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

A different solution to asset disposition in Chapter 7

Going through a Chapter 7 bankruptcy can be one of the most stressful moments in a person's life. One way that this process becomes even more burdensome is the way real estate is treated in the disposition process. While a homeowner can claim a homestead exemption, meaning the property can't be dissolved to resolve the debt, that does not prevent a home from being foreclosed upon if the borrower doesn't have the income to cover the mortgage payments.

One possible solution to this problem is to allow the disposition of property through auction similar to HUD's Claims Without Conveyance Title (CWCOT) program. Mortgagees and trustees could agree to reserve prices and set other parameters that are in the best interests of all parties. This could lead to fewer objections from the mortgagee and a reduced chance of the property going into foreclosure.

Fewer bankruptcy filings may not mean rosy finances

Bankruptcy cases in Virginia and across the country are on the decline, but the reasons why may be more complex than they first appear. According to a report by Supreme Court Chief Justice John Roberts, bankruptcy filings have reached their lowest point in 10 years. While nearly 1.6 million filings were made in 2010, amid the widespread financial crisis, that number was halved by 2018. During the year, approximately 770,000 cases were filed in bankruptcy court, reflecting both corporate and consumer plans. The vast majority were filed by consumers, comprising 97 percent of the total.

However, the reasons why people are not filing for bankruptcy may not be as rosy as they first appear. Some experts noted that people are not filing because they feel they cannot afford to do so and are not concerned with protecting their few assets. In addition, 2005 legislation made it more difficult for consumers to file for bankruptcy and compelled lawyers to raise their rates given the additional burden imposed by the law. While bankruptcy cases are relatively affordable in comparison to other types of legal work, people truly struggling to make ends meet may find them an additional insurmountable expense.

Older Americans are filing for bankruptcy more frequently

An increasing number of older Americans are filing for bankruptcy in Virginia and across the country, even as bankruptcies overall appear to be on the decline. While 1.6 million people filed for personal bankruptcy in 2010, that number had reached only 789,000 by 2017, illustrating the changing state of the national economy. Still, the overall numbers may not clearly show some of the demographic differences that exist in bankruptcy trends. By 2016, 12 percent of all bankruptcy filings were made by people over 65, a proportion that rested at only 2 percent in 1991. The bankruptcy rate declined for people under 55, but shot up for those above that age.

There are a number of factors that could contribute to higher likelihoods of personal bankruptcy among older people. Social Security has become less generous and traditional pension plans continue to decline. While Social Security used to generate around 48 percent of a person's pre-retirement income, that number fell to around 38 percent by 2010. Pensions of the past more commonly provided defined benefits, but current plans are more likely to fluctuate on the basis of investment values. In addition, healthcare costs have risen sharply and medical expenses are often a major contributor to bankruptcy, even for older people with access to Medicare.

Understanding Chapter 13 bankruptcy options

People in Virginia who are facing insurmountable debt may look for relief from their situation by filing for personal bankruptcy. There are two major bankruptcy options for individuals: Chapter 7, or liquidation, and Chapter 13, or repayment. When a person files for Chapter 7 bankruptcy, a trustee is appointed by the court to liquidate the person's assets, using the proceeds to pay off some debts. After that liquidation, the person's remaining debts are discharged. It should be noted that, in general, neither type of personal bankruptcy is typically able to discharge student loan debt although it can address medical bills, credit card debt, loans and other types of personal debt.

On the other hand, Chapter 13 bankruptcy can be an important option for people whose income is above the federal means test maximum for Chapter 7. In addition, it can allow people to emerge from bankruptcy while keeping their home or another valuable item of property. Rather than liquidating assets, Chapter 13 bankruptcy is based on a five-year repayment period using a structured plan. The court specifies approved expenses and reviews the person's income, and any extra disposable income is expected to be directed toward debt repayment.

Should you consider a consumer debt program or bankruptcy?

There are many reasons you can be in heavy credit card debt. It can be frustrating since you may have been a financially responsible person your whole life and now faced with debt that could take 10 to 20 years to pay off.

Credit card debt can happen to people of all ages, backgrounds and income levels. Many people find themselves in major credit card debt because they lost their job, got a divorce or their business went under. In times like this, you need to use credit cards to stay afloat, but by the time the dust settles and a couple more curve balls have been thrown at you, you are in over your head.

The root causes of credit card debt

As a whole, U.S. consumers have accumulated nearly $1 trillion in outstanding credit card debt. One of the reasons why credit cards can be so appealing is that they allow individuals access to capital beyond what they earn. However, doing so can cause a person to go into debt. Ideally, a Virginia resident will use credit cards for occasional purchases until the next payday.

Individuals also use credit cards because they come with perks. For instance, a cardholder may be entitled to cash back or airline miles as a result of using a given card. However, the interest paid on a revolving balance could be more than what a person receives in cash back or other rewards earned. Generally speaking, the cards are only worth using if one can pay down the balance each month and dodge paying interest.

Credit card debt mounting across the country

For people in Virginia and across the United States, credit card debt can be a severe and escalating problem. Virginia is one of the five states whose residents owe the most on their credit cards. While Virginians tend to have higher median incomes, allowing them to pay back their bills, circumstances can change rapidly in case of a job loss, divorce or disability. The lower a person's income, the more he or she may struggle to repay their growing debt. Those difficulties can cause the debt to grow even more as interest charges, late fees and other costs stack up on top of one another.

Many financial experts recommend setting aside 15 percent of income to pay back debts, including credit card debt. For someone making around $47,000 annually, it can take a year and a half to pay back around $8,000 in debt. During that time, the person could wind up owing $1,320 in credit card interest. Of course, the consequences can be even more significant when the debt burden is higher or income is lower. People may find themselves facing unrepayable debt and dealing with collection calls, lawsuit threats or even judgments.

What is an automatic stay during bankruptcy proceedings?

When you file for bankruptcy, an automatic stay can be a lifesaver. It won’t solve your problems, but it does give you some breathing room while you get your finances under control.

An automatic stay prevents creditors from trying to collect from you for debts incurred before you filed for bankruptcy. It stops any foreclosure actions, harassment and collection efforts against you by a creditor or collection agency. It remains in effect until the court lifts the automatic stay.

Consumer debt to hit $4 trillion

According to statistics posted by Yahoo! Finance, consumer debt has increased since 2013 by more than $1 trillion. Total consumer debt in Virginia and across the U.S. is expected to reach $4 trillion before the end of 2018. The total debt numbers break down into $1.04 trillion in credit card or revolving debt and non-revolving debt of $2.9 trillion. Non-revolving debt includes debt tied to auto loans and student loans. Mortgage debt is not included in consumer debt figures.

Consumer revolving debt has increased 22 percent since 2013, and non-revolving debt has jumped 30 percent since that year. Based on spending patterns in November, analysts working for LendingTree said they expect Americans to increase their credit card balance by five percent or more during the last month of 2018. In servicing these debts, Americans have handed over more than $100 billion in 2018 to cover credit card fees and interest.

Filing Chapter 7 bankruptcy for a second time

Those who are struggling to repay their debts may want to file for bankruptcy protection. However, there are certain criteria that must be met to do so. For instance, those who have filed for Chapter 7 bankruptcy protection in the past must wait eight years to file another such case. To convert a Chapter 7 case to a Chapter 13 case, four years must have passed from the date in which the Chapter 7 case was filed.

Individuals who are in the middle of a Chapter 13 proceeding may have their case converted to a Chapter 7 proceeding. This is done by filing a notice of conversion, paying a conversion fee and then taking the means test. The means test compares a debtor's income to the median in the state. In some cases, the need to take such a test will be waived.


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

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