Many Americans living on financial edge, report finds

The recession of recent years has deeply affected many Americans' pocketbooks. A recent report from the Corporation for Enterprise Development has made this fact poignantly clear.

The report found that about 43.9 percent of American households are teetering on the edge of financial collapse. The reason for this is that this group of households is "liquid asset poor," meaning that their savings are insufficient to live at the federal poverty level for three months in the event of a financial emergency, such as unexpected medical expenses or a job loss. Even worse, in 26 percent of such households, there were more debts than assets, making the household "net worth asset poor."

It may be tempting to write these findings off as a problem of the very poor, but shockingly, the report found this isn't the case. It was discovered that many middle class households (those making incomes of $55,465 through $90,000) did not have sufficient emergency savings, thus qualifying as "liquid asset poor."

As many financial experts in the past have noted, emergency savings are important bulwarks against homelessness and foreclosure. Households without sufficient protection against the curveballs that life can throw can easily get into a seemingly hopeless financial situation.

Bankruptcy can offer hope

As hopeless as many financial situations may seem, that is rarely the case. Bankruptcy can offer a solution is many such situations, by offering debtors a discharge of the obligation to pay back many types of debt, such as medical bills and credit card debt.

Individual bankruptcy filers typically can choose between Chapter 7 and Chapter 13 bankruptcy. In Chapter 7, the debtor's nonexempt property is liquidated in a sale with the proceeds going towards his or her debts. Although this may sound extreme, Chapter 7 debtors typically have little nonexempt property. In fact, important property such as the primary residence or a car is exempt from being sold. At the completion of the sale, the debtor receives a discharge of many types of his or her debt.

On the other hand, in Chapter 13 bankruptcy, there is no sale, allowing the debtor to keep his or her property (and stop foreclosure). Instead, the debtor's debts are consolidated into a payment plan. Under the plan, the debtor makes monthly payments of all or part of his or her debts over a three to five-year period. The amount the debtor must pay each month depends on his or her disposable income. Once the plan has been completed, the court grants the debtor a discharge of most remaining debt.

A bankruptcy attorney can help

If you are overwhelmed by debt because of a sudden financial emergency, it is wise to contact an experienced bankruptcy attorney. An attorney can consider your individual situation and advise you of the debt relief options that would work for you.