People in Connecticut who are considering bankruptcy might be concerned that it will have a permanent effect on their credit and even on their job prospects. However, a study that will appear in the Journal of Finance has found that this is not the case.
Connecticut residents who tuned into the Democratic presidential debate on Jan. 14 will likely have heard Senator Bernie Sanders address the issue of medical debt. Sanders said that half a million Americans turn to bankruptcy each year because they are unable to pay doctor or hospital bills, and a 2018 Consumer Bankruptcy Project study backs up this number. After studying 910 personal bankruptcies filed between 2013 and 2016, the CBP concluded that about 65% of all personal bankruptcies in the United States are linked to medical debt in some way.
Connecticut consumers can file for Chapter 13 bankruptcy regardless of their income. However, they must have no more than $1,257,850 in secured debts and no more than $419,275 in unsecured debts at the time that they file. Those who are looking to file for Chapter 13 bankruptcy will also need to verify where their income comes from, and it will be necessary for a debtor to show that he or she has filed all necessary income tax returns for the past four years.
Medical costs continue to rise, in Connecticut and across the country, and many people have been forced to take on or carry debt in order to afford necessary health care. There are ways that people can avoid putting medical bills on their credit cards or reduce the amounts that they need to charge. Among them are insurance options, paying down existing debts, payment plans and using cards as a last resort only.
Older adults in Connecticut could be at risk of bankruptcy because of medical debt. When people who are older file for bankruptcy as a result of medical bills, they have usually run out of savings. Many are either not working at all or working reduced hours, so their income is limited. In 1991, just 2% of bankruptcy filers were 65 and over compared to 12% now.
Connecticut residents who have bills that they are unable to pay often deal with daily phone calls or letters from banks, credit card companies and debt collectors, but state law places strict limits on how long creditors can pursue unpaid debts in court. The statute of limitations for unpaid debts is six years in Connecticut, but consumers who are struggling with unmanageable financial situations are sometimes confused about this timeline and when the clock starts to run.
Many people in Connecticut are struggling to make ends meet. They may suffer significant credit problems as well as collector calls and ongoing harassment when dealing with substantial amounts of unrepayable debt. While personal bankruptcy can offer a path to relief, many may be hesitant to take the step to file because they are concerned about the effects on their credit reports. People who are unable to pay their bills may already be suffering from bad credit scores, and the effects of bankruptcy can be different depending on each person's situation.
People in Connecticut and across the country are facing an increasing burden of credit card balances. According to a credit card debt study by WalletHub, Americans began 2019 owing over $1 trillion in credit card bills. In the second quarter of 2019, consumers nationwide accumulated $35.6 billion in credit card debt, a national record for a one-quarter increase in debt. Over the year to come, the study estimated that another $70 billion in debt would be accumulated. Connecticut ranked 26th in the country in terms of debt accumulated, falling roughly in the middle of the pack.
Military veterans in Connecticut may be at particular risk for financial problems and challenges in their years after leaving the armed services. These challenges can be exacerbated for disabled veterans who rely on military benefits to pay the bills. Veterans may find themselves facing significant debt that they are unable to repay, and filing for bankruptcy can be an important way to seek relief. Around 15% of filers for both Chapter 7 and Chapter 13 personal bankruptcy are military veterans; however, veterans comprise only 10% of the overall population. In 2017 alone, around 125,000 American veterans filed for personal bankruptcy.
Debtors who are thinking about bankruptcy will generally choose between filing for Chapter 7 or Chapter 13 protection. Connecticut residents who want to pursue a Chapter 7 case will need to take a means test to verify that they cannot repay their debts. If an applicant passes a means test, assets will be liquidated with any money raised going to repay creditors.