With the stock market and the economy at an all-time high, how are Washington state consumers really doing day today and are consumers headed for bankruptcy in 2018? As a Seattle bankruptcy attorney, I have a good idea of how every day Washingtonians are doing in the current economy. While Seattle has grown in size and wealth in the last 5 years, so has the cost of living, driving many consumers to pick up and move or file for bankruptcy just to stay afloat.
Recent national statistics and economics support a theory that the economy simply cannot keep going the way it is going forever. In fact, in the last 5 years wages have remained stagnant, while most types of debt ballooned out of control. Prior to the financial crash, there was a 65% percent increase in overall debt, mostly attributed to mortgage accounts that consumers could not afford, while there was not a whole lot of growth in other debt areas according to the Bureau of Labor Statistics.
After the financial crash of 2008 and in the following 5 years, America has seen significant increases in auto loans (78% increase) and student loan debt (72% Increase), while credit debt continues to rise to pre-financial crash numbers. So, with stagnant wages and increased costs of living, there is now likely the lowest available disposable income in recent history available to the average person in which to service these debts or set aside savings for retirement.
So What Are Options for Washington State Consumers to Deal With Debt?
(1) Move to a lower cost of living location
While this may not be preferred, it is a product of the economy we live in. Native Seattleites and millennials are being pushed out from the city in Search of more affordable housing in order to service their debts. Many are moving back in with parents or moving to a different city or different state as Seattle is now the 6th most expensive city in the country.
(2) Eliminate Your Debt Through Bankruptcy
If you have decided that you are staying in Seattle or a similarly expensive city, whether it be for work or personal reasons, then you need a plan to create more disposable income in which to save for retirement or perhaps for a down payment on your own home, which these days is likely cheaper than renting an apartment with the added benefit of building equity as the economy continues to grow. This way you have your money working for you, rather than you working just to pay rent.
If you qualify, you can eliminate unsecured and unwanted credit, medical, auto loan debt, setting you up for a future in which you can buy that home, perhaps even in a year or two from the date you file a bankruptcy case. Most debts will be eliminated setting you up for a fresh start. In a chapter 7 bankruptcy your case could be completed in 90 days whereas a chapter 13 bankruptcy repayment plan last 3-5 years and is usually filed by those who’s income is higher than the states median income and they don’t qualify for chapter 7 or they are looking to make up payments they fell behind on a house. The amount you would need to pay back is based on your available disposable income determined by something call the means test. Either way, you would be setting yourself up for a fresh start in the future.
(3) Settle your Debts for Less Than the Full Balance
If you have savings or help from family, you are delinquent on your debts, and have a hardship for why you can’t make monthly payments, you may be able to negotiate settlements of 50% or less on certain unsecured credit debts. In general credit unions are harder to negotiate with as well as medical but it still may be possible if you have a lump sum payment to offer. This is better than just making monthly payments that continue to accrue interest increasing the amounts you pay out.
(4) What about Student Loans?
If you are part of the 78% massive increase in student loan debt over the last 5 years from the crash then you are probably wondering what you should do with your student loans. All types of student loans in most cases are not dischargeable in bankruptcy. Therefore, for federal student loans I would advise signing up for an income based repayment plan where you get credit for your payments every year and they will be eventually be forgiven after 20-25 years depending on the plan you qualify for. There is also public service forgiveness where they could be forgiven in 10 years if you qualify and if the government does not meddle in this program to take this option away. If you are on a plan you should not be paying more than you can afford and you can go back to living your life.
If, however your student loans are private, these are some of the worst types of debt you can have as banks are not required to give you an income repayment plan or reasonable repayment plan. Therefore, I would advise, if at all possible, eliminating these debts as fast as you can. In many cases these debts will settle significantly lower than the full balance, so a lump sum settlement is the best way to knock these out, otherwise they could linger for many years. If you do have good credit you could check to see if you qualify for a loan or other refinance program to see if you can raise funds to get out of these student loans. At least other loans may not be subjected to being non-dischargeable in bankruptcy.
(5) Don’t Buy Cars You Can’t Afford
Yes, I know, everybody wants the latest and greatest cars, but is it really worth it. Auto debt has skyrocketed out of control at higher interest rates and many consumers putting loans on top of loans when they trade in a vehicle, making the vehicle significantly under water the moment you walk off the lot. Keep your payments reasonable and if you can’t afford the car or it is significantly under water you can give it back and consider bankruptcy options to start fresh so this debt won’t continue to follow you and balloon out of control.
While the economy seems to appear to hum along and be on the upswing, eventually I believe as do many economists, that the market must correct, and when it does, many consumers will be left holding the bag. While it may not happen tomorrow, it could happen in 6 months, a year or two years and by unknown or known events. Consumers should prepare for that day now and set themselves up for success in the future by knowing about their options now.
If you live in Washington State and are looking for assistance with figuring out your bankruptcy or debt settlement options, give Symmes Law Group a call at 206-682-7975 to speak to a bankruptcy attorney today.