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Eugene Bankruptcy Law Blog

Credit card debt is growing nationally

Many people in Oregon and across the country are struggling with the growing weight of credit card debt. Nationwide, Americans owe more than $1 trillion on their credit cards. During the second quarter of 2019, American consumers accumulated an additional $35.6 million in debt. Over the year, some estimates expect that they will owe another $70 billion. Oregon ranks 29th in the country as far as credit card debt escalation, but many people in the state are finding it difficult to make ends meet. Many people who owe a significant amount on their credit cards are also struggling with other bills.

When people owe more on their credit cards, they often take longer to pay off their balances. As a result, they pay much more in interest. This is especially common when people need to turn to credit card debt in order to cover basic costs or make ends meet during the month. Over 33% of all cardholders have carried their debts for two years or more, and many people have more credit card debt than they do in savings. People often accumulate credit card debt when paying for car repairs, home improvements or medical bills.

Chapter 13 bankruptcy may be right for those with steady income

No one plans to end up in a significantly difficult financial situation. However, a number of unexpected circumstances could contribute to anyone facing money problems. Even if you have a steady income, you may have substantially more debt than you can handle and wonder what your options are.

For individuals like you who have a regular income, Chapter 13 bankruptcy may be the debt relief option to consider. Though you may hesitate at the idea of having to file for bankruptcy, it may be the step you need to take in order to secure a more stable financial future.

Study finds link between health insurance gaps, bankruptcy

People in Oregon and across the U.S. are significantly more likely to file for bankruptcy protection if they experience an interruption in their health insurance coverage, according to a new study published in August by the American Bankruptcy Institute. Researchers used Bureau of Labor Statistics data to analyze the employment, health coverage and bankruptcy information of over 12,500 Americans. Of those individuals, 454 declared bankruptcy between the years of 2008 and 2014.

The researchers found that there was a "strong association" between health coverage gaps and consumer bankruptcy filings. Specifically, they found that people who had coverage interruptions of two years or more were more than twice as likely to declare bankruptcy. Furthermore, the association between coverage interruptions and bankruptcy remained even after researchers controlled for income and debt variables.

The basics of bankruptcy

Oregon residents who find themselves overwhelmed with debt can seek relief by filing for Chapter 7 or a Chapter 13 bankruptcy. A Chapter 7 bankruptcy wipes out most debts and offers the chance of a fresh start. Those who file for Chapter 13 bankruptcy pay down some or all of their debts over a period of three to five years. Individuals generally file for Chapter 13 because they have assets they would like to protect or they earn too much money to file a Chapter 7 petition.

Those who wish to obtain debt relief by filing a Chapter 7 bankruptcy must first pass a means test. To pass this test, they have to earn less than their state's median income for a family of the same size or not have enough money to make ends meet after paying allowable expenses. While assets can be liquidated in a Chapter 7 bankruptcy to pay creditors at least some of what they are owed, this rarely happens unless the assets have significant value. There are also federal and state Chapter 7 exemptions that protect assets such as homes, automobiles, personal possessions and tools used to earn a living.

Personal circumstances may dictate type of bankruptcy filing

It can be difficult to get finances back on track when debts are piling up. Oregon consumers have options to reduce or eliminate debts, including negotiating with creditors or filing for bankruptcy under Chapter 7 or Chapter 13 of the Bankruptcy Code. The type of bankruptcy they should file for depends on their particular financial situation and their goals for the process. In many cases, the rules will determine which type of filing to make.

Chapter 7 bankruptcy, sometimes called liquidation bankruptcy, discharges most unsecured debts. The first step in a Chapter 7 case is passing the means test. The means test is a comparison of the person's income with the median annual income in the state. If the person's income is less than the state median income, the means test is passed and he or she may file under Chapter 7. If the person's income exceeds the state median income, it may still be possible for him or her to file Chapter 7 bankruptcy but not in all cases.

Credit card debt can be overwhelming

Many people in Oregon are struggling with a growing debt burden because they are unable to pay off their credit cards every month. Analysts advise that credit card debt can be particularly dangerous to carry over a long period due to the high interest rates that come along with it. According to some economists, up to 82% of credit card balances are carried for over one month, often turning into long-term debt. The problem isn't restricted to those with poor credit; even those with high credit scores often carry a balance.

Those balances may persist for a long time, especially as accumulating interest makes them more difficult to pay off. Around 70% of balances that are carried from month to month remain for at least a year while 55% remain as debt for at least two years. People often pay up to 28% interest rates on their credit card balances, even though they may have been initially enticed to sign up for the card due to a lower introductory rate. According to one survey, people with outstanding credit card balances spend more on monthly luxuries than those who pay off their bills at the month's end.

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.

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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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