. The devastation will vary, but you can expect to lose up to 200 points. It will be more difficult to obtain credit and the terms will likely be expensive. Your best option is a secured credit card. If you use your card responsibly, you could improve your credit report in the long haul.

How long does bankruptcy stay on your credit report?

Depending on the chapter you filed (more on that below), bankruptcies are deleted from your credit report either seven years or 10 years from the filing date of the bankruptcy.


Chapter 7 bankruptcies are removed 10 years from the filing date because none of the debt is repaid. Chapter 13 bankruptcies are removed seven years from the filing date because it requires at least a partial repayment of the debts owed.

How do I file for bankruptcy in Texas?

If you have a mountain of debt that will force you to file for bankruptcy, there are two types of protection that you can file for with the bankruptcy courts.

Chapter 7 Bankruptcy

The first kind of bankruptcy protection is called chapter 7 bankruptcy. Under chapter 7 bankruptcy, your assets will be liquidated and the proceeds from the sales will go towards paying off your debts.

Most remaining debts will then be discharged by the courts. Many people prefer to file for chapter 7 bankruptcy because they will not have to repay most of their debts.

However, not everyone qualifies for this kind of protection. In order to qualify for chapter 7 bankruptcy, a person must make no more than $167 over the median income of the state. If the courts find out that a person violates this requirement, the chapter 7 protection can be revoked and changed to chapter 13.

Most people that file for chapter 13 bankruptcy will also be required to attend classes that will teach them about money management and personal finance. If you fail to attend the classes or do not pass, your bankruptcy may be revoked, which will erase any protection that you were granted from your creditors.

Chapter 13 Bankruptcy

The second kind of bankruptcy that you can file for is called chapter 13 bankruptcy. The laws surrounding chapter 13 bankruptcy are quite complex.


Chapter 13 bankruptcy is more closely related to debt consolidation in that your debts are reorganized and a payment plan is set up between you and your creditors.


Chapter 13 bankruptcy is sometimes called a working man’s bankruptcy because one of the requirements of filing for the protection is having a job with a steady income.


In a chapter 13 bankruptcy filing, you and your lawyer will devise a payment repayment plan that explains to the courts how you will handle your creditors. Most payment plans allow you to make payments for a period between 30 and 60 months after the initial filing.


According to current bankruptcy laws, the debtor must prove to the courts that he will be able to carry out the plan for the duration of the time period. Current chapter 13 bankruptcy laws give judges the ability to factor in your living expenses while repaying your debt.


However, federal standards are in place that makes it difficult for judges to customize expenditures on a case to case basis. Chapter 13 bankruptcy can also be a punishment for those that have file for chapter 7 bankruptcy fraudulently.

Infographic describing difference between chapter 7 and chapter 13 bankruptcies

Texas Personal Property Exemptions

Texas is fair in how its personal property exemptions work. Most states give a list of categories of property, for example: vehicles, furniture, tools of trade, etc, and then specify a maximum dollar amount in value allowed as exempt in each category.


Texas groups together most personal property and then gives a relatively generous exemption amount for assets within this broad group, $30,000 for single person, $60,000 for a family with two spouses.


This group includes furniture, clothing, jewelry, tools of trade, one vehicle per person, two firearms per person, and farm animals and household pets.

Next Steps

Should you ever have to file for bankruptcy, hire a bankruptcy attorney who can guide you through the process. Even though your finances may be tight, hiring a bankruptcy lawyer can save you time and make sure that your interests are protected in the wake of your looming bankruptcy.

Will I lose my home if I go bankrupt?

If you file for bankruptcy and have two mortgages, it is possible to come out of the process with just one mortgage. In some cases, bankruptcy attorneys advise clients to walk away from the home, even if they file for bankruptcy. 


If you owe more than the home is worth, or if it would cost less to rent a different property, and so it may not be in your best interest to keep your home. 


In bankruptcy, you are allowed to surrender the property, but you must make that declaration during the bankruptcy process.

How can I sell my house fast when I'm in debt?

Owning, maintaining and paying a mortgage on a home can require a substantial financial commitment. Any changes to a homeowner’s financial situation can lead to real estate issues that could impact financial health for years.


In some cases, it may be wise to sell a property before negative equity builds up and before banks pursue foreclosure. Avoiding these real estate issues can save you stress, time and money.


DFW Professional Home Buyers provides fast solutions for people that may be experiencing financial strain related to home ownership. Deferred maintenance, loss of income, unwieldy property taxes and other hefty ownership costs can pile up and place a lot of pressure on homeowners.


If you see financial trouble coming down the road, consider avoiding it by selling your house fast to DFW Professional Home Buyers. We will be sensitive to your situation and will provide you with solutions for your unique real estate issues.


Contact DFW Professional Home Buyers today for more information regarding our various real estate solutions.

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