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Knoxville Bankruptcy Law Blog

Shake off those tired, old bankruptcy myths

If your life is in financial turmoil, you may finally be considering filing for bankruptcy. The problem is, you have some doubts and fears. These are probably preconceived notions that just need ironing out.

While it is true that bankruptcy is not for everyone, there are advantages. To see these plainly, you need to get past some misconceptions. Here are four of the most common myths about bankruptcy:

Credit card debt ranks among common money mistakes

A recently published article looks at common money management errors people make at different stages of life. For many in Tennessee, credit card debt is definitely on that list. Unsurprisingly, credit card debt was also featured in the recently published article.

People in their 20s are often just getting started in life, finishing school and beginning their career path. Once they begin earning a steady paycheck, it is not uncommon for them to spend their hard-earned money on frivolous things like entertainment and the latest electronics. Before long, their credit card balances become inflated, and they begin to struggle to cover their minimum monthly payments. Some respond by opening even more lines of credit, making matters worse.

Chapter 7 bankruptcy for home-based businesses

It appears that many women who operated home-based businesses centered on selling Lularoe products have filed for bankruptcy. At least 24 Chapter 7 bankruptcy cases have been identified where the filer listed Lularoe as the business entity or part of the filer's home-based venture. For those in Tennessee who own and operate a business from home, a sudden change in market or other conditions could prompt a need to seek bankruptcy relief.

Lularoe is a company offering women's clothing and accessories. The company claims they have 80,000 independent retailers who sell its products. For most of the women who sought bankruptcy relief, their financial trajectory declined precipitously from 2015 onward.

Medical debt can come on suddenly and ruin the best laid plans

Tennessee residents can make all the right choices and still face an enormous burden of debt. That is especially true when it comes to medical debt. There are cases where an individual works for decades, sets aside savings and makes wise choices in purchasing a home and accumulating debt. A sudden injury or illness can throw all of that hard work away. 

A recent article looked at the experience of a retired locksmith who suddenly began vomiting blood one day. He sought medical treatment and found out that he needed a liver transplant. His medical bills mounted, eventually reaching $110,000. He eventually received the right diagnosis, sought treatment, recovered and went on to resume many of his normal daily activities.  

Borrowing money can sometimes help with debt management

When most Tennessee residents think about managing their debt, they envision a system under which taking on new debt is absolutely forbidden. In reality, however, signing on for a new loan may actually improve one's overall bottom line. That is especially true in terms of debt management and credit repair. An example is found in financing the purchase of a new automobile.

Even if an individual has set aside a chunk of money in savings, tapping into those funds may not be the best way to purchase a car. Often, the need for a new car arises out of an unplanned accident or high dollar auto repair need. Tapping into savings may make it possible to purchase a new vehicle without assuming additional debt, but it may leave one with absolutely no financial cushion to address any other unexpected money crunch.

Mortgage statistics suggest need for debt relief

Recently released statistics suggests that first-time homeowners are defaulting on their mortgages for the third straight month in a row. After months of stability, it appears that consumers are beginning to encounter financial difficulty. That could leave more individuals and families in need of debt relief services, in Tennessee and elsewhere.

Experts believe that part of the recent increase may be due to hurricane recovery needs in the south and southeastern areas of the nation. The Western region continues to struggle with wildfires, the effects of which are yet to be known. Hurricane damage alone has cost an estimated $70 billion in losses, including as many as 1 million lost automobiles. According to many, those numbers fail to include many everyday expenses that people take on when they are displaced from their homes. 

A payday loan may not be a good substitute for bankruptcy

It is not unusual, and sometimes it is worthy and commendable, for Tennessee residents to try almost anything to avoid bankruptcy. After all, responsible adults generally want to pay their just debts. Often, people try debt management programs, which can come with its own set of risks but at times can be effective.

When life, however, makes that impossible and the person has lost the ability to pay all bills due each month, sometimes people turn to an instrument known as a payday loan. Unfortunately, these loans often cause borrowers to repeatedly pay the high charges to continually refinance the debt, landing them in a payday debt trap.

Debt management and boosting your credit score

Most Tennessee residents are aware of the importance of developing and maintaining a positive credit score. This all-important number factors into virtually every lending decision, from securing a new auto loan to opening a new line of credit at a hardware store. For those in Tennessee who struggle with debt management, the impact that those struggles can have on credit scoring is often a concern. Fortunately, there are a number of steps that consumers can take to ensure that their credit scores shows an accurate picture of their financial history.

Consumers have the right to obtain copies of their credit reports held at all three credit bureaus. With those reports in hand, the next step should involve carefully checking each line of the report for accuracy. Note any discrepancies, and create a plan of attack for correcting errors or inaccurate information.

Taking care to prevent accusations of Chapter 7 bankruptcy fraud

Faced with mounting debt and a limited ability to repay those obligations, many Tennessee residents will consider seeking bankruptcy relief. For most, that process will be completely unfamiliar. Having never gone through a bankruptcy filing in the past, most consumers find the paperwork and other aspects of Chapter 7 bankruptcy overwhelming. While moving through the bankruptcy process, it is absolutely critical to avoid errors and omissions that can lead to accusations of fraud.

This topic is highlighted by recent charges against a former neurosurgeon in relation to his bankruptcy case. Prosecutors allege that the man intentionally acted to conceal assets and fraudulently transfer wealth to others to prevent financial loss during bankruptcy. Specifically, the man is accused of transferring more than $500,000 to another individual and acting to hide just over $300,000 as well as certain items of personal property.

Is Chapter 7 bankruptcy advice held back from some?

A recently published article takes a disturbing look at how bankruptcy services are made available to individuals who are in dire financial straits, and the picture that is painted is one of unfair treatment toward African Americans. The report focused on how African American residents in one Tennessee city were not counseled on their options when looking for bankruptcy services. In many cases, consumers ended up filing for Chapter 13, when Chapter 7 bankruptcy would have provided far better relief.

At the heart of the issue is how some Memphis residents are so desperate for debt relief that they are placed in a position where any financial relief is better than none at all. With their backs up against a financial wall, many of the city's poorest African American residents turn to companies offering to file a bankruptcy for a flat fee. In some cases, there is no up-front cost, and payments are accepted over a period of time.

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