The decision to declare bankruptcy is not an easy one to make. Once you have chosen to commit to the process, it is normal to have a lot of questions about this unfamiliar undertaking.
You may already understand the difference between Chapter 7 and Chapter 13 bankruptcy, but something you may not have encountered before is preference law. If you are about to move forward with a Chapter 7 bankruptcy case, this policy may impact recent debt payments.
People in Mississippi who are struggling with debt may be among the nearly one-third of people who filed for Chapter 7 bankruptcy with student loan debt. This was one finding in a study by LendEDU. The same study also found that among that group, on average, almost half of their total debt constitutes student loans. These figures do not include people who filed for Chapter 13 bankruptcy, which involves creating a payment plan.
The cost of going to college, along with student loan debt, has skyrocketed in the past several years. While it would take baby boomers just over 300 hours at minimum wage to pay off a four-year college education, millennials would need to work more than 4,400 hours. Since student loans generally cannot be discharged in a bankruptcy, even after filing, people may be facing a significant debt burden. However, discharging credit card and other debt may allow them to free up income to pay off their loans.
Young people in Mississippi and around the country are finding it increasingly difficult to manage their revolving debt according to the New York Federal Reserve's most recent Quarterly Report on Household Debt and Credit. The report reveals that more than 8% of the credit card balances owed by Americans between 18 and 29 years of age are 90 days or longer past due. This is the highest rate of delinquency since 2011 when the economy was still recovering from the Great Recession.
Financial experts say that rising interest rates are likely responsible. The Federal Reserve raised the cost of borrowing several times in 2018, and the average credit card interest rate for consumers with good credit is now 18%. Those with troubled credit histories often pay as much as 25% interest on their revolving debt. Higher interest rates also make it more difficult to escape the credit card debt trap. Six out of 10 Americans with credit cards carry a balance, and more than half of them have done so for a year or longer.
People in Mississippi may be aided in finding relief from overzealous creditors by a U.S. Supreme Court ruling. The high court ruled on June 3 that creditors can be held in contempt of court if they continue to pursue debts that were clearly discharged in a bankruptcy. Previously, the Ninth Circuit court had found that creditors should be cleared of sanctions in these cases, even if they should have reasonably known that the bankruptcy discharge applied to their debt.
The Supreme Court said that other courts can use civil contempt penalties against creditors that fail to follow a bankruptcy discharge order if it can be shown that the creditor should not have had any doubts that the order barred their activities. The case came about after the Sherwood Park Business Center continued to attempt to collect debts from a man who had filed for Chapter 7 bankruptcy, eliminating the debt. The bankruptcy court imposed sanctions on the creditor, saying that it was aware of the man's bankruptcy order and the debt's discharge. However, other courts overturned the contempt order on the basis of the creditor's statement of its good faith in the legitimacy of its collection attempt.
Lots of Mississippi residents are facing an ever-growing amount of debt. As credit card bills, auto loans, personal loans and medical bills start to mount, it can be difficult to find a way to pay everything back. This is especially true for those who have had a significant change in financial circumstances due to job loss, divorce or other factors. Personal bankruptcy can be an important method for eliminating debts and moving forward toward a new financial future.
There are both advantages and disadvantages to pursuing Chapter 7 bankruptcy. On the one hand, many people hesitate before filing because they are concerned that they will see their credit rating destroyed. After all, the bankruptcy remains on a credit report for 10 years. However, some individuals who file for bankruptcy already have severely damaged credit. When one is unable to pay their bills, waiting to declare bankruptcy may actually lead to a longer period of bad credit.
Making the decision to file for bankruptcy in Mississippi is not one you should make lightly. Nor should you wait too long to file. Though you may have ambivalent feelings about your financial situation and at times feel that things are not as bad as they may seem, waiting too long to take action can make your circumstances more challenging to manage in the short- and long-term.
No one enjoys struggling with debt and receiving constant demands for payment from creditors. Unfortunately, it is a reality for many households across the country. The sooner you seek professional intervention and consider bankruptcy as a solution, the less likely you will fall prey to the pitfalls of delayed action. Here are some common reasons people procrastinate about filing for bankruptcy.
Readers in Mississippi who are struggling to pay down debts might turn to bankruptcy protection for help. Increasingly, people are filing Chapter 7 or Chapter 13 bankruptcy due to medical debts. According to a study by academic researchers, 66.5% of bankruptcy filings occurred for medical reasons. The filers either could not afford to pay high medical bills, or they missed work for medical issues. Approximately 530,000 families file for bankruptcy annually because of medical expenses, illness or injury, according to the research.
There were several other common reasons for bankruptcy filings cited by the study. Foreclosures and unaffordable mortgages were factors in 45% of filings. Living beyond one's means or spending excessively were factors in 44.4% of filings. Helping relatives or friends contributed to bankruptcy in 28.4% of the instances, student loan debt was a factor in 25.4% of the cases and separation or divorce contributed to 24.4% of the filings.
For many people in Mississippi, student loans have offered a pathway to future career success. Excessive student loan debts, however, have proven burdensome for many people in recent years. Nationwide, outstanding student loan balances will likely hit $2 trillion by 2020. Delinquency or outright default afflicts over one-quarter of student loan borrowers today. Due to the inescapability of these debts, a group of lawmakers has proposed the Student Borrower Bankruptcy Relief Act of 2019.
If passed, the law would clarify the conditions that qualify a borrower for bankruptcy discharge of student loans. A previous reform to federal bankruptcy law installed a vague standard known as undue hardship that could allow someone to gain relief from student loan debt through bankruptcy. The law failed to create a clear definition of undue hardship, which has been left to the whims of judges. Without a clear definition, judges have made inconsistent decisions. In this unpredictable environment, debtors have few options for dealing with student loans that they cannot repay.
If a proposed rule by the Consumer Financial Protection Bureau takes effect, debtors in Mississippi and elsewhere may be hearing a lot less from creditors. The rule would amend the Fair Debt Collection Practices Act to limit debt collectors to seven phone calls to a debtor per week. Debt collectors would also be required to send a written notice containing information about a debt balance and how to dispute it.
There are already a number of limitations placed on debt collectors under the terms of the FDCPA. For instance, they are only allowed to contact debtors during certain hours of the day, and they cannot threaten to sue a person after the statute of limitations to collect the debt has ended.
Mississippi residents who are coping difficult financial situations are often reluctant to pursue debt relief because they are worried about what a bankruptcy will do to their credit ratings. While a Chapter 13 bankruptcy will appear on credit reports for seven years and a Chapter 7 bankruptcy will show up for 10 years, how they actually affect borrowing is more influenced by the actions taken after a bankruptcy has been discharged.
Many people are surprised to learn that filing for bankruptcy actually improves credit ratings in many cases. It is widely believed that credit ratings are based solely on payment histories. However, the amount of debt an individual has is another crucial factor in calculating credit scores. When bankruptcies are discharged, the amount of debt is usually reduced and credit scores may actually go up.
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O'Brien Law Firm, LLC
1630 Goodman Road East, Suite 5
Southaven,
MS
38671
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