Mississippi residents have helped Americans as a whole generate a total of over $1 trillion in credit card debt. Those who want to pay off that debt have several options to do so. However, the best option may be to start with the credit card that has the highest interest rate. This is because reducing the principal balance on that card also reduces the amount of interest paid to a lender.
Ultimately, people will be able to pay their debt down faster if more of each payment goes toward the principal instead of interest. Once a credit card balance is paid off, a debtor will then start paying down the balance with the next highest interest rate. While it may take longer to pay down a debt using this method, it will save a person money in the long run.
To speed up the process of paying down credit card balances, they should be transferred to a card that has a zero percent introductory interest rate. This will result in all of a given payment going toward the principal balance. Another way to pay down debt faster is to make payments every two weeks instead of once a month. Doing so means making the equivalent to 13 monthly payments, and that can also result in more money going to the principal balance.
Individuals who are looking to eliminate debt may do so by filing for Chapter 7 bankruptcy. Credit card debt can often be discharged without a debtor paying any of the outstanding balance. Once a debt is discharged, a debtor has no obligation to repay it. In most cases, a debtor is entitled to an automatic stay of creditor contact after filing for bankruptcy.
Going into debt is a normal part of life for most Americans. Significant purchases such as a house or car usually require loans. Emergencies happen, medical or otherwise, and you may have to max out your credit cards. The causes of debt are numerous.
As the numbers rise, you may wonder if you should start to worry about the debt you are in. When can you tell your debt has become a problem? When should you start considering filing for bankruptcy?
Signs of too much debt
A simple calculation you can do is to compare how much debt you pay each month to how much you make each month to find your debt-to-income ratio. Add up your recurring monthly debts and divide it by your gross monthly income. Multiply the answer by 100 to get a percentage. The cutoff of what is bad differs between financial institutions and experts, but generally speaking, a number above 43 percent is a red flag.
This ratio is not solid proof, however. Other signs include:
Low credit scores and high interest rates may also reflect your financial state.
When to file for bankruptcy
Not every debt situation requires bankruptcy. Another option may be better for your circumstances. Bankruptcy may be best for long-lasting financial troubles, there exists a risk of losing assets or a lender is garnishing your wages. Also, most of your debt needs to be eligible for bankruptcy.
Perhaps you are about to petition for either Chapter 7 or Chapter 13 bankruptcy protection. Within a few weeks of your filing date, you must attend the 341 meeting.
This is sometimes called the meeting of creditors, but there is another aspect to it: The 341 meeting is a major stop on your bankruptcy journey because you will meet your trustee.
Acting under the U.S. Bankruptcy Code
The United States Bankruptcy Code requires you, as the debtor, to attend the 341 meeting, the initial meeting of creditors. The name comes from Section 341 of the Code. The trustee assigned to your case from the Office of the United States Trustee will conduct the hearing. He or she will want information that makes your bankruptcy administration go as smoothly as possible. Therefore, you must truthfully answer questions under oath. The trustee will also want to ensure you understand both the positive and negative effects of a bankruptcy filing.
The Office of the U.S. Trustee will notify your creditors of the time and place for your 341 meeting. Creditors may attend and ask you questions concerning your bankruptcy; for example, they can inquire about the type and location of your assets. However, creditors rarely come to these meetings. They do not waive their rights if they choose not to appear.
What to bring
Your attorney will accompany you to the 341 meeting and provide documents the trustee needs. Every bankruptcy proceeding is different, but, among other items, trustees usually expect to receive federal and state tax returns, payroll information, bank statements and perhaps a property tax card for any real estate owned. The only items you must bring with you are your Social Security card and a government-issued photo ID, such as your passport or driver’s license. Keep in mind that the 341 meeting is held outside of court and no judge will be present. Despite the fact that the hearing usually only lasts a few minutes, it is an important stop on your journey to a debt-free future.
In most circumstances, it is not possible to discharge student loans through bankruptcy. However, some Mississippi debtors may be able to discharge them if a few factors are in place. These rules apply to both private and federal loans.
The borrower must be able to demonstrate that repaying the loans will lead to “undue hardship”. What constitutes undue hardship has never been defined by Congress, but nearly all federal circuit courts use a standard called the Brunner test. The Brunner test requires that there be extenuating circumstances and that extreme hardship will result from paying back the loan that will not allow the person to keep up a minimum living standard. It also requires that the circumstances are unlikely to change for the term of the loan and that the person has made an effort to repay the loan. This does not necessarily mean the person has already made one or more payments. It can mean that the person has attempted to set up a payment plan or taken other steps. The 8th Circuit uses a similar standard while the 1st Circuit does not have a set standard.
There are alternatives to trying to discharge these loans in bankruptcy. A person might be eligible for income-driven replacement. Paying off other debt or getting a loan with a lower interest rate could also help.
A person who is struggling to pay student loans or other obligations might want to talk to an attorney about the types of debt relief that might be available. If the debtor’s income is below a certain level, Chapter 7 bankruptcy might be a possibility. Getting rid of credit card debt could allow the person to pay off student loans or other debts that cannot be discharged, such as child support.
Various problems, like job loss, a medical crisis or a death in the family, could motivate Mississippi consumers to pursue bankruptcy when their income cannot keep up with debt payments. About two-thirds of the non-business bankruptcies filed by individuals fall under Chapter 7 bankruptcy rules. A Chapter 7 bankruptcy requires the sale of assets to recover money for creditors before a judge typically discharges remaining debts. Certain assets are usually exempt from liquidation, like the family home, but the mortgage on the family home might still remain a burden if not included in a bankruptcy.
About one-quarter of Chapter 7 bankruptcies involve real estate mortgages that have not been paid for 120 days. Often these properties qualify for the homestead exemption, and borrowers choose to apply the exemption. They hope to save the home after bringing their other debts under control, but this choice removes the home mortgage from the bankruptcy process and sometimes leaves them exposed to foreclosure if they still cannot make payments.
In some cases, a lender has already initiated a foreclosure action when the borrower files for bankruptcy. Borrowers might still choose to ask the court to remove the mortgage from consideration because they hope to avoid the complications involved in selling the property under the supervision of a trustee. This decision, however, might still leave a borrower exposed to the negative effects of foreclosure, like a bad credit history.
A person concerned about mounting debts that threaten to cause foreclosure or wage garnishment could learn about legal options for debt management from an attorney. An evaluation of debts and income by an attorney could reveal that the person qualifies for fling under Chapter 7.