Bankruptcy law recognizes that debts might overwhelm Mississippi consumers. When individuals file for bankruptcy protection, they generally do so under either Chapter 7 or Chapter 13. The form of bankruptcy determines whether eligible debts will be discharged or if the person must continue to pay creditors under a court-mandated payment plan. The chapter under which people file also establishes waiting periods before they can file for bankruptcy again.
Under a Chapter 7 bankruptcy, the court relieves a person of financial burdens by discharging many unsecured debts. After people complete this process, the law requires that they wait eight years before seeking Chapter 7 protection again. If they want to file for Chapter 13 protection, however, they only need to wait four years after completing a Chapter 7 case.
Chapter 13 bankruptcy helps people overcome financial stress by creating a manageable payment plan. This protection can help someone catch up on bills over three or five years and avoid foreclosure or wage garnishment. Someone who took advantage of Chapter 13 protection could file for Chapter 7 after waiting six years. Only two years must pass, however, if a person wants to file a second Chapter 13 petition.
A person needs to consider many factors when filing for bankruptcy a first or second time. The action stays on a credit report for many years and can endanger future employment opportunities or access to credit. A consultation with an attorney could inform a person about the pros and cons of pursuing bankruptcy relief. An attorney could determine if a person could pass a means test and describe which assets might be exempt from liquidation.
To properly assess the impact of credit card debt in Mississippi, it’s important to compare debt levels with income levels. There is often a disparity in the American South. According to a study by CreditCards.com, however, New Mexico is the state most burdened by credit card debt. Massachusetts residents were the least burdened by such debt. The median income in New Mexico is $46,744 while the median income in Massachusetts was $77,385.
Residents in both states owed roughly the same to credit card companies, but New Mexico residents took nearly twice as long to pay down their balances. It took roughly 18 months for households to repay an average balance of $8,323. Households in Massachusetts took about nine months to repay an average balance of about $8,000. This assumes that a family was putting aside 15 percent of its earnings to repay money owed to creditors.
Differences in income also meant that the states such as Maryland or Virginia with the highest overall balances were not among those with the heaviest debt burden. American households as a whole average about $7,000 in credit card debt, according to a report from NerdWallet. To keep debt in check, individuals can choose to use a debit card or pay for items with cash. It may also be possible to transfer balances to a credit card with 0 percent interest.
Individuals who are going through financial challenges may find relief through bankruptcy. Bankruptcy could allow a person to retain assets or avoid having them liquidated as part of the debt repayment process. This means that a debtor may keep a home or equity in a home until a bankruptcy case is over. Furthermore, creditors may generally not engage in a repossession or a foreclosure until a case is closed.
Mississippi residents and others are on pace to amass $4 trillion in collective consumer debt by the conclusion of 2018. That would be an increase of $1 trillion over the past five years alone. The increase is attributed to both revolving debts and others like student and auto loans that have a fixed end date. Revolving debt has increased 22 percent since 2013 while student and auto loan debt has increased by 30 percent in the same time period.
Credit card interest rates are hovering between 16 and 17 percent on average, and that number could go up. This is because the Federal Reserve is planning on increasing interest rates up to four times in 2019. In 2018, Americans who have credit card balances have paid more than $100 billion in interest and other fees. Cumulatively, Americans owe $1.04 trillion in credit card debt, and this figure is expected to rise 5 percent in the last month of 2018.
The 5 percent increase was an estimate by LendingTree based on holiday sales figures. Americans have $2.9 trillion in non-revolving debts, but that figure does not account for outstanding mortgage balances. Those who are struggling to repay their credit card or other debts may be able to get help from a credit counseling service.
Those who are in the midst of financial challenges may be able to overcome them by filing for bankruptcy. In some cases, individuals may keep property like a house or car while they follow through with a repayment plan. In others, nonexempt assets may be liquidated in an effort to repay creditors. In either scenario, debtors are generally given a stay of creditor contact. This means that creditors are prohibited from taking steps to repossess an asset or contact a debtor about it.
In Mississippi and throughout the nation, fewer people are defaulting on their credit card debt balances. This is according to the S&P/Experian Consumer Credit Default Composite Index. However, debt levels for U.S. consumers are increasing. If a cardholder does not make payments on a card balance for six months or more, the debt may be charged-off. This can have a profound impact on a person’s credit score as well as on his or her ability to get another card in the future.
Damage to a credit score begins as soon as the first payment is missed. Missing a single payment could make it harder to get a loan because it will result in a lower credit score. Of course, having a poor credit score or history doesn’t mean that a person can’t get a credit card. As economic conditions improve and defaults drop, lenders tend to allow a wider range of people to obtain credit.
The interest rates of credit cards tend to be higher than those charged by home and auto lenders. The average interest rate is 17 percent, but it could go up to 30 percent after a missed payment. Generally speaking, those with better credit scores get better interest rates. To avoid a credit default, it is important to not charge more than what can be repaid at the end of the month.
Filing for bankruptcy may be ideal for those looking to overcome financial challenges. For instance, it may be possible to have credit card and other unsecured debt balances discharged. This could happen in a matter of weeks in a Chapter 7 case. Those looking to retain property during a bankruptcy may benefit from a Chapter 13 debt reorganization. During the repayment period, creditors are barred from taking most collection actions.
Mississippi residents sometimes put off pursuing bankruptcy because they believe that filing a Chapter 7 or Chapter 13 petition damages credit ratings for many years, but a Lending Tree study reveals that four out of 10 bankruptcy filers have credit scores of 640 or higher after just one year. The figures also suggest that a few years of careful borrowing can counteract the impact of a bankruptcy.
Bankruptcies appear on credit scores for up to 10 years, but that does not mean that they significantly affect borrowing for this amount of time. Recency is a crucial factor when credit is evaluated, and consumers who avoid falling into the traps that led to their financial problems in the first place can expect to be offered similar interest rates to individuals who have never filed for bankruptcy within a few years.
However, consumers who have filed a bankruptcy petition may be wise to wait at least two years before applying for a major loan. The additional borrowing costs on a $15,000 automobile loan taken out less than a year after a bankruptcy are $2,171 according to the Lending Tree study, but this figure falls to just $799 a year or so later.
Attorneys with debt relief experience may be familiar with the many misunderstandings and myths surrounding bankruptcy, and they could point out to individuals with unmanageable financial situations that their outlooks are unlikely to improve without some sort of action. Attorneys could also explain to their clients that the nation’s bankruptcy laws were written to give consumers the opportunity for a fresh start and not to only protect the interests of lenders.
