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Understanding Good and Bad Debt When Considering Bankruptcy in Mankato, MN

September 23rd, 2016 · No Comments

Our consumerist culture, in combination with the demands of supporting a household or business, offers numerous opportunities to fall into debt. Credit cards, cars, and homes are common culprits that cause debt. What we frequently see in the clients that come to Behm Law Group Ltd. for legal advice and assistance with bankruptcy is a difficulty in distinguishing between types of debt. While all debt adds stress and financial obligations to your everyday life, the difference between good debt and bad debt could determine how you file for bankruptcy in Mankato, MN.

The normal debts that people acquire throughout their lives are generally categorized as “good” or “bad” debts. These types of debts are defined in simple terms, but are more complicated in the real world than they are on paper.

Good Debt:

Generally speaking, good debts are described as investments. Mortgages, student loans, business loans, and real estate loans are common examples of investment debts that have potential to increase in value over time. The concept of spending money to make money stems from the existence of investment-based debts.

For example, a mortgage may add to your financial responsibilities for several years, but in time, the value of the mortgaged property will increase and can be resold for a significant profit. Student loan debts are considered investments based on the idea that those with a degree statistically earn a greater income than those without.

Bad Debt:

The exponential growth in the use of credit-based payments as monetary value has continually increased cases of bad debt. Credit cards and store credit are common sources of consumer debt. Just as good debts are investments, bad debts are forms of divestment, meaning that from the moment they are obtained, they will consistently decrease in value and, very possibly, diminish the overall strength of one’s financial condition.

One example of a bad debt that almost every US citizen will handle throughout their lives is an auto loan. Even without a loan, cars themselves are almost always money pits that significantly depreciate over time. However, cars are also often a necessity of life, and there are many types of auto loans that are discharged in bankruptcy.

When filing for bankruptcy in Mankato, MN, the good and bad debts eligible for discharge will vary based on several factors. For legal help during your bankruptcy filing, contact Behm Law Group Ltd. at (507) 387-7200.

 

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