Causes of Debt

There are many different causes of debt. The TV quiz show Jeopardy! recently addressed five types.

Student loans

Seven in ten students graduate with student loan debt, which is now bigger than both auto loans and credit cards. And student loan debt is the most collectible cause of debt there is. Student loans are nondischargeable in bankruptcy. And student lenders can garnish wages and intercept your tax refunds, with or without lawsuit. One analysis says that those who graduated in 2012 with student loans had an average of almost $30,000. Lee Legal believes it is time to bring back student loan dischargeability in bankruptcy.

HELOCs

Be careful with getting a HELOC, or home equity line of credit–your house could go bye-bye. Unlike mortgages, which are originated at the time of purchase of a home, a HELOC is a loan that is secured by the equity built up in a property post-purchase. A home is most often a person’s most valuable asset, so using it as collateral for an additional loan is risky. If you default on a HELOC, then just like the mortgage lender, the HELOC lender can initiate foreclosure. You can strip off a HELOC in Chapter 13 bankruptcy or discharge it in Chapter 7 bankruptcy.

Gambling

The National Council on Problem Gambling says that that problem gambling affects six to nine million Americans. Gambling is a form of entertainment for some, but a serious addiction for others, and this cause of debt can rack up fast. Although gambling debts are generally dischargeable in bankruptcy, but there are “luxury goods” and “cash advances” exceptions to discharge. And all gambling debts incurred within a year of filing must be disclosed in the Statement of Financial Affairs.

Payday loans

The short duration of these payday loans, given in advance of your next work check, means very high fees. I have previously written on payday loans here and here. Payday loans are rarely a wise financial decision to make. And the lenders who issue these loans are usurious, ruthless, and many times unethical. Payday loans, however, can be discharged in bankruptcy like most other unsecured debts.

Medical bills

A study found that medical bills contributed to 62% of personal bankruptcies in 2007. Medical debt, like most other unsecured debts, can be eliminated in both Chapter 7 and Chapter 13 bankruptcy.

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About Brian V. Lee 563 Articles
Brian V. Lee provides bankruptcy, foreclosure defense, business turnaround, and litigation services to clients in the District of Columbia, Virginia, and Maryland. Brian was the Washington, D.C. state chair of the National Association of Consumer Bankruptcy Attorneys from 2016 to 2018.