What Happens to My Credit Card Debt If I File for Bankruptcy?

/by

Credit card debt is a leading cause of unmanageable finances. According to Experian, the average credit card balance of Americans is $5,525, with some states having average credit card debt as high as $7,089.

Those are significant figures, but many families are able to pay down debt when it gets too high. But what if your credit card debt becomes so unmanageable that you consider filing for personal bankruptcy? Here is what happens to your credit card debt when you choose bankruptcy for debt relief.

The Risks Associated with Unmanageable Credit Card Debt

When you fall behind on your credit card payments, you can get into serious financial trouble quickly. Some of the consequences of unmanageable credit card debt include:

High Interest Rates and Fees

Credit card companies charge incredibly high interest rates to customers who don’t pay off their balances at the end of the month. And, if you get behind or miss a payment, you’ll begin to accumulate late fees. Even worse, some credit card companies will charge higher rates and fees if you become a credit risk.

Debt Collection Actions

If you stop paying your credit card debt, the creditor will eventually send you to collections. You’ll start to get harassing letters and phone calls from debt collectors. If you ignore them, the company might even file a lawsuit, and you can get a default judgment against you by the court.

Damaged Credit Rating

Unmanageable credit card debt will inevitably lead to a damaged credit rating. With a lower credit score, you will have trouble borrowing money to purchase a home or buy a car. Your credit rating might even impact your career prospects.

Credit Cards Are Generally Considered Unsecured Debt

It’s important to understand that most credit card debt is considered unsecured debt. Secured debt has assets backing it up, such as a car for a vehicle loan or a house for a mortgage. Credit card debt is unsecured because there is no collateral that the creditor can take if you fail to pay as promised.

While unsecured debt is based on your credit rating and promise to pay, creditors are able to take action if you don’t live up to your end of the bargain. Specifically, they can send you to collections, file a lawsuit against you, and even garnish your wages if the court allows them to do so.

What Happens to Credit Card Debt When You File for Bankruptcy?

Having out-of-control credit card debt is never enjoyable. People make mistakes with credit cards. But just as many people get into financial situations, such as job losses and unexpected medical crises, that they feel must be managed through credit card debt.

When bill collectors won’t leave you alone, and you are unable to pay on the debt, something has to give. It’s challenging to live with the anxiety of daily harassment by creditors. Fortunately, personal bankruptcy can stop the harassing phone calls and letters instantly.

When you file for bankruptcy, you get an automatic stay, which takes effect immediately. Credits are notified that they are no longer permitted to take any actions to recover debts until your case is resolved. The calls and letters will stop.

Bankruptcy Options for Credit Card Debt

There are several different types of personal bankruptcy that can address credit card debt.

Chapter 7 Bankruptcy and Credit Card Debt

Chapter 7 bankruptcy is referred to as a liquidation bankruptcy. In essence, some of your assets are sold to pay off a portion of your debts. Because of various exemptions, many people who file for Chapter 7 don’t have to give up any assets. For example, you can keep your home and vehicle as well as some personal items. Once your Chapter 7 bankruptcy is finalized, your credit card will be erased, and you will have a clean slate.

Chapter 13 Bankruptcy and Credit Card Debt

Chapter 13 bankruptcy is the other type of bankruptcy that addresses credit card debt. This is a repayment plan bankruptcy, requiring you to repay a portion of your debt over three to five years. Once you complete the repayment period, any remaining debt will be fully discharged.

Credit Card Debt That Can’t Be Erased Through Bankruptcy

Most unsecured credit card debt can be addressed through personal bankruptcy. But, if you used your credit cards to pay for certain items that are not dischargeable in bankruptcy, those expenses could be disallowed. Examples include alimony, child support, student loans, and back taxes.

Gulf Coast Bankruptcy Attorney works diligently to provide the most up-to-date and accurate information about debt relief and bankruptcy for residents of the Gulf Coast region. Our resources are meant to help readers make informed decisions about their financial wellbeing and the possibility of personal bankruptcy.

Can Student Loans Be Discharged in Bankruptcy?

/by

Student loan debt in the U.S. has reached a staggering $1.75 trillion. While these loans are often used to further higher education, the debt remains a significant problem for many people because of its heavyweight on individuals and their finances. People are often wary of including student loan debt in bankruptcy filings because they do not believe the loans can be discharged. However, there are certain circumstances in which courts can wipe out student debt.

Circumstances When Students Loans Can Be Discharged in Bankruptcy

Not every student loan can be discharged in bankruptcy. In fact, most can’t. Here are some circumstances in which student loans could possibly get discharged through a personal bankruptcy or similar request.

  1. Extreme Financial Hardship

If a debtor has no other options or unsecured creditors are willing to accept less than the total value of their claims, the court may discharge the debt. This rule is applied at the state level and in federal court.

  1. Fraud/Misrepresentation

People may be able to get student loans discharged if there is sufficient evidence proving that the school misrepresented its program and the student relied on that misrepresentation.

  1. Permanent Injury

Students who have sustained permanent injuries during their education are eligible for principal discharge. This eligibility is also applicable to individuals who have permanently injured themselves during their education.

  1. Death

If a student dies before paying off their loans, those loans can be discharged in court according to the family’s situation and wishes.

  1. Automatic Discharge

In some cases, education loans are automatically discharged when one has filed for bankruptcy. These are typically state-level discharges that have been awarded to people over the last few years.

  1. Student Loan Relief

The U.S. Department of Education has a program that works with people who have lost the ability to repay their educational loans by providing debt forgiveness, which is not considered a discharge in court.

  1. Unforeseen Circumstances

If a debtor is surprised by an extreme event that makes it impossible to pay the loans, they can use insolvency. These events must be unanticipated, and they should have only applied to one person.

Circumstances When Student Loans Cannot Be Discharged in Bankruptcy 

  1. Federal higher education loans: Federal loans, such as Perkins and Stafford, cannot be discharged in court.
  2. Private student loans: Private student loans cannot be discharged in court if consolidated with another loan. If a private loan has been obtained without consolidation, it could be discharged if the debtor shows that it is based on fraud, misrepresentation, or extreme financial hardship.
  3. Deferment and forbearance: Loan payments that have been deferred or postponed for any reason cannot be automatically discharged in court.
  4. Income-based repayment plans: Some income-based repayment plans are based on future earnings, meaning that they are not dischargeable in bankruptcy unless there is a change in circumstances like an extreme financial hardship.

Benefits of Discharging Students Loans in Bankruptcy 

  1. Discharging higher education loans frees up cash to use in other ways. When the loans are discharged, they no longer need to be repaid, and the anxiety associated with unpaid debt disappears.
  2. As soon as you file for bankruptcy, creditors listed must stop harassing you for payment due to the automatic stay.
  3. Your credit report is updated to show that these loans have been discharged.

Challenges of Discharging Students Loans in Bankruptcy 

  1. There are stricter standards for proving eligibility to discharge higher education loans in bankruptcy.
  2. Students who have their loans discharged due to disability might not be allowed to finance higher education costs in the future.
  3. The student loan debt servicer can fight the discharge request, setting up a costly legal dispute.

Your Options for Student Loan Debt Relief

Discharging student loans through bankruptcy is ideal in situations where it is permitted. But those are incredibly limited. Many different elements should be considered before filing bankruptcy to get rid of student loan debt. If you are having trouble paying off your education loans, you may need to consider other alternatives.

Income-based repayment plans are another one of the options available for people who wish to pay off their loans. In many cases, personal bankruptcy gives a person enough financial freedom that they are able to resume paying federal student loan debt payments.

If you are struggling with overwhelming debt, an experienced bankruptcy attorney can give you the answers you need. Gulf Coast Bankruptcy Attorney is committed to providing residents of the Gulf Coast with the resources necessary to make informed decisions about their financial future.

Veterans and Bankruptcy – What Do I Need to Know and Will I Lose My Benefits

/by

Hundreds of thousands of veterans fall into serious financial difficulties each year, and many consider bankruptcy protection as one of their options. While just 10% of the total U.S. population are veterans, nearly 15% of those who file for bankruptcy are in this class. But, Chapter 7 bankruptcy has certain requirements, such as passing a “means test.” So, it’s a valid concern if you’re a veteran that some of your VA benefits might be in jeopardy. 

In fact, there are special bankruptcy rules that apply to active duty military and disabled veterans. If you believe that personal bankruptcy might be the best solution to your financial troubles, here is what you need to know. 

Military Members and the Means Test Exemption

The “means test” is a way to determine whether you are qualified for a Chapter 7 “straight bankruptcy” versus a Chapter 13 “adjustment bankruptcy.” It is based on your income and monthly expenses. The means test is a big deal because many people would rather file under Chapter 7, but some may not qualify because of their income. 

One of the ways to avoid taking the means test is having an active duty/homeland defense exemption. According to the U.S. Bankruptcy Code, you do not have to take the means test if, at any time after September 11, 2001, you were or still are a member of the National Guard or Armed Forces who served for the homeland defense or on active duty for at least 90 days. To qualify, you must file your Chapter 7 bankruptcy case either while still on active duty or within 540 days after your duty ends. 

Disabled Veterans and the Means Test Exemption

Another way to avoid the means test is to meet some strict requirements related to veteran disability compensation. Specifically, the U.S. Bankruptcy Code states that you do not have to take the means test if:

  • You are at least 30% disabled and collect veteran disability compensation; or
  • You were released from active duty or discharged from service due to a disability incurred or aggravated in the line of duty. 

AND

Your financial troubles must have happened during a period in which:

  • You were performing a homeland defense activity; or
  • On activity duty. 

Unfortunately, these are some strict requirements that not many veterans would be able to meet. The good news is that the rules related to the means test were updated several years ago, making it easier for veterans to get the financial relief they need and deserve. 

Excluding VA Benefits in the Means Test Through the HAVEN Act

Since the 1990s, the number of U.S. military veterans receiving disability benefits has doubled. There are now roughly 4.75 million vets receiving disability payments, and more than 100,000 vets file for bankruptcy protection annually. 

Since many veterans didn’t fit into the strict exclusions established by the U.S. Bankruptcy Code, their disability benefits were considered disposable income under the means test. Not only did this disqualify them for Chapter 7 bankruptcy, but it forced them into Chapter 13 bankruptcy and took some of those benefits to pay off creditors. 

In 2019, a bipartisan effort in Congress passed the Honoring American Veterans in Extreme Need Act, or HAVEN Act. This Act amended the Bankruptcy Code to exclude many benefits from a debtors’ monthly income during the means test. 

Under the HAVEN Act, any benefits that a person receives from the U.S. Department of Veterans Affairs (VA) or the U.S. Department of Defense (DoD) do not need to be considered in the means test. This makes it much easier for someone having financial difficulty to qualify for Chapter 7 bankruptcy and have their debts discharged quicker. 

There are a few limitations to the HAVEN Act. The exemption may not apply if the veteran:

  • Receives retirement benefits as well as temporary disability benefits; 
  • Receives special compensation payments monthly from the DoD; or
  • Has enough disposable income to pay at least one-quarter of their debt over five years. 

In addition to relief through the HAVEN Act, your state’s bankruptcy exemption laws might provide some protection for veteran’s benefits. And the Servicemembers Credit Relief Act (SCRA) provides additional relief to servicemembers from various debt collection actions, both inside and outside bankruptcy. 

If you are a current or former servicemember who needs financial relief, a trustworthy bankruptcy attorney can answer your questions and guide you through this process. Gulf Coast Bankruptcy is committed to providing people with the resources they need to make informed decisions about their financial future. 

What do I need to bring to my first meeting with a Bankruptcy Attorney?

/by

Filing for bankruptcy is never anyone’s first choice. It’s a tough decision that generally comes after a long struggle with financial issues and having to deal with ruthless creditors. But, if you’ve decided that bankruptcy is right for you, the process will go more smoothly if you come prepared for your first meeting with your bankruptcy attorney. Here’s what you need to know.

Don’t Be Shy or Embarrassed

By the time most people summon the courage to contact a bankruptcy attorney, they are often feeling some shame about their financial situation. In the current economic climate, there is nothing to be embarrassed about. Bankruptcy law firms are in the business of helping people get financial relief in the face of challenges, not passing judgment. 

It’s not uncommon to experience a wide range of emotions during the first meeting with a bankruptcy attorney. You might feel sadness, anger, fear, loss, and even relief. These are all natural feelings as you work on solutions to your financial difficulties. 

Questions a Bankruptcy Attorney Will Ask

Before you have to produce any paperwork, the bankruptcy law firm will have some preliminary questions about your finances and life. Some of those questions are likely to include:

  • Your marital status
  • Number of children
  • Household income
  • Any businesses you own
  • Back taxes owed
  • Past bankruptcy filings
  • Any judgments against you
  • Any recent transfers of property
  • Any child support or alimony in arrears

Documentation You Should Bring

In addition to being ready to answer some questions, you’ll want to show up for your initial meeting with an attorney prepared with some documentation. Here is a checklist of the paperwork you’re going to need to file bankruptcy:

Financial Records

  • Most recent bank statements (at least six months)
  • Your most recent pay stubs (six months)
  • Past three years of tax returns
  • W2 forms
  • Your check register
  • Copy of your credit report
  • Invoices or bills for purchases in the past year
  • Most recent payment coupons for real estate loans, vehicles, and student loans
  • Copies of recent credit card bills
  • Copies of other bills – medical bills, overdue utility bills, etc. 
  • Copies of any other loan documents
  • Collection letters
  • Copies of statements for investment and retirement accounts
  • Property tax statement

Legal Records

  • File from any previous litigation
  • Copies of divorce decrees or orders for child support or spousal maintenance
  • Any lawsuits with which you’ve been served
  • Paperwork if your home is in foreclosure

Additional Documents

  • Photo ID
  • Social Security card
  • Proof of car insurance
  • Copies of any life insurance policies
  • An itemized list of your assets and debts
  • An itemized list of your monthly expenses

When your attorney reviews this documentation, as well as the answers to your questions, they will be able to tell you if you qualify for bankruptcy and what type of bankruptcy is likely to get you the best result – Chapter 7 or Chapter 13. 

What If I Forget a Document or Can’t Find Something?

The above is a relatively comprehensive list of what you will need to complete the bankruptcy process. You should gather as much of this information upfront as possible. But don’t feel pressured to have everything in hand if you can’t find a few things before your initial appointment. 

Let your attorney know as soon as possible if you are having trouble locating a piece of information. There’s a good chance they will be able to give you some direction or resources to approach. The parties you may need to contact for information usually include lenders, employers, banks, and courthouses. Provided you make a good faith effort to locate and produce a document, you shouldn’t have any problems in terms of misrepresentation. 

Questions You May Wish to Ask

You are likely to receive a lot of information in your first meeting with a bankruptcy attorney. But you should come prepared with some questions of your own. Nerves are understandable when dealing with finances and legal issues, so write your questions down and bring a notebook along with you to take some notes. Here are a few questions you might want to add to your list:

  • Should I file Chapter 7 or Chapter 13 bankruptcy?
  • Will I be able to keep my car and house? 
  • What other property will I be able to keep with bankruptcy?
  • Do I pay attorney’s fees upfront, or are other arrangements possible? 
  • What do the fees include and not include?
  • What does the bankruptcy process involve? 
  • How long does the bankruptcy process take?

At Gulf Coast Bankruptcy Attorney, our mission is to provide those who are dealing with overwhelming debt the information they need to make informed decisions about their financial future. 

Could I Lose My Home If I File for Bankruptcy?

/by

Owning a home has been a part of the “American Dream” for generations. If you’re struggling with debt, you might fear losing one of the most valuable assets you own – your home – when you file for bankruptcy relief. But, with the right strategy, you should be able to keep your home and some other assets with personal bankruptcy.

Will I Lose My Home If I File for Bankruptcy?

Most people file for bankruptcy to get relief from overwhelming debt. And much of that debt is unsecured, meaning it isn’t backed by an asset like a home or vehicle. When you eliminate the debt you are unable to pay, it can make it easier to keep your home.

Mortgages are considered secured debt, meaning the lender has an ownership interest in the property. As long as you continue to make payments, you’ll probably be able to keep your home. But there are some exceptions.

When you file for personal bankruptcy, the three factors that determine whether you can keep your home include:

  • The type of bankruptcy you file (Chapter 7 vs. Chapter 13)
  • How much equity you have in your home
  • If you can afford your continuing mortgage payments

The Type of Bankruptcy You File and Your Home

When you file for personal bankruptcy, you’ll have the choice between filing for Chapter 7 or Chapter 13. There are similarities and differences between the two. If you’re behind on your mortgage, Chapter 7 may not be the best option because there is no mechanism available to help you get caught up.

As long as you are current with your mortgage payments, you may be able to keep your home with either Chapter 7 or Chapter 13. You are entitled to certain exemptions with bankruptcy. An exemption refers to the value of the property you can keep.

The goal of bankruptcy is to give you a fresh start, not to leave you homeless. There are federal and state bankruptcy exemptions. But state exemptions often either mirror or take precedence over federal ones. Basically, if your property is worth less than the exemption value, you don’t have to give it up.

As a general rule, Chapter 7 bankruptcy exemptions are lower and less flexible than Chapter 13 exemptions. While you may be able to keep your home with either type of bankruptcy, you have a better chance with Chapter 13.

How Much Equity Do You Have in Your Home?

When you file for bankruptcy, the court assigns a trustee to your case. That trustee is the one that reviews your debts, deals with creditors, and decides what you can keep and what must be liquidated or surrendered.

When you file for Chapter 7 bankruptcy, the trustee doesn’t look at the “value” of your home but rather how much equity you have in it. Equity refers to the market value of your home minus the balance of any loans.

With Chapter 7, equity is essential. If you have equity in your home that is substantially above the exemption limit, the trustee will probably sell your home to pay off some of your unsecured debt.

With Chapter 13, you won’t have to sell your home no matter how much equity you have. But you might have to pay for the nonexempt portion of your equity as part of your repayment plan.

Can You Still Afford Your Mortgage Payments?

If you decide to keep your home during the bankruptcy process, the trustee will want to see that you can afford to make the ongoing payments. After all, it wouldn’t make sense to file for bankruptcy protection only to put yourself in a poor financial position moving forward.

As long as your income allows you to make the mortgage payments considering your new reduced debts, you can probably keep your home. But you may want to take a different approach. Bankruptcy offers you a unique opportunity to walk away from a mortgage as you wipe the slate clean with your other debts. If this is in your best interests, it may be worth considering.

Gulf Coast Bankruptcy Attorney works diligently to provide residents throughout the Gulf Coast region with the information they need to make informed decisions about bankruptcy and their financial future.