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

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.

Debt levels grow while credit card defaults drop

Debt is on the rise throughout Virginia and the rest of the U.S. In fact, American consumers owe a total of nearly $14 trillion in debt. While these debts are increasing, credit card defaults are actually dropping.

A credit card default will result result in a charge-off. Generally, this happens after a person misses credit card payments for six months. However, it does not take six months for the missed payments to start affecting the cardholder's credit. Once the account is charged off, however, the account is closed and the person's ability to get other types of credit is often affected.

Credit card debt on the rise

People in Louisiana and across the country are facing increasingly high levels of household debt. In the second quarter of 2018, household debt increased for the 16th consecutive reporting period, reaching close to $14 trillion in collective debt. While $9.43 trillion is classified as housing debt, usually in the form of home mortgages, consumer debt is also on the rise. Credit card debt is increasing, but statistics indicate that default rates are still on the decline.

However, this may not fully indicate the effect that credit card debt is having on American families. Credit card debt alone grew by $14 billion in the second quarter of the year, and interest rates are also on the rise. The average annual percentage rate has risen to 17 percent, much higher than the interest rates for home mortgages, student loans and some other types of debt. When people miss payments, that APR could rise rapidly; penalty rates could reach nearly 30 percent after late or missing payments. Once fees and penalty rates begin to rack up, credit card debt can become increasingly insurmountable.

Buying a car after a bankruptcy

Filing for bankruptcy may have many consequences for those who file in Virginia or any other state. Anyone who files may see their credit score go down, and individuals who file for Chapter 13 protection generally have to make payments to creditors over three or five years. One other consequence of bankruptcy is that it can be harder to purchase a vehicle. This can be true whether a person is filing for Chapter 7 or Chapter 13 protection.

In some cases, a debtor may choose to convert a Chapter 13 bankruptcy into a Chapter 7 case. If an individual qualifies, it may make it possible to have debts discharged and the case resolved with six months. Once the Chapter 7 case has been completed, an individual is free to attempt to purchase a vehicle. However, it may be necessary to do so through a subprime dealer because of the impact bankruptcy has an individual's credit score.

Tips for paying off debt

Women in Virginia might carry more student loan, credit card and other types of debt than men. According to Comet Financial, women have over $6,000 more in student loan debt, over $1,000 more in credit card debt and over $1,500 more in auto loan debt. This may in part be due to the wage gap between men and women.

Both men and women should take steps to reduce their debt. They can start by making a budget. There may be unnecessary expenditures that can be cut out, and the money can be used to reduce the debt. Financial experts often recommend that people start with the debt that has the highest interest rate.

Life after bankruptcy: repairing your credit

Filing for bankruptcy can feel intimidating. You might think that your life will never completely recover, but this is not true. While your financials are affected for a period of time, this does not mean it will last forever.

People may be particularly concerned about their credit score. It is true, your credit takes a hit after filing bankruptcy, but it will not ruin your life. How can you fix your credit and your life after filing bankruptcy? Here is what you need to know:

Credit card debt can mount unexpectedly

Many people in Virginia are struggling to make ends meet, and they may find themselves stretching their credit card balances in order to do so. Credit card debt is growing across the United States, and the reasons can vary from financial emergencies to appealing offers from credit card companies. According to the Federal Reserve, revolving consumer debt, including credit card debt, increased across the country by 1.5 percent in July 2018. According to the national bank, American consumers' revolving debt totals $1.037 trillion.

There are several ways that people can find themselves facing greater credit card debt than they anticipated. Many cards offer rewards programs, especially those that feature travel. These rewards programs may allow people to buy travel now with the promise of making up the payments later by accumulating miles on the card. Of course, if the cardholder does not buy enough to accumulate the miles naturally, he or she will need to purchase miles directly from the airline. This cost can push the price of the trip into unaffordable territory that is difficult to pay off in full.

What to know about medical debt and credit scores

Medical bills could have a major impact on the credit score of a Virginia resident. However, anyone who receives a medical bill may have a variety of protections aimed to limit that impact. For instance, major credit bureaus Equifax, TransUnion and Experian must wait 180 days before putting information about a medical bill on a credit report. In many cases, a medical debt may be removed from a credit report if an insurance company ultimately pays the balance.

Those who do have to pay off a balance are urged to contact the creditor directly. It may be possible to start a payment plan with a low interest rate. In some cases, the debt can be paid in installments without being charged interest on the outstanding balance. Debtors are also encouraged to contact groups such as the Patient Advocate Foundation for assistance. Furthermore, patients should check their credit reports for inaccurate information, and they can contact the credit bureaus to get inaccurate entries removed.


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