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Michael D. Hart, P.C.
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Roanoke Virginia Bankruptcy Law Blog

Credit cards help pay for the holidays

Virginia residents may not necessarily be against using a credit card to fund their holiday shopping. A study from Creditcards.com found that 51% of respondents who had credit card debt were willing to go deeper into debt during the holidays. It also found that 50% of male respondents who had credit cards had no problem spending more on gifts and other related seasonal expenses. Only 41% of female respondents who had credit cards said the same thing.

A person's age may also influence whether or not he or she would be willing to use a credit card to pay for holiday expenses. Only 34% of those who are classified as baby boomers would go into debt to buy gifts while that number increased to 52% for millennials. Of respondents who chose to go into debt this holiday season, 42% said that they were doing it to make themselves happy.

Struggling with debt collection calls?

Many Virginia consumers find it difficult to make ends meet. They may turn to credit cards or loans to cover their expenses when they are unable to. Unfortunately, it can be difficult for people to find their way out of debt, especially if they are struggling with job loss or poorly paid work. Calls from debt collectors can lead to a miserable time, as people try to avoid their ongoing calls and demands for money. In 2017, over 70 million people across the country dealt with a debt collector, and one-third of all U.S. adults with credit had experienced a collection contact at some point.

People may wind up with unrepayable debt in a number of circumstances, but some of the most common include divorce, unemployment or illness. Every year, more people complain about the practices of debt collectors than any other business that interacts with consumers. There are a few things that people can keep in mind when they get a collection call. The Fair Debt Collection Practices Act prohibits calls outside of specific hours and limits the number and type of calls collectors can make. It does not ban the calls, however.

Credit card debt is on the rise

Many Virginia consumers struggle to make ends meet. They may rely on credit cards to cover expenses, and the result is a growing amount of debt. At the end of 2018, people across the country owed around $900 billion in credit card debt. This marks an upswing from 10 years before, when Americans owed $792 billion to credit card companies. According to the Consumer Financial Protection Bureau, people owe major cards like Visa, Mastercard and American Express $793 billion, while they owe $91 billion to retailers with their own credit cards.

The report noted that the largest amount of credit card debt is held by people with high credit scores, which means that they continue to be able to pay their bills and potentially pay off their debt each month. At the same time, consumers with lower credit scores have also increased their debt burdens. Of course, credit scores can change rapidly if people face hard times and are no longer able to pay off their cards. Indeed, over the past two years, charge-off rates and late payments have increased significantly.

The cost of bankruptcy

Many people living in Virginia and around the country struggle with high levels of debt. While most people genuinely want to pay their creditors, the level of debt could be out of control, and an individual or couple may not be able to ever repay what they owe. In such cases, bankruptcy is an option.

Unfortunately, many people who are considering bankruptcy do not understand all of the costs involved. One of the first costs to consider is that of an attorney. Bankruptcy lawyers charge different amounts for bankruptcy cases, but typically their fees can run into the thousands of dollars.

Millennials are facing overwhelming debt. Is there a way out?

When a Virginia reader is dealing with debt, he or she may decide to take a look at the budget, perhaps get a second job and focus on paying down the balance for a few years. Sometimes, this works, and a person can get rid of his or her debt through discipline and hard work. For others, however, an overwhelming amount of debt can be completely beyond their abilities to pay, even with years of budgeting and timely payments. 

Millennials are a specific demographic that may fall into this second category. For many of them, they are young adults with jobs, yet they are facing decades of paying down debt. As you can imagine, this is a stressful and sometimes desperate scenario, especially for a person who is young and has many other types of financial responsibilities. 

Bankruptcy may be right for some people

For some Virginia residents, filing for bankruptcy can be a drastic step. For others, though, it can be a tool that will help them get back on their feet and start over with a clean slate. In addition to finding out if a person actually qualifies for bankruptcy, there are other things to consider when deciding if this is the right choice.

One of the first steps a person would want to take is determining how much money they have, in cash and assets, and determining if their income will be stable. This will play a huge role in deciding if it is realistic to pay off debt as opposed to going the bankruptcy route. For example, it may be that a person has $25,000 in credit card debt and they have a car loan. This may be unrealistic for a person to pay if they make less than $40,000 a year. However, it could be doable if a person makes $75,000 a year.

Knowing when it's time to file for bankruptcy

Bankruptcy could be an effective way for individuals in Virginia and elsewhere to get a handle on their finances. However, there are many factors an individual should consider before doing so. For instance, the type of debt a person has may determine if bankruptcy is right for that individual. If a person is unable to cover basic expenses each month, it may be time to file for protection from creditors.

Those who have missed multiple credit card or other debt payments may also want to consider filing for bankruptcy. This is because their credit score may have already taken a hit, which means that taking such a step might not hurt them that much. Filing for bankruptcy could also put a stop to a repossession, foreclosure or a planned creditor lawsuit. Tenants may be able to temporarily postpone an eviction by opting to take this step.

Student loan debt can be crippling

Debt seems to be a way of life for many Virginia residents. In a perfect world, it would be better to first earn the money before spending it, but there is a general concept of what is considered "good" debt. A mortgage on a home, for instance, falls into that category because it is a long-term investment that not only is tax deductible but may be instrumental in earning money if the house appreciates in value over time. Student loan debt is also typically a positive debt but not if it becomes overwhelming to the debtor.

Most people could not afford the cost of higher education without loans, but an uncertain post-education job market can thwart even the best of plans. Bankruptcy is not something one should take lightly, but it is a tool that is available to allow for a fresh start under the appropriate circumstances. Financial experts indicate that although student loan debt is in many cases not dischargeable, it may be if stringent criteria are met.

Different bankruptcies impact credit differently

The effect that filing for bankruptcy has on a credit report varies based on the type of bankruptcy that is filed. For individuals who live in Virginia, the most common bankruptcy filings are Chapter 7 and Chapter 13. A bankruptcy filing under Chapter 7 might stay on a credit report for up to 10 years while a Chapter 13 filing might be reported for seven years. However, the effect on the credit score will diminish as time goes on.

Chapter 7 bankruptcy is sometimes referred to as liquidation bankruptcy because the petitioner's non-exempt assets are liquidated to pay down debts. This form of bankruptcy results in the forgiveness of most types of debt, including medical bills, personal loans and credit card debt. A filing under Chapter 7 might cause the filer's credit score to drop by up to 200 points. Filers can expect most of their debts to be discharged at the conclusion of a Chapter 7 bankruptcy, and they might be able to keep important assets that are exempt.

Your credit score after bankruptcy

One common reason why people hesitate to file for bankruptcy is because they worry about how this action will affect their credit scores. While it is true that a bankruptcy will leave a mark on your credit rating, it is also possible that taking this step will provide you with relief from debts you could not otherwise manage. In fact, for many people, their debt situation has already damaged their credit rating.

Understanding the consequences of a bankruptcy is an important first step if you are considering this plan. The type of bankruptcy you qualify for will also determine how much of an impact the process will have on your credit score.


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