Not unlike consumers, many states are struggling to pay their debts, balance the budget and fund significant budget shortfalls. Congress is currently considering an option that would allow financially hurting states, like Texas, to file for federal bankruptcy.
Currently, the law requires that Texas have a balanced budget each year. That means that a budget shortfall leads to significant cuts in government spending. This year alone, Texas is facing a $27 billion deficit that needs to be accounted for with serious cuts in spending. A provision that would allow the state to file for bankruptcy would effectively provide Texas with a bailout of that $27 billion. The state wouldn't be required to pay back those debts.
As Congress considers this option, the backlash to government funded bankruptcy for states has been swift in Texas. Many politicians feel that the financial crisis in states throughout the country is the result of poor fiscal management. Providing Texas with the option to walk away from debts gives consumers a bad example, critics say. Also, previous budget deficits have been tackled by cutting back, rather than discharging the debt.
Personal Bankruptcy Provides Significant Benefits to Individuals
In the coming weeks politicians will be tasked to debate the pros and cons of allowing states to file for bankruptcy. Luckily for cash-strapped individuals, bankruptcy is already an option. Filing for bankruptcy offers significant benefits if you are struggling with high debt. Chapter 7 bankruptcy and Chapter 13 bankruptcy allows you to discharge debt or create a repayment plan that makes sense to repay debts based on assets and income.
There are many hardships that can propel an otherwise bill-paying person to turn to bankruptcy as a way out of the stress and anxiety. Medical bills, high credit card debt, unemployment and underemployment all can make it very difficult for you to pay your obligations.
Bankruptcy is also an important way to stop creditor harassment. Once you are behind on payments, creditors may call incessantly, show up at the home or place of employment and issue threats. Filing for bankruptcy, either Chapter 7 or Chapter 13, places an automatic stay on creditors that halts all collections, preventing all creditors from bothering you further.
Another benefit of filing for bankruptcy is that it may save your home from foreclosure. If you are behind on your mortgage payments, bankruptcy may allow you to keep your residential home.
Financial hardship creates significant challenges for thousands of Americans, just as it does for the Lone Star state government. While there is not a current option for states to discharge debt, you can turn to bankruptcy as a way to be free of burdensome debt.
