Americans owe a total of $1.4 trillion in student loan debt as of the first quarter of 2019. That figure was provided by Experian, and it represents a 116% increase in student loan debt over the past 10 years. While this has caused a financial burden for many young people, it is not the only form of debt that they have.
Research has indicated that individuals between the ages of 23 and 34 have more credit card debt than student loan debt. Collectively, Americans repaid $38.2 billion in credit card debt during the first three months of 2019. However, WalletHub says that individuals will put another $70 billion on credit cards during 2019 alone. Currently, Americans owe over $1 trillion to credit card companies. Financial professionals point to many reasons why individuals rely so heavily on credit cards and are struggling to repay their balances.
Monetary policy and a relatively weak dollar relative to inflation are popular theories as to why credit card debt is increasing. Low interest rates and more money in circulation generally results in prices going up and the value of the dollar staying flat. However, some believe that if Americans were better educated about the financial consequences of credit cards, they would be able to more effectively manage their debt.
Individuals who are facing financial challenges related to credit card or other types of debt may have ways to overcome them. One option may be to file for Chapter 7 bankruptcy. Doing so may make it possible to have certain unsecured debts discharged without making any payments. Other benefits of bankruptcy may include putting at least a temporary stop to creditor contact.
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.
What is preference law?
Preference law refers to a period before you file for bankruptcy. During this time, if you make a payment on a debt, or the collector garnishes wages from your paycheck, that money may need to come back. By allocating precious funds from your existing assets, you give preference to one creditor over another.
The Chapter 7 bankruptcy process may involve liquidation of non-exempt assets. The money from this step can then go toward paying down some of your debt. Any payments you make 90 days prior to officially filing may be eligible for inclusion in this stage.
Why does it exist?
Creditors and debt collectors lose out when you declare bankruptcy. To remain fair to all those involved, the government put preference law into place to keep distribution of repayment even across the board. The idea is that each collector deserves repayment as much as the rest of them.
In some cases, preference law can work in your favor. Wage garnishment is often beyond your control. You will receive several paychecks within 90 days before filing, which adds up to a substantial amount of money. You can then distribute these funds across all your debts to minimize how much of the remaining balances become discharged.
You will likely have many questions about the process if you decide to file for bankruptcy. Keep this surprising law in mind as you prepare for the next steps.
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.
All the same, the student loan debt situation is considered to be a growing crisis. Many millennials are unable to purchase homes or spend in any other significant way because of this. The national total has reached a record high of $1.5 trillion, and in 2018, the average debt for each person graduating with loans was $29,800.
People who are struggling with debt might want to talk to an attorney and discuss whether filing for bankruptcy is the best option. The two primary types for consumers are Chapter 7 and Chapter 13, and each has its own eligibility and other requirements that an attorney can outline.
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.
The figures also reveal that more Gen Z and millennial Americans are applying for credit cards. Between 2008 and 2012, only about four out of 10 Americans in their 20s had one or more credit cards. That figure has now risen to more than 50%. Younger borrowers also tend to sign up for credit cards that offer reward points or travel perks rather than low introductory interest rates.
Young borrowers are sometimes reluctant to seek bankruptcy relief because they are worried about ruining their credit. Attorneys with debt relief experience could explain that a discharged bankruptcy often increases the credit scores of individuals with a history of late payments. This is because bankruptcy reduces the amount of debt they owe and improves their debt-to-income ratios.
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.
Bankruptcy lawyers said that the high court’s ruling provides a higher level of protection for debtors. It uses an objective standard of reasonableness to assess a creditor’s actions and beliefs rather than relying on a subjective assessment of good faith. They said that the bankruptcy code provides detailed provisions and that creditors should generally be very clear on whether the bankruptcy discharge applies.
One reason why many people file for bankruptcy is to put an end to phone calls, letters and other forms of ongoing creditor demands. People who are facing an insurmountable debt burden might opt to consult with a bankruptcy attorney about their options for relief.