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Two-thirds of Americans have made at least one major financial error

Two out of three middle-class Americans have made a major financial mistake at some point in their lives, according to a recent report by the Consumer Federation of America and Primerica, and nearly half say they have done so more than once.

The report, titled "The Financial Status and Decision-Making of the American Middle Class," revealed that 67 percent of Americans with annual household incomes of $30,000 to $100,000 said they have made at least one "really bad financial decision." Most of those surveyed had lost around $5,000 due to their monetary blunders, but a few had made mistakes that were far more costly - bringing the average loss to a whopping $23,000.

For high earners, mistakes are fewer but more costly

For Americans with incomes above $100,000 per year, the prevalence of major financial mistakes was slightly lower, with 61 percent saying they had made at least one big money misstep. However, while the errors were somewhat less common in the upper income bracket, they tended to come with a much higher price tag: High earners who reported financial mistakes lost an average of $61,000.

There are a wide variety of factors that may contribute to a family's financial distress, including job loss, major illness or injury, market fluctuations and even fraud. With so many Americans struggling to make ends meet in today's tough economy, the silver lining is that those who find themselves in dire financial straits may be less likely to feel ashamed or stigmatized because of their money problems, which are often beyond their control.

Bankruptcy may offer a fresh start

For some people experiencing financial distress, bankruptcy can provide a valuable opportunity to leave past errors behind and make a fresh financial start. There are different types of bankruptcy for different situations, each with its own set of pros and cons. Some types of bankruptcy are used mainly by businesses, while others are used primarily by families and individuals. The two main types of consumer bankruptcy are Chapter 7 and Chapter 13.

During Chapter 7 bankruptcy, which is often referred to as "liquidation," a person may be required to surrender certain assets in exchange for debt forgiveness. However, because many types of property are "exempt" from seizure during Chapter 7 bankruptcy, people are often able to file for Chapter 7 bankruptcy without forfeiting any property at all.

During Chapter 13 bankruptcy, which is also known as "reorganization," people are generally not required to surrender their assets in order to get out of debt. Instead, their debts are restructured and paid off over a period of three to five years according to a court-approved payment plan. At the end of the repayment period, certain remaining debts may be discharged.

Seek legal advice if debt becomes unmanageable

Although bankruptcy has helped many families and individuals to get out of debt and regain their financial standing, it is not the right solution for everyone. To learn more about the different forms of bankruptcy and to discuss whether bankruptcy could work for you, contact an experienced bankruptcy lawyer in your area.

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