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Typical bankruptcy debt types and time frames

On Behalf of | Jun 22, 2021 | Bankruptcy

Bankruptcy courts may discharge most consumer debts including credit cards, certain medical expenses and personal loans. Debts that filers may still have an obligation to pay include a mortgage and student loans. 

Bankruptcy generally does not discharge debts not listed on a credit report such as unpaid rent or bounced checks. As reported by MarketWatch, university researchers discovered that these “shadow debts” may increase by more than $7,000 each month they remain unpaid. Because of these non-listed debts, individuals facing financial difficulties may owe as much as $240,000 by the time they file for bankruptcy. 

Many debtors wait almost two years before filing

On average, individuals wait 22 months to file a bankruptcy petition after they receive their first notice of a 90-day past-due balance. By this time, most individuals’ credit scores have dropped to a level where obtaining any new credit is difficult or no longer an option. 

In addition to reducing a credit score, each month that a new billing statement arrives could show past-due balances growing increasingly unmanageable. The additional penalties and accumulated interest on certain credit cards, for example, may accrue at much higher rates for delinquent accounts. 

How creditors might force debtors into bankruptcy

When debtors have unpaid consumer debts or medical bills, they may receive repeated phone calls and collection letters from creditors. As noted by U.S. News and World Report, if a creditor sues for payment, a debtor may wish to consider a bankruptcy petition to avoid facing further legal action such as a wage garnishment or a seized bank account. 

If there are no financial options left to resume making payments, bankruptcy may reflect a workable solution. Filing a petition may provide an opportunity to move forward without the burden of overwhelming consumer debts.