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Roanoke Virginia Bankruptcy Law Blog

Payoff of credit card debt

According to information from the United States Census Bureau, the credit agency TransUnion and the Federal Reserve, people in Maryland and the rest of the country repaid $40.3 billion of credit card debt during the first three months of 2018. The amount represents the second-highest payoff amount in a single quarter since the $44 billion that was paid off in the first quarter of 2009.

However, the debts are not getting much smaller. By the end of 2017, United States residents had new credit card debt that totaled $91.6 billion, an amount that is reported to be the largest annual total since 2007 and 104 percent more than the post-recession average. The amount of unpaid credit card debt is at its second-highest point since closing of 2008.

Rapper Lil' Kim files for Chapter 13 bankruptcy

Virginia fans of rapper Lil' Kim might have heard that she recently filed for Chapter 13 bankruptcy. She did so just before her home in New Jersey, a gated mansion worth $2.3 million, was foreclosed upon. The house is set to be auctioned on June 29.

The rapper owes more than $1.4 million in taxes and more than $4 million in various debts. She is also behind on her mortgage payments by $664,474. She lists her monthly income as $18,286 and says that in 2017, her income dropped to under $400,000 from more than $800,000 in 2016.

Debts that may be discharged in a Chapter 13 bankruptcy

Filing either a Chapter 7 or Chapter 13 personal bankruptcy allows Virginia residents with overwhelming debt to take control of their financial situations and offers them the possibility of a fresh start. Filing a Chapter 7 petition may be the fastest and most straightforward way to escape crushing debts, but individuals with incomes that qualify them for this kind of debt relief sometimes choose to pursue Chapter 13 bankruptcy instead. This is because a Chapter 13 petition allows them to pay down their debts while retaining possession of assets like cars or homes that are secured by loans or mortgages.

Debtors may also choose to pursue Chapter 13 bankruptcies when co-signers are involved. Creditors may pursue cosigners for payment of debts owed by Chapter 7 petitioners, but they are not able to seek payment by these means when a Chapter 13 bankruptcy is filed. Debts that generally cannot be discharged in either a Chapter 7 or Chapter 13 bankruptcy include delinquent child support or alimony payments, past due homeowners association dues, and money that is owed to or guaranteed by the government such as unpaid taxes, fines and student loans.

How to know if debt settlement is right for you

Having a large amount of debt can be a shameful feeling. It may make you feel like you are bad with money. According to a NerdWallet study, the average American household has $15,983 of debt on credit cards. Clearly, you are not alone in this country. It is not always just credit card debt that adds up either. Often, people are laboring under mortgages, student loans, car payments, and medical debt.

Being in debt does not necessarily mean you are bad with money. Maybe you or your loved one got sick, and your insurance did not cover all the hospital bills. Or maybe you are paying off your student loans. Regardless of the reason, you have reached the point where you feel overwhelmed by your debt. A friend told you about debt settlement companies, and you think it might be time to contact one. Before you do, you might want to learn a little more about the process.

Store credit card delinquency rates increasing

According to Equifax, the delinquency rate on store-branded credit cards is 4.65 percent, which is the highest since the beginning of 2011. The delinquency rate was 4.08 percent in March 2017. Virginia residents should know that they must still pay down a store credit card even if the store goes out of business or files for bankruptcy. Missed payments are still being reported to the credit bureaus by the lenders providing those credit lines.

The higher percentage of missed payments can also be attributed to store cards being given to those with lower credit scores. Individuals may be having a hard time keeping up with their payments as the average interest rate for a private-label card is up to 25.5 percent on average. This is higher than the 16.73 interest rate for all other credit cards. Overall, there was $1.030 trillion in outstanding credit card debt as of January 2018.

Consumer debt could reach $4 trillion before 2019

Consumers in Virginia and across the U.S. have been increasing their debt over the last few years, according to a new analysis by LendingTree. The loan comparison website said that consumer debt has been rising since 2012 and is expected to hit an all-time high of $4 trillion before 2019.

LendingTree examined data from the Federal Reserve on credit cards, auto loans, student loans and other types of nonmortgage debts. It found that U.S consumers now owe over 26 percent of their yearly income to such debts, compared to 22 percent in 2010. Auto loans and credit card balances are the types of debts increasing the fastest, with each jumping more than 7 percent each year. Meanwhile, consumer credit has been climbing between 5 and 6 percent each year, and housing debt has been increasing by just over 2 percent annually.

Understanding Chapter 7 bankruptcy

Some Virginia consumers may find themselves overwhelmed by credit card debt. The efforts of credit card companies to collect on that debt usually begins with letters asking people to pay. However, once those debts go to a collection agency, the pressure may become overwhelming with calls and letters demanding payments. People might then begin to consider bankruptcy.

Chapter 13 bankruptcy is generally for wage earners and involves creating a repayment plan. A Chapter 7 bankruptcy is for a person who has no or little income and who does not have many valuable assets or assets with much equity in them. Chapter 7 allows the person to discharge most unsecured debts and start fresh. In a Chapter 7 bankruptcy, some assets are usually considered exempt from liquidation by the trustee.

Tips for using a credit card responsibly

According to research by the credit reporting agency Experian, residents of Virginia had the third-highest credit card balance in the country in 2017 with an average of $7,161. The state with the least credit card debt was Iowa, averaging $5,155 while the highest was Alaska at $8,515.

The report also found that 43 percent of people did not pay off their balances in full each month. This is known as revolving debt, and it has exceeded $1 trillion in the United States. Interest as a result of revolving debt cost households an average of $1,000 each month. However, running up a high balance each month can hurt a person's credit even if that balance is always paid off. The debt in proportion to the limit for the credit card is referred to as the utilization rate, and it is best to keep this under 30 percent.

Effects of bankruptcy

Overwhelming debt can affect anyone due to losing a job, accumulating credit card debt or running into unexpected medical expenses. Over 700,000 individuals in the United States filed for personal bankruptcy in 2017. Naturally, personal bankruptcy rates vary by state with Virginia falling well within the middle range.

Having a bankruptcy on one's record mainly harms an individual's credit score, causing the interest rates of subsequent loans to increase. Although this may come as no surprise, it is actually good news; it was found that 65 percent of those who had declared bankruptcy managed to bump up their credit score to 640 two years after the fact and up to 672, close to the national average of 692, five years after filing. In other words, the effects of bankruptcy are reversible; all that is needed is time.

An automatic stay might give you the protection you need

When you are facing big debt problems and considering bankruptcy, there are many things it can be critical to be aware of. One is what protections the bankruptcy process typically provides. One such protection that individuals might find particularly attractive is the automatic stay.

Debt problems could lead to you being hounded by creditors. This can be a significant source of stress. You may worry about creditors disrupting your life. You also might be fearful about what sorts of actions your creditors will take. The automatic stay could provide important relief on this front.

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Michael D. Hart, P.C.
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Roanoke, VA 24011

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