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

Congress moves to change bankruptcy rules for student loans

Virginia residents who are burdened by overwhelming debt may seek relief by filing for bankruptcy, but student loans are generally not dischargeable under a Chapter 7 or Chapter 13 petition. However, that may soon change as a bill was introduced on May 9 that would eliminate the part of the bankruptcy code that makes federal and private student loan debt nondischargeable. The bicameral bill has bipartisan support.

Consumer advocacy groups including the National Consumer Law Center, Americans for Financial Reform, and the Center for Responsible Lending were quick to praise the legislative effort, but others said that the bill, while well-intentioned, would do more harm to students and taxpayers than good. A representative from the Consumer Bankers Association said that, if passed, the bill would lead to more student loans being discharged and higher interest rates on new loans.

Credit card companies report rise in charge-offs

Some consumers in Virginia may be struggling more with credit card debt than they were in the past. Bloomberg Intelligence reports that in the first quarter of 2019, the charge-off rate increased to 3.82%. These are loans that credit card companies do not expect to ever collect. This is the highest charge-off rate seen since 2012.

Furthermore, all of the major card issuers reported a rise in loans that were 30 days past due. This is considered a sign that there will be future charge-offs. One executive at a credit card issuer says that there is now less information available about people who had financial issues after the last financial crisis since that information is starting to fall off credit reports. Executives report caution in how they are dealing with consumers as a result. For example, the CEO at one major credit card company says they are being conservative about increasing credit lines for customers and are closing inactive accounts.

Improving credit score possible after bankruptcy

The impact of a bankruptcy on a person's credit score depends on a number of different factors. There are cases where a Virginia resident who is struggling to pay debts actually sees an improvement in his or her credit score after filing for bankruptcy. Credit scores are calculated by looking at credit history and other data points. When the discharge process is completed, the lower amount of outstanding debt reported may result in an increased credit score. After that, the filers will need to take steps to begin the process of rebuilding credit.

A number of credit card companies are willing to offer cards to people who have just completed bankruptcy because they like that there is little debt. The reason for the loan and the type of lender will dictate whether or not early credit applications are approved. It is common for lenders to charge higher interest rates immediately following a bankruptcy and some lenders will not give out loans until the person has an improved credit score or has demonstrated an ability to responsibly handle debts.

What to consider when filing for Chapter 7 bankruptcy

Those in Virginia and throughout the country who are struggling to manage their finances may find it helpful to file for Chapter 7 bankruptcy. Although it will impact a person's credit score, it may also make it easier to create the foundation for a stronger financial future. One of the advantages of filing for a liquidation bankruptcy is that it only takes about three to six months to have debts discharged.

Furthermore, many different types of property are exempt from being liquidated. Any wages earned or property purchased after filing for Chapter 7 bankruptcy may also be protected from liquidation or other creditor claims. In the event that a single bankruptcy filing isn't enough to overcome financial woes, an individual may be able to file for Chapter 7 bankruptcy again in six years. While there are many advantages to seeking a liquidation bankruptcy, there are some disadvantages as well.

How to fix the bankruptcy system

March and April are prime months for bankruptcy as people commonly use their tax refunds to pay for the opportunity to do so. Virginia residents may be required to wait until they receive their tax refunds because it is the only way that they can afford to file at all. A debtor can expect to pay about $1,000 for attorney fees in addition to other costs. Typically, the attorney fee must be paid upfront.

The American Bankruptcy Institute has suggested that individuals be allowed to pay attorney fees over time. Another suggestion was to allow student loan debtors to eliminate their balances after a certain number of years. Today, there is no uniform mechanism by which such debt can be discharged. Instead, a debtor must show that he or she would experience a significant hardship by being required to continue making payments.

How the FDCPA protects debtors

Calls from debt collectors may be one of the more stressful elements for Virginia consumers who are overwhelmed by their obligations. However, debt collectors are required to abide by certain laws regarding when they contact people and who they are able to contact.

The Fair Debt Collection Practices Act covers what is permitted regarding medical bills, auto loans, credit card debts, and a few other types of obligations. The federal law applies only to debt collection companies and not to the original creditor. These companies are prohibited from contacting people at work if they request not to be contacted there. They cannot contact people by phone between the hours of 9 p.m. and 8 a.m. and cannot inform friends and family about the debt with the exception of a spouse. In general, they are prohibited from threatening or harassing people.

Think twice before you sign with a debt resolution firm

Loaded with debt? Looking for a resolution before you declare bankruptcy? Many people look to debt resolution companies for help when they find themselves in this position.

Unfortunately, people in this position are often only delaying the inevitable. For many, involvement with for-profit debt resolution companies ends up with depressed credit scores, continued debt and ultimately bankruptcy delayed.

Complicated insurance networks result in surprise medical bills

Even when Virginia patients make an effort to use medical services in their insurance networks, they might fail to avoid out-of-network charges during hospitalization. Many patients understand that costs could be higher from out-of-network providers, but they may not realize that unexpected medical bills can result when they use in-network hospitals. Hospital administrators often cannot answer questions about out-of-network professionals and laboratories providing services within their hospitals due to complicated insurance contracts.

Narrowly defined provider networks, network tiers and restrictive coverage add layers of difficulty that confuse both patients and hospitals. Changing models of reimbursement add to the unpredictable nature of medical insurance and billing. The system leaves many consumers unable to know if they will be receiving out-of-network bills before agreeing to services.

What happens to a credit score after bankruptcy

Some Virginia residents who are struggling with debt may be considering filing for Chapter 7 bankruptcy. One of the major concerns for many bankruptcy filers is ruining credit scores. However, it is possible to rebuild credit after a bankruptcy.

People should keep in mind that not paying off debts also hurts a credit score. Experts say that the damage to a credit score that is already low is minimal. People with higher credit scores will take a bigger hit. The bankruptcy will remain on the credit report for 10 years, but filers can still demonstrate responsible spending habits that make them attractive to lenders.


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