When the financial crisis was at its peak, almost 1.6 million people in California and the rest of the United States filed for bankruptcy. Almost one decade later, the number of filings is less than 800,000. However, the difference in the number of filings is not an indication of economic health by itself.
California residents who are struggling to cope financially will likely know that debt collection companies can be extremely aggressive. A study conducted by the Consumer Financial Protection Bureau revealed that one in four of the 70 million Americans who have had dealings with debt collectors felt threatened. It is often the possibility of legal action that causes the most concern. However, there are several things that consumers can do if they are sued over an unpaid bill.
According to a survey from The Ascent, 10% of respondents said that they had six or more credit cards. While having multiple credit cards can pose problems for California residents, there can also be benefits to having multiple cards. One of the key benefits is the ability to quickly raise a credit score as an individual will make multiple payments over a short period of time.
Student loan debt is increasingly driving people in California to file for bankruptcy. According to a study conducted by LendEDU, 32 percent of people who file for bankruptcy under Chapter 7 have student loan debt. Among those who file for Chapter 7 bankruptcy and carry student loan debt, that debt made up, on average, 49 percent of their total outstanding debt. LendEDU examined 1,083 bankruptcy cases in the study.
While there are a number of reasons why California residents can face financial trouble, one stands out as the leading cause of personal bankruptcy in the United States. Medical debt is the most common reason cited for bankruptcy filings. A full two-thirds of all cases are linked to medical bills, with costly mortgages and consumer spending coming in as the next most common problems. While some may expect that health insurance will free people from serious medical debt, many of the people facing costly bills are already insured.
Most of the people in California and around the country who file personal bankruptcies each year do so because of medical debt, and many of them found themselves overwhelmed by bills despite having health insurance. Common reasons for hospital and doctor bills not being covered include getting treatment from out-of-network providers and visiting a specialist without first getting a referral from an in-network physician. Health insurance companies usually have fierce cost-control measures in place, and they often look for ways to deny claims.
California residents and others who are diagnosed with cancer may incur significant debt in an effort to overcome their illnesses. However, it may be possible to reduce or eliminate that debt by declaring bankruptcy. Furthermore, individuals may get relief from creditor phone calls, letters and other collection activities when they file. This ban on collection activities may provide emotional relief on top of the financial relief that may be available.
Consumers in California and throughout the country may be entitled to have some of their unsecured debts wiped out in bankruptcy. As a general rule, bankruptcy is available to honest debtors who are looking for a fresh start. However, there are many factors that a bankruptcy court may need to consider if debts were the result of fraud or similar activities. Specifically, debts may be not be discharged if they were accrued because of fraudulent conduct while acting as a fiduciary.
Many people in California are struggling under a significant debt burden that they may find themselves unable to repay. This is reflected in statistics in the credit-card industry that show that the rate of bad debt is climbing for people across the country. The rate of charge-offs, loans that the credit card companies have declared that they never expect to collect, rose to its highest level in nearly seven years in the first quarter of 2019. The figure rose to 3.82 percent, marking the largest share of unrepayable loans since the second quarter of 2012. This came together with statistics showing that loans 30 days past due also increased at the seven largest credit card companies.
Many people in California find bankruptcy a potentially appealing option, but they are worried about the long-term effects on their credit scores. After all, Chapter 7 bankruptcies remain on a person's credit report for 10 years while Chapter 13 bankruptcies, with payment plans and debt restructuring, persist for 7 years. Indeed, bankruptcy can damage a person's credit report significantly. However, at the same time, it is important to note that most people who are considering bankruptcy are already suffering from bad credit that makes it difficult to obtain credit cards, mortgages or loans.