People in Mississippi who are struggling with debt might hesitate to file for bankruptcy because of certain myths they believe about bankruptcy. There are a number of misconceptions about filing for bankruptcy and what happens to a person’s credit afterward.
The main impact of a bankruptcy on a credit score is the bankruptcy itself. In other words, the score is unlikely to be mitigated by positive information on the credit report. The amount of debt discharged may affect the severity of the drop in credit score. Furthermore, debts that cannot be discharged, such as student loans, will remain on the report. However, it is important to remember that a bankruptcy eventually falls off the credit report. A Chapter 7 bankruptcy remains on the credit report for 10 years. All other information, including a Chapter 13 bankruptcy and things like liens and judgments discharged in bankruptcy, are removed from the report after seven years.
Even while the bankruptcy is still on the report, it is possible to improve the credit score significantly. It is possible to begin rebuilding credit with a secured credit card or a loan and by paying all bills on time. In the end, while bankruptcy represents a short-term hit on a person’s credit, getting free and clear of that debt may allow a person to rebuild a stronger credit record than before.
Another misconception people might have about bankruptcy is that they will lose all their assets. Even in a Chapter 7 bankruptcy, certain assets are exempt, but in a Chapter 13 bankruptcy, a person may be able to keep assets such as a home. Filing for bankruptcy can halt, at least temporarily, actions such as foreclosures, and the person works out a plan to pay creditors over three to five years. This plan must be approved by the court and is supervised by a bankruptcy trustee.
Mississippi readers with credit card debt are not alone. According to a report by WalletHub, in 2017, Americans added the most credit card debt since 2007. Further, the Federal Reserve estimates that the total amount of U.S. credit card balances currently exceeds $1 trillion.
WalletHub reports that Americans added $92.2 billion in credit card debt in 2017. Of that, $67.6 billion was added in the final quarter, which represents the highest one-quarter jump in three decades. The latest numbers are part of a trend. Between 2015 and 2016, U.S. credit card debt increased by $44 billion.
According to experts, one reason for the sharp increase in debt is that charge-offs, or uncollectable debts, are at historically low rates. This means that banks feel more comfortable extending credit to Americans with subpar credit scores. Another reason could be medical expenses. According to the Centers for Medicare and Medicaid Services, Americans were responsible for paying $338 billion in out-of-pocket health care costs in 2015. These costs included deductibles, co=pays, office visits and uncovered medical procedures. Apparently, many people paid for those costs with credit cards. WalletHub reports that 62.3 percent of Americans say health care expenses make up a portion of their credit card debt.
Mississippi residents who are seeking relief from credit card debt may wish to consider filing for Chapter 13 bankruptcy. Under this chapter, consumers repay their obligations over a period of three or five years pursuant to a court-approved plan. Any remaining credit card balance would generally be discharged upon the successful completion of the plan. An attorney can outline the eligibility requirements.
Source: Yahoo Finance, Credit card debt has now reached pre-recession levels“, Brittany Jones-Cooper, March 8, 2018
Some people in Mississippi may be struggling to pay off their student loans, but these obligations are generally not dischargeable in a bankruptcy. The total amount of student loan debt in the United States has reached $1.4 trillion carried by 40 million people. In the 1970s, Congress began reducing the ability of borrowers to discharge student loan debt. It is only allowable in cases of “undue hardship”. What this is has never been defined, but courts have traditionally set very stringent guidelines.
On March 1, Federal Reserve chairman Jerome Powell spoke before the Senate Committee on Banking, Housing, and Urban Affairs and said he could not explain why student loans were not dischargeable. However, he said that it was not a change he could make in his position although Congress could address it.
Sen. Brian Schatz asked Powell about the effect the student loan debt could have on the economy. Powell said that on an individual level, it hurt people’s credit ratings and their economic lives over the long term. As for the economy as a whole, he said the amount of debt could hinder growth. Powell is not the first financial expert to express concern about student loan debt. For example, the president of the Federal Reserve Bank of New York has talked about its effect on economic mobility.
While a person may currently be unable to discharge student loans in bankruptcy, restructuring debts under a Chapter 13 bankruptcy might free up enough cash to stay on top of payments. People who are struggling with debt might want to talk to an attorney about how this type of bankruptcy could work for them. Filing for bankruptcy automatically stops any debt-related action against a person including foreclosure. Chapter 13 bankruptcy allows a person to keep some assets and pay off creditors over three or five years.
If they have a steady stream of income, debtors in Mississippi may use a Chapter 13 bankruptcy to pay off their substantial debts. They will have three to five years to use their disposable income to resolve their debts. If individuals currently have a vehicle or would like to purchase one during any stage of the bankruptcy process, this still can be achieved. However, there are some factors that have to be considered.
Chapter 13 bankruptcy filers who possess a vehicle before they file a petition may keep their vehicle except in certain cases. If the payments for the vehicle are extremely costly, the court may prevent the debtor from including the payment when calculating their disposable income. The expensive payment may be considered unreasonable as filers are only permitted to retain living expenses that are necessary and sensible.
Debtors who have an upside down auto loan and purchased their vehicle at least 910 days before submitting a bankruptcy petition may opt to cramdown the loan for the bankruptcy process. This allows the loan to be reduced to the amount of the vehicle’s cash value. The excess amount is included with the unsecured debts.
For debtors who are not current with their vehicle payments, filing for Chapter 13 bankruptcy stays most collections, including repossession of the vehicle. The payments in arrears may be included in the bankruptcy plan, and if the debtors make the remaining payments, they may be able to retain ownership of the vehicle.
Individuals who have substantial debt may consult a bankruptcy attorney about their legal options. A lawyer may advise individuals how a Chapter 13 bankruptcy may apply in their case if they have a regular income. People may be advised of how a bankruptcy may help them have a fresh financial start by reducing interest and stopping creditor harassment.
Households around the country owe an average of $15,654 to credit card companies. Paying down this debt while saving for retirement can be a challenge for Mississippi individuals and families who are struggling to make ends meet, and borrowing from 401(k) retirement accounts to reduce revolving balances may seem like a good idea. Credit card interest rates are generally far higher than those imposed by retirement plans, but there are a number of important factors to consider before taking out a 401(k) loan.
Borrowing from money earmarked for retirement may not be a wise decision if it does not address the fundamental problem. When credit card balances are high due to excessive spending, paying the debt off with 401(k) funds will merely provide a temporary respite if spending habits do not change. However, this kind of borrowing may be prudent when revolving debt balances were caused by events, such as medical emergencies, that are unlikely to be repeated.
A 401(k) loan may not be a good idea for individuals who may change jobs in the near future. Employers usually expect workers who leave to repay these loans within 90 days, and failing to do this could lead to a tax bill and penalty fees. Those mulling this option should also consider the impact that borrowing from a 401(k) account will have on their retirement plans. This is especially important for individuals with 401(k) plans that do not allow new contributions to be made until outstanding loans are repaid in full.
Attorneys with debt relief experience may suggest filing for Chapter 13 bankruptcy to those with unmanageable financial situations who wish to safeguard their retirement savings. Funds in 401(k) plans have protection under bankruptcy law, and individuals who take this option may be able to enjoy the benefits of a fresh financial start without jeopardizing their future.
