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Eugene Bankruptcy Law Blog

Do you know what happens during the wage garnishment process?

There are many unpleasant consequences that come with having a lot of debt. From phone calls from debt collectors to losing a portion of your income, debt can affect many areas of your life. One of the ways you may experience this is through wage garnishment. 

Garnishment is what happens when an employer, per a court order, withholds a portion of your paycheck. The amount withheld goes toward the repayment of certain debts. It may come as a surprise to you to learn that your employer can do that, but it's possible. There are certain things you can do, however, that will put a stop to this and eventually allow you to regain your financial footing.

Responding to debt lawsuits

The Consumer Financial Protection Bureau reports that over 70 million people in Oregon and the rest of the United States have had interactions with debt collectors. During these interactions, 25% of the debtors have felt threatened. However, people should learn about their rights and take certain actions when they are sued for a debt.

It is important that debtors respond to a debt lawsuit or claim. Failing to respond means that the collection agency will receive a default judgment against the person. Depending on the state in which the debtor lives, the collection agency may be able to garnish that person's wages or seize funds in his or her bank accounts.

Study finds student loans debt may contribute to bankruptcies

Some Oregon consumers who file for bankruptcy may be carrying significant student loan debt. The company LendEDU found that nearly one-third of people who filed for Chapter 7 bankruptcy had student loan debt, and on average, almost half of their total debt was student loans. Even though most student loans cannot be discharged in bankruptcy, the filings appear to be increasingly driven at least in part by these obligations.

Student Loan Hero found that those debts were substantial, with the average graduating student loan debtor in 2018 owing $29,800. In 2019, the national student loan debt reached an all-time high of $1.5 trillion. A Chapter 7 bankruptcy allows all eligible debt to be discharged without any payment. What many people with student loan debt may do on declaring bankruptcy is use the money they would have used in paying off credit card or medical debt on their student loans.

High interest rates can make credit card debt harder to pay off

Those who have credit card debt pay an average interest rate of 18%. However, Oregon residents and others who have poor credit could pay as much as 25% interest on a revolving balance. One way to avoid paying interest altogether is to pay down a balance by the completion of the billing cycle. However, this is not always possible because of student loan or other debts a person may have.

In the first quarter of 2019, 8% of credit accounts for individuals between the ages of 18 and 29 were 90 days past due or more. This has been seen as a cause for alarm because people in this age range have largely been perceived as not interested in credit cards or other forms of debt. According to the New York Federal Reserve, 52% of those who are in their 20s have a credit card.

Unpaid medical bills can affect credit score

For many Oregon residents, medical bills form a significant amount of their overall debt burden. Even people with insurance may struggle with high deductibles, expensive medications or out-of-network treatments. As a result, people may find themselves facing significant amounts of debt simply for seeking much-needed health care. In fact, one study found that around 30% of Americans have some form of medical debt totaling over $500. People may be concerned about how their medical expenses could affect their credit score.

Credit reports are used to determine access to loans and credit cards. They can even affect a person's ability to rent an apartment or receive good rates on their car insurance. Unpaid medical bills, like other forms of debt, can certainly appear on a credit report. There are several ways people can help to protect themselves. In the first place, health care providers do not automatically report unpaid debt to credit agencies. Instead, it is usually reported after the medical debt is sold to a collection agency. People who can work out a payment plan with the health care provider are more likely to avoid this problem.

Steps to take before filing bankruptcy for medical debt

Whether due to an unexpected diagnosis, emergency room visit, surgery or more, medical bills can quickly become a source of overwhelming financial stress. While many Oregonians may do their best to financially prepare for such medical emergencies, sometimes health insurance and emergency savings may not be enough to account for a sudden accumulation of expensive medical bills.

A recent survey published in the American Journal of Public Health reported that medical debt played a substantial role in the decision to file for bankruptcy for nearly 60% of people. Balancing growing medical debt can feel like a never-ending cycle. Here are several steps to take before making the leap to file for bankruptcy:

Do your debt issues have you feeling embarrassed?

For some Oregon residents, having money issues can be a source of embarrassment. They may think that they have somehow fallen short of those who have more money or those who have not landed on hard financial times. However, it is important to remember that financial hardships can affect anyone at any time.

Still, you may even feel some embarrassment about trying to find debt relief. After all, filing for bankruptcy is a major step. Of course, the decision to file is yours, and if you believe it could help relieve you of the overwhelming debt you have accumulated, you may want to shrug off the potential embarrassment and focus on the benefits that may wait on the other side of a successful bankruptcy case.

Bill could help student loan debtors

People in Oregon who are struggling with student debt might have the opportunity to discharge that debt in bankruptcy if a bill introduced in Congress is successful. The Student Borrower Bankruptcy Relief Act of 2019 has the support of one Independent, one Republican and 14 Democrats.

Student loan debt has become a serious problem. It is anticipated that by 2022, the total unpaid balance will be $2 billion. Over 25 percent of people with student loan debt are delinquent or in default. However, it has not always been so difficult to discharge student loans in bankruptcy. In the 1970s, a law was passed that required students to repay for five years before filing for bankruptcy. Two more years were added to the waiting period in 1990. In the late 1990s, the law was changed again. The new rule was that student loans could only be discharged in bankruptcy if repaying them caused "undue hardship".

Repairing a credit score after bankruptcy

Lots of Oregon residents are struggling with debts they are unable to repay. While personal bankruptcy may provide an option for debt relief, many are wary of taking the hit to their credit reports that come with the option. However, these debtors may still begin to suffer serious credit damage, especially if late payments or unpaid bills begin to rack up. This means that debt-resolving bankruptcy can actually improve some people's credit scores in the long run.

The impact of bankruptcy on a credit score varies and changes over time. While a Chapter 7 bankruptcy remains on a person's credit report for 10 years, a Chapter 13 bankruptcy, which involves structured repayments, remains on a credit report for seven years. People suffering from the worst credit issues, including large unpaid bills and extensive late payments, may even find that the impact of a bankruptcy raises their credit score instantly, even if it keeps them in a lower credit bracket. In any case, a debtor can work to rebuild their credit scores after bankruptcy and get back on the path to a solid credit rating.

How to manage your medical debt

Medical debt is a burden for many Oregonians. In fact, past due medical bills are a leading cause of bankruptcy.

The research on the cost of healthcare is startling. Nearly all patients surveyed reported being more concerned about the bill upfront than the procedure. Healthcare insurance premiums jumped again further making affording healthcare more expensive.

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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.

The Law Office of Kim Covington

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