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Eugene Bankruptcy Law Blog

Some experts say bankruptcy filings should not be delayed

Some Oregon consumers might be struggling with debt but may hesitate to file for bankruptcy. Many people may feel it is more honorable to pay debts and that filing for bankruptcy will stigmatize them. However, bankruptcy is a tool that is intended to offer people a fresh start. Many experts say waiting to file leaves people financially depleted and less able to take advantage of the benefits.

A study from the Notre Dame Law Review identified "long strugglers" as people who went two years or longer forgoing basic necessities and struggling with asset depletion and lawsuits rather than filing for bankruptcy. Some people spent five years or more in this position. Compared to those who filed bankruptcy before this two-year mark, they had half as many median assets. They had a 40 percent higher debt-to-income ratio than other debtors, and about half faced debt collection lawsuits compared to just over one-third of other debtors.

Car repossession: A hard battle to fight alone

Families going through financial hardships have a lot on their plate. Student loans, medical debt and credit card debt starts to pile up and there’s barely room for anything else. Then the unthinkable happens, and your car is repossessed. It’s devastating enough that you now struggle with transportation. Necessary trips to school and the grocery store get that much harder.

Missed credit card payments lead to more fees and penalties

Families in Oregon have many demands on their income. A credit card debt analyst at NerdWallet explained that the rising costs of housing, food and health care continue to strain budgets and sometimes lead to missed credit card payments. Research from the Federal Reserve Bank revealed that in 2017 people paid other debts, like mortgages and student loans, before their credit card bills. When money gets tight, people will skip payments on their credit cards.

A single missed payment, however, triggers a late fee that gets added to the outstanding balance that is accruing interest. When an account becomes delinquent by more than 60 days, the credit card issuer will likely impose a penalty APR. What might have been a 15 percent rate on a credit account could jump as high as 29.99 percent. This huge increase ramps up costs for the borrower who is already struggling. A $3,000 balance at 29.99 percent will result in $761 in interest costs over 18 months. At 15 percent, that same balance would only accrue $368.

Why Use A Bankruptcy Attorney?

Many people put off filing bankruptcy as long as possible for understandable reasons. By the time they do file bankruptcy, however, money has become so tight they begin to think they can save a dollar or two by using a non-attorney bankruptcy filing service.

Filing bankruptcy, however, is no time to pinch pennies. A recent ruling from the U.S. Bankruptcy Court for the Western District of Virginia highlights the problem.

Crucial facts to know about bankruptcy

The number of personal bankruptcy filings declined by 1.8 percent in 2017. However, financial professionals say that Oregon residents and others who want to file for bankruptcy should spend time thinking through the entire process. This means considering what happens before and during a bankruptcy as well as what happens after a case concludes. For example, debtors must go through credit counseling prior to asking for bankruptcy protection.

Failing to meet this obligation could result in a case being delayed or dismissed. While a bankruptcy no longer appears on a credit report after 7 or 10 years, it may have a permanent impact on a person's life. In some cases, a person may need to disclose a prior bankruptcy whenever he or she applies for a job or a loan. Debtors will also need to be sure that they inform their attorney and the court about all of their debts.

Credit card debt again on the rise

Many people in Oregon are struggling with excessive credit card debt. The financial shock to the economy in 2008 did not make long-term changes to how people handle their finances, especially once people went back to work if unemployed and started to bring in larger paychecks. While household debt across the country declined between 2008 and 2013, it has gone up significantly since then to reach an all-time high of $13.2 trillion in the first quarter of 2018. With low interest rates, people are, on average, better able to manage debt, but unexpected changes can be devastating to a person's ability to manage their finances.

In the 2008 recession, 1 out of every 10 credit cards entered default, and numerous homes were foreclosed upon around the country. Many forecasters expected that there would be a long-term shift in Americans' relationship to borrowing, but credit card debt has grown as people have felt less financial fear and pressure. However, even credit cards form only one portion of the nation's household debt. Student loan debt is larger across the country than that owed on credit cards as are auto loans.

Secured credit card vs. unsecured

When you are trying to rebuild credit, a common suggestion is to open a new credit card that you can absolutely make payments on. One of the fastest ways to rebuild credit is to make sure it is revolving: keeping the balances low each month and paying them off.

Building credit with a secured credit card will often get you a better credit score if you have had poor credit or filed for bankruptcy in the past, but why? What is the difference between an unsecured card and a secured one, and how will they affect your credit?

Changes proposed in bankruptcy laws for student loans

In April, Oregon congressman Peter DeFazio introduced an act that would make it less difficult for people to discharge student loans in bankruptcy. These types of loans are presently not dischargeable in most cases although in a few cases, people have successfully done so. "Undue hardship" is the standard by which it is decided whether a student loan debt is dischargeable, and the proposed act would broaden that definition.

While there is no set standard for what constitutes undue hardship and this is decided on a case-by-case basis by the courts, in general, people need to prove an inability to support themselves and their family and that their financial situation is unlikely to improve over the next several years. Although around 40 percent of people struggling with student loan debt who include it in their bankruptcy filing get it discharged or reduced, fewer than 1 percent even attempt to do so because it is perceived as so difficult to get a discharge.

Requirements to discharge student loans in bankruptcy

Many people in Oregon struggle to repay their student loan debts. Unlike other types of unsecured debts, such as credit card balances or medical bills, student loans are normally not dischargeable in bankruptcy. However, student loans may be dischargeable in some cases.

In order to discharge student loans, one must be able to show that repaying the debts would cause them undue hardships. Most jurisdictions use the Brunner test to determine whether or not a student loan may be discharged. In order to prevail under this test, debtors must be able to illustrate that they have circumstances that create hardships and that the hardships are likely to last for the length of the loans' terms. They will also have to demonstrate that they have made good-faith efforts to repay the loans.

Have high interest credit cards? You may be able to lower them

Are you frustrated by overwhelming high interest rates on your credit cards? Does making the minimum payment each month feel useless because the interest charges nearly replace that payment? Did you know there is a chance you can lower your interest rate just by asking?

Right now, the average interest rate on a credit card is over 16%, it is over 20% for cash out credit cards. If you see your cards at these rates or higher, there are ways to lower the rate without finding a new card that will charge you balance transfer fees. All you need to do is speak with your credit card company or bank and negotiate with them on a new lower rate. Of course, they may very well say, "no," but they are more likely to approve a lower rate if you follow these steps:

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The Law Office of Kim Covington is a debt relief agency, and I have helped families, individuals and small businesses, file for bankruptcy relief under the U.S. Bankruptcy Code, for over 19 years.

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