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.
The Federal Reserve System chairman has acknowledged that the growing debts among so many people could hobble economic growth. The chairman said they could think of no reason why bankruptcy law should view student loans differently than other consumer debts. Critics of the proposed reform worry that it would make lenders raise interest rates on student loans. Advocates for debtors have countered that a viable bankruptcy option could make lenders more willing to work with debtors trying to catch up their payments.
When debts overwhelm a person, it starts a downward cycle that could result in wage garnishment, repossession and foreclosure. A person confronted by excessive debts may want to ask an attorney for advice. An attorney may help manage a bankruptcy filing for a qualifying debtor and take action to stop harassment by creditors.
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.
There will be a public comment period of 90 days regarding the proposed rule. If the rule is passed, it will go into effect a year after it is published.
Filing for bankruptcy may be one way to deal with financial challenges that a person is facing. Doing so may put an end to phone calls from creditors or debt collectors. It may also put an end to collection letters and other attempts to contact a debtor. In many cases, individuals will not lose their property simply for filing a case, and it might be possible to keep it throughout the duration of the case.
An attorney may help a person fill out paperwork and take other steps necessary to file a bankruptcy petition. In addition to filing paperwork, a debtor will likely need to take a credit counseling class. If an individual files for Chapter 13 bankruptcy, he or she will make payments to creditors for up to five years. Any balances remaining at the end of the repayment period may be discharged.
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.
Consumers tend to wait until their situations are quite dire and bill collectors are hounding them every day before pursuing bankruptcy. This means that their credit scores are often already badly damaged when they do take action. Bankruptcy offers a fresh start, and lenders may be more willing to extend credit to an individual who has a discharged bankruptcy and fewer obligations than they would to someone who is struggling to bring delinquent accounts up to date.
Attorneys familiar with the nation’s bankruptcy laws could answer questions about debt relief and explain how credit ratings can be rebuilt following financial setbacks. Legal counsel may also point out the differences between Chapter 7 and Chapter 13 personal bankruptcies and dispel many of the debt relief myths that prevent individuals with unmanageable financial situations from taking advantage of debt forgiveness.
Many Mississippi residents are struggling under piles of insurmountable debt. The sources of these debts may include everything from credit cards and auto loans to medical bills and student loans. While many of these debts can be discharged through personal bankruptcy, people struggling with significant student loan debt have faced particular difficulties. In the past, the bankruptcy code was amended on multiple occasions to make it harder for borrowers to find relief from their student loans. At the same time, the cost of university has gone up dramatically, leaving Americans with $1.5 trillion in student loan payments.
A new report by prominent bankruptcy judges, lawyers and academics is urging changes to the law to make it easier for people to find relief from crushing student loan obligations. The report aims to address issues that are preventing people in debt from filing for bankruptcy. There are two main types of personal bankruptcy options: Chapter 7, where assets are sold off and a person’s debts discharged, and Chapter 13, which aims to restructure debts through a payment plan. Bankruptcy filings hit their lowest point since 2007 in 2018. However, many note that people are still struggling with insurmountable debt but do not file for bankruptcy due to other concerns.
The commission offered a range of proposals, including allowing student loans to be discharged in bankruptcy seven years after they became payable. While student loans can currently be discharged in cases of “undue hardship,” this has been a difficult barrier to reach. Some say that judges could interpret the law differently to help people find relief.
Of course, many people are struggling with credit card bills and medical debt, both of which can be discharged normally through personal bankruptcy. An individual who is struggling with excessive debt could consult with a bankruptcy attorney about their options to seek relief.
After Mississippi consumers have filed for bankruptcy, they may be concerned about rebuilding their credit. However, they should be wary of companies called credit repair agencies that offer to help with this.
Under the Credit Repair Organizations Act, it is not legal for a company to charge for this type of service until the repair has been done. Some credit repair agencies will send out letters to people who have filed for bankruptcy, while others will advertise online or on TV. The companies claim to be able to establish a new credit identity for people who have filed for bankruptcy, but some of them suggest applying to the IRS for an Employer Identification Number. People are then instructed to use this number in place of their Social Security number. However, this number is intended for business use, and using it in this way can be illegal.
A bankruptcy can remain on a credit report for up to 10 years, but there are other steps people can take to repair their credit. One is applying for a secured credit card. This allows a person to deposit a certain amount to cover the credit offered and establish a regular payment record. The person can then transition to regular credit cards. Another way is to apply for a bad credit car loan.
How to reestablish credit is one of several concerns people may have when considering bankruptcy, but being unable to keep up payments for debt also hurts a person’s credit. An attorney may be able to outline debt relief options, including bankruptcy. Depending on a person’s income and other factors, it may be possible to file for either Chapter 7 or Chapter 13 bankruptcy.
