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Financial challenges may arise despite fewer bankruptcy filings

| Jun 25, 2021 | Debt Relief

Although Florida’s reaction to the ongoing health issues differed from many states in the nation, its residents were still impacted by financial problems because of it. Job loss, diminished income, needing to use credit cards to make ends meet and other strategies were common. Even as society incrementally returns to relative normalcy, there are still concerns about financial implications over the long term. For many, bankruptcy might be the wisest strategy to get into a better financial situation. This is true despite a statistical decrease in filings in 2021. Understanding why is key when deciding.

Experts express concern over “shadow debt”

There was an expectation that people would need to file for bankruptcy in significant numbers. However, that never came to pass in 2020. In fact, there was a 30% reduction from 2019. That is believed to have been due to various government programs to prevent debtors from going underwater. In 2021, this trend has continued. By May, there was a 29% reduction in filings from the same time in 2020. Researchers from MIT and Brigham Young University discuss “shadow debt” in which the debt from regular purchases is compounded over time by failure to pay rent, some medical expenses and checks that bounced.

Because many people do not file for bankruptcy immediately upon receiving notices that they are behind on their payments, they tend to dig a deeper financial hole for themselves. On average, debtors wait nearly two full years from getting a notification of failure to pay a debt until they file for a Chapter 7 liquidation or a Chapter 13 installment plan. A 2018 study found that two of three debtors admitted to seriously struggling with debt during that two-year window. For each month that people delayed filing, they accrued an average of $4,000 in unsecured debt. Shadow debt can rise to as much as $7,200 for each month delayed.

Discuss with professionals for valuable information

Whether the person simply wants to clear unsecured debt and move on while retaining a limited amount of property via Chapter 7 bankruptcy or wants to use a Chapter 13 to arrange a payment plan and keep properties like a home, knowing about shadow debt is imperative. Failing to file quickly tends to make matters worse than they need to be. Everyone’s case is different and there may be options available. Consulting with those experienced in all areas of bankruptcy and debt relief may be helpful.

 

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