So the crisis is approaching and you have a debt, what is the solution?
The crisis clock is ticking faster and faster, suggesting an imminently approaching financial recession that will leave obsolete not only countries’ treasuries but also consumers’ pockets. In order to slow down this process, some countries have already begun to adopt an accommodative policy before it was too far. Thus, last week, the Federal Reserve has announced the first interest rates cut in more than a decade. Theoretically, this action should have stimulated growth and get the economy back on track, but it didn’t happen…
In reality (at the time of writing), the S&P 500 decreased by 5,6 per cent in less than three trading days
, putting the equities benchmark on track for its biggest one-day drop since May 13 and a sixth consecutive day of declines. The index has already recorded the longest losing streak in 10 months. The Dow Jones Industrial Average
, in turn, lost around 5 per cent, whereas the Nasdaq Composite
fell 7 per cent in the same time interval (from August 1st to August 5th).
The Cboe’s Vix, an indicator that measures volatility, skyrocketed above 22 points for the first time since mid-May.
Finally yet importantly, US government debt has also felt the effects of an increasing instability, leaving the 10-year Treasury yield
down 22 basis points to 1.73 per cent. It has lost about 80 bps since the start of May due to an unsolved trade debacle and signs of a slowdown in the global economy have built.
Unfortunately, even if you have nothing to do with the stock market, eventually it will affect you. According to the study
, U.S. households lost on average nearly $5,800 in income
because of the reduced economic growth during the acute stage of the financial crisis from September 2008 through the end of 2009. Costs to the federal government due to its interventions to mitigate the financial crisis amounted to $2,050, on average, for each U.S. household.
Also, the combined peak loss from declining stock and home values totaled nearly $100,000, on average per U.S. household, during the July 2008 to March 2009 period.
In addition, the U.S. lost $3.4 trillion in real estate wealth
from July 2008 to March 2009 according to the Federal Reserve. This is roughly $30,300 per U.S. household
. Further, 500,000 additional foreclosures began during the acute phase of the financial crisis than were expected, based on the September 2008 CBO forecast. While 5.5 million more American jobs were lost due to slower economic growth
during the financial crisis than what was predicted by the September 2008 CBO forecast.
There is no doubt that debt has a significant impact on people’s lives and when country’s development is in question things become way worse. Sometimes it comes to the point where people are obliged to consolidate their debt and lower the interests they are paying. Here we come to the central topic of the article – is there way to stay above water or the only way out is through the window?
Long time ago a friend of mine told me that he had a loan and when he wasn’t able to pay it back, filed for personal bankruptcy. To say, I was shocked, is to say nothing. I was curious to learn more about this option and here is what I found.
Let me start from saying that bankruptcy is when you owe more than you can afford to pay. In order to be able to be determined as a bankrupt you will have to prove there is not enough funds to pay the debt out. The supervisor organism will check not only your financial information, but also inventory of all liquid assets you may possess. It includes retirement funds, stocks, bonds, real estate, vehicles, college savings accounts, and other non-bank account funds. In case you get green light, bankruptcy may be one of the best ways out of “the trenches”.
- the pressure is taken off you because you don’t have to deal with your creditors;
- you're allowed to keep certain things, like household goods and a reasonable amount to live on;
- creditors have to stop most types of court action to get their money back following a bankruptcy order;
- the money you owe can usually be written off.
Disadvantages of going bankrupt
To apply to go bankrupt you’ll need to pay a high fee. Additionally:
- if your income is high enough, you’ll be asked to make payments towards your debts for 3 years;
- it will be more difficult to take out credit while you're bankrupt and your credit rating will be affected for 6 years;
- if you own your home, it might have to be sold (but you may be able to apply to your local authority for re-housing);
- some of your possessions might have to be sold, for example, your car and any luxury items you own;
- if you are, or are about to be, the right age to get your pension savings, these might be taken;
- some professions don’t let people who have been made bankrupt carry on working;
- if you own a business it might be closed down and the assets sold off;
- going bankrupt can affect your immigration status;
- your bankruptcy will be published publicly (if you’re worried that you or your family might become victims of violence, you can ask your details not to be given out).
You should never forget that
In case of the United States of America, there are two main types of personal bankruptcy
: Chapter 13 and Chapter 7. Each must be filed in federal bankruptcy court. Filing fees are several hundred dollars. Attorney fees are extra and vary.
Chapter 13 allows people with a steady income to keep property, like a mortgaged house or a car, that they might otherwise lose through the bankruptcy process. In Chapter 13, the court approves a repayment plan that allows you to use your future income to pay off your debts during three to five years, rather than surrender any property. After you make all the payments under the plan, you receive a discharge of your debts.
Chapter 7 is known as straight bankruptcy; it involves liquidating all assets that are not exempt. Exempt property may include automobiles, work-related tools, and basic household furnishings. Some of your property may be sold by a court-appointed official, called a trustee, or turned over to your creditors.
Both types of bankruptcy may get rid of unsecured debts and stop foreclosures, repossessions, garnishments and utility shut-offs, as well as debt collection activities. Both also provide exemptions that let you keep certain assets, although exemption amounts vary by state. Personal bankruptcy usually does not erase child support, alimony, fines, taxes, and some student loan obligations. And, unless you have an acceptable plan to catch up on your debt under Chapter 13, bankruptcy usually does not allow you to keep property when your creditor has an unpaid mortgage or security lien on it.
It is worth mentioning that there are types of debt that bankruptcy can't eliminate.
- Most student loan debt (although some members of Congress are working to change this).
- Court-ordered alimony.
- Court-ordered child support.
- Reaffirmed debt.
- A federal tax lien for taxes owed to the U.S. government.
- Government fines or penalties.
- Court fines and penalties.
Still, you should not forget about the possible consequences of bankruptcy. It is quite obvious that bankruptcy proceedings may require you to give up possessions for sale in order to repay creditors. Under certain circumstances, bankruptcy can mean losing real estate, vehicles, jewelry, antique furnishings and other types of possessions.
What happens if you transfer property out of your name before bankruptcy?
If you give away
any property before you file for bankruptcy, you must disclose that you did so. The bankruptcy trustee can take action to recover the property you transferred if the transfer occurred within two years before you filed your bankruptcy. If you transferred title in a vehicle to a relative to keep it out of bankruptcy so that the trustee couldn’t sell it for the benefit of your creditors, the trustee would likely file a fraudulent transfer lawsuit
to recover the car.
Finally, bankruptcy damages your credit. Bankruptcies are considered negative information on your credit report, and can affect how future lenders view you. Seeing a bankruptcy on your credit file may prompt creditors to decline extending you credit or to offer you higher interest rates and less favorable terms if they do decide to give you credit.
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