Thankfully, bankruptcy provides a way of relieving some, if not all, of the stress associated with debt. But with so many bankruptcy options to choose from, you might be wondering which one is best for you. To provide clarification to our Massachusetts readers, we wanted to touch on two options in this post: Chapter 7 and Chapter 13. By highlighting the differences between the two, we hope to give you an idea of what might be the best option in your situation.
]]> When most people hear the word “bankruptcy” they usually think of Chapter 7. This form of bankruptcy allows a petitioner to liquidate their assets in order to pay off creditors. While much of the remaining debt is usually forgiven, this is not true for all debts. Child support and spousal maintenance payments usually do not get expunged. Neither does back taxes and a majority of student loan debts.In contrast to Chapter 7 is Chapter 13 bankruptcy. Often referred to as the “wage earner’s plan,” Chapter 13 gives debtors the option of submitting a series of schedules that outline their income and expenses. Using a repayment plan approved by the Bankruptcy Court, a debtor pays back the debt over the course of three to five years. In some cases, debts are even reduced prior to repayment, though this is contingent upon a person’s income.
While these are both excellent options for someone facing a financial crisis, it’s important to remember that there are consequences to bankruptcy. The first is that you might not get approved for bankruptcy protection. Or, worse still, you might find that a majority of your debt is not able to be discharged. It’s worth noting that your credit score will also be affected, impacting everything from securing future loans to your ability to purchase a home down the road.
Source: Ebony, “The Different Degrees of Bankruptcy, Explained,” Lynnette Khalfani-Cox, June 19, 2014
]]>Recently, Realty Trac reported that over one million U.S. homes are currently affected by some stage of the foreclosure process. Countless others are within months of being targeted by foreclosure professionals. If you are struggling with overwhelming debt of any kind, your home could be at risk of being foreclosed upon should you ever find that you cannot make your mortgage payments in a timely fashion.
]]> You almost certainly purchased your home with some sort of household budget in mind. But if you or your spouse has recently lost a job, have become injured or ill or if you have had to take on significant debt of any kind, your mortgage payments may no longer be in line with your budget.If you are concerned that your debt load or a recent life event has made your home vulnerable to potential foreclosure actions because you cannot make your mortgage payments on time, please consider speaking with an attorney experienced in foreclosure matters and debt relief. He or she will hopefully be able to educate you about some legal options that may help your situation significantly.
Source: Wall St. Cheat Sheet, "Does your home fit your budget?" Erika Rawes, May 19, 2014
]]>While positive changes have happened in the real estate market, millions of Americans are still underwater on their mortgages, and according to the database Zillow, millions more are "effectively" underwater.
]]> As of the first financial quarter of 2014, 9.7 million mortgage holders -- that comes to 18.8 percent -- had a loan balance that was higher than the value of the property. Another 18.1 percent had home equity, but the proceeds from a sale would not be enough to cover the related costs and also provide a down payment on a new home. In other words, those mortgage holders are not technically but effectively underwater.Clearly, if you are in either one of these situations, then you are not alone. Homeowners in Massachusetts and Connecticut have seen more than their fair share of financial troubles during and after the recession. There are legal tools, however, for addressing foreclosure and other debt-related issues.
In Massachusetts, foreclosures are handled in a "non-judicial" capacity, while in Connecticut foreclosure is a judicial matter, requiring court proceedings. You can learn more about the differences between these types of foreclosure at our debt relief website.
Source: The Washington Post, "9.7 million still 'underwater' with mortgage debt, according to online database," May 20, 2014
]]>Unfortunately, large medical bills can cause more than just stress. Unpaid bills may significantly harm your credit score. If you cannot immediately pay a medical bill, it may be possible to negotiate a payment plan with your hospital or other healthcare provider. However, even repayment plan amounts may be too steep for you to pay. In this scenario, your medical bills may end up in collections. And when that happens, your credit score will almost certainly take a hit.
]]> In addition, research recently released by the Consumer Financial Protection Bureau indicates that scoring models may currently be disproportionately penalizing individuals who have medical bills in collections. Unlike credit card debt, auto debt and other forms of debt, medical debt in collections are being scored particularly harshly by certain score models designed to predict how likely an individual is to pay back his or her debt.As a result of this unfair scoring issue, it is particularly important to avoid having overwhelming medical bills land in collections. If you are struggling with medical debt that you can not pay back immediately, please consider contacting an attorney experienced in matters of debt relief who can help guide you through your options.
Source: CNBC.com, "Credit alert! Unpaid medical bills unfairly hurt scores," Herb Weisbaum, May 21, 2014
]]>Now that it seems as though the economy has turned around, real estate markets have also recouped lost value. As a result of this, individuals who are entangled in foreclosure proceedings may now suddenly have positive home equity.
]]> According to RealtyTrac, a national research firm, the number of homes caught in foreclosure with positive equity jumped to 35 percent in the first quarter of 2014. That figure made a quarter-to-quarter increase of 4 points. Homeowners who are in this situation have fallen behind on home mortgage payments at some point, but the foreclosure process hasn't been completed. While waiting for banks to move forward, the value of their homes has jumped.Homes with positive equity involved in foreclosure may not need to be included in that process any longer. In other words, homeowners may be able to effectively stop foreclosure and sell their home at a market value. This way, they can settle a major debt and move forward.
Of course, dealing with foreclosure on top of other personal debts can be complex. As such, individuals may want to explore all available options, including personal bankruptcy, to clear debts with the possibility of building a stronger financial future.
Source: The Washington Post, "More homeowners no longer need to be in foreclosure, and they may not even know it," Dina Elboghdady, April 18, 2014
]]>Depending on the situation, people might be tempted to live off their credit cards for a while if they can't gain employment relatively quickly again, and put off actions such as Chapter 7 bankruptcy for the time being. However, it's worth determining if this is a wise choice in the long run.
]]> The first thing that people ought to do is to eliminate any unnecessary expenses. While spending a few dollars here and there doesn't make a big impact under normal circumstances, eliminating a daily latte or cable television can help to boost your bottom line.Credit card companies might be willing to work with you and offer you a lower rate or more favorable payment terms, if you are up front with them about your situation. It's better to do that before your debts begin to spiral out of control, however.
In any case, you should work to at least pay the minimum payments on your cards every month. It can be easy to rack up late fees and transform a relatively good interest rate into a bad one.
Even if you do everything you can, it might not be enough. Talking to a bankruptcy attorney can give you even more options.
Source: Market Watch, "6 credit card tips for the unemployed," Abby Hayes, April 9, 2014
]]>In general, most student loan payments begin to kick in six months after people leave school (whether or not they've graduated). Unemployment or underemployment can cause a person to fall behind -- or come very close to it. Bloomberg reports that the federal government has six options for restructuring payments. Four of the six options are reportedly quite confusing, which might provide an explanation as to why participation the restructuring programs is low.
]]> In response to the large set of complicated repayment options, a group of five organizations has unveiled a new repayment program. According to the new plan, the default payment schedule would be scrapped for payments that are a percentage of income. Loan terms are also tied to the amount of debt a particular person has, based on the suggested reforms. Additionally, it's been suggested that payments are automatically deducted from paychecks, similar to Social Security collections.Of course, this is only a suggested reform. Nothing has been put into place yet. Regardless, the main purpose of the suggested changes is to make student loan repayment simpler, especially given that personal bankruptcy is not an option to discharge student loans.
No one wants to deal with the possibility of falling behind on student loans -- particularly in the immediate wake of graduation. However, a sluggish job market has made the situation difficult for recent graduates. Ultimately, the hope is that people are able to find solutions when monthly loan payments simply become too much to handle.
Source: Bloomberg, "A Proposal to Radically Simplify Student Loan Payments," Karen Weise, March 24, 2014
]]>Wage garnishment occurs when a creditor seeks and receives a court order to withhold a portion of a person's wages. If the legal order is granted, employers must follow along.
]]> For employees who see their hard-earned pay being siphoned by creditors, it might be helpful to understand the limits of these orders. According to the U.S. Department of Labor, the Consumer Credit Protection Act puts a cap on the amount of money creditors can garnish from each pay period.It may also be helpful to know that certain types of debt are subject to higher garnishment limits. Tax debts and back child support, for example, are subject to a higher limit on garnishment than private debts.
Even with these limits, as imposed by federal law, wage garnishment can prove to be an immense burden. People in this situation might wonder exactly what they can do to put an end to wage garnishment and put their debts in the past.
Although there are numerous ways to seek debt relief, it's worth noting that declaring personal bankruptcy will put an immediate hold on collection actions and wage garnishment. At this point, people can take a moment to breathe and figure out how to work toward a clean financial slate.
Source: United States Department of Labor, "Wages and Hours Worked: Wage Garnishment," accessed March 11, 2014
]]>On a basic level, the new medical billing standards provide guidance for patients looking to resolve disputes. Oftentimes, people find themselves dealing with issues in their hospital bills when their top priority should be getting healthy again. Observers believe that the rules should ease the burden for patients by making dispute resolution and payment processes fairer, which would hopefully prevent overwhelming medical debt from accumulating.
]]> One thing to note is that these new standards for medical billing and collection are voluntary, which means that they aren't required to be adopted. However, a report from the Associated Press notes that widespread compliance is likely, since representatives from the health care and collection industries were present when the new guidelines were crafted.As we pointed out in a post from Jan. 27, medical debt is one of the top reasons people file for personal bankruptcy. This isn't surprising, given that medical debt is a huge issue for working-age individuals and families, which is confirmed by a survey conducted by the Commonwealth Fund. According to the study, 41 percent of those in this age group have problems paying back health care costs.
By implementing more favorable standards for collecting medical bills, the hope is that a larger number of individuals can avoid personal bankruptcy. While fairer debt collection tactics are welcome, it's important to understand that bankruptcy might remain the best option for a number of people dealing with unsustainable medical bills.
Source: The Associated Press, "New Billing Standards to Help Patients With Debt," Linda A. Johnson, Feb. 13, 2014
]]>Massachusetts led the nation as the first state to legalize same-sex unions, but couples married in the state were previously unable to declare bankruptcy together because it is a federal legal procedure. Thankfully, many couples will no longer feel restrained from taking the steps to eliminate debt and move forward.
]]> Another thing to note is that this announcement from the Department of Justice doesn't apply only to the states where same-sex couples can legally exchange vows. Instead, because this is a federal matter, any couple with a legally recognized marriage can file in their respective U.S. bankruptcy court. For example, a couple that was married in Massachusetts, but resides in one of 34 states without same-sex marriage, doesn't have to worry about not being able to seek bankruptcy jointly.A report from CNN notes one particular implication of this legal shift. Alimony and child support debts aren't allowed be discharged in bankruptcy. By recognizing same-sex unions, this will be true for any person who has been legally married and has a divorce settlement calling for support payments.
Marriage unites the personal and financial lives of two people. Just as married same-sex couples are allowed to file income taxes jointly for this reason, permitting bankruptcy is simply another step forward. As such, couples looking to alleviate the pressure of debt may want to consider all of their options, especially since bankruptcy may have become more feasible.
Source: CNN, "Feds to expand legal benefits, services for same-sex marriages," Evan Perez, Feb. 9, 2014
]]>Even with health insurance, people still might face significant out-of-pocket costs for medical visits. USA Today looked into the financial issues related to health care and found that high-deductible health insurance plans can create a strain for lower- and middle-income families.
]]> Under the federal health insurance exchange, created as a result of the Affordable Care Act, the average plan still has a $3,000 deductible. Under the least-robust plans included in the exchange, the overage deductible is more than $5,000 according to USA Today. Massachusetts is running a state-based exchange, but the same principle applies: Many families may not have extra cash on hand to cover their deductible in the case of a medical emergency.Of course, this post isn't designed to provide any sort of political commentary about the Affordable Care Act. Instead, it's simply to demonstrate that medical debt can still become a major problem for many families, even with reforms going into effect.
Although medical care can be costly, it's an expense that’s often unavoidable. Without the liquid assets on hand to pay a deductible out of pocket, medical expenses will likely become debt. Unable to finance those expenses, a person’s hospital bills could go to collection. At this point, seeking debt relief options may be necessary to move forward and continue to receive necessary medical care.
Source: USA Today, "Medical debt will persist despite health law," Jayne O'Donnell, and Paul Overberg, Jan. 15, 2014
]]>In a previous blog post, preparations for holiday spending and gift giving were discussed. Now that the holidays have passed and credit card statements are streaming in, there is a better idea of how much people spent during the holidays. As such, many families in Massachusetts might be looking for ways to tackle those bills and start 2014 in strong fashion.
]]> According to a survey from the American Research Group, consumers across the country spent slightly less on Christmas gifts in 2013 than 2012, spending about $800 on average. Furthermore, polling data suggests that a majority of people -- 63 percent of Americans -- didn't have funds saved up for Christmas gifts. As such, much of that spending probably went on credit cards.At first, people might plan a budget to pay back credit card bills in a timely fashion. These efforts, however, may not be enough for some individuals. When debt mounts to the point that it's unsustainable, people may have to look to other means of relief. One possibility is personal bankruptcy. Through this process, individuals can discharge debt from credit card usage and other expenses that have stacked up over time.
Clearing debt can be the perfect way to find a fresh start in the new year. This way, people can begin to rebuild their personal credit. Without strong credit, it can be difficult to make an investment in a home or other important assets. Taking time to address holiday debt might be the first step in returning to a point of overall financial strength.
Source: KPAX.com, "Good Question: How to pay down your Christmas debt," Jill Valley, Jan. 9, 2014
]]>Not only do graduates need income to keep up with regular expenses, but a new study shows that most also have to worry about keeping up on student loan payments. The Institute for College Access & Success' Project on Student Debt reported that 66 percent of 2012 graduates in Massachusetts have loan debt, which is actually slightly below the national average.
]]> Not only did the organization's study take a look at how many of 2012's college graduates have student loan debt, but it also measured average debt loads. Between 2011 and 2012 graduates, the national average debt load climbed by slightly less than $3,000 to $29,400. The institute attributes these increases to tuition hikes and the decreasing ability of families to contribute to college-related costs.Dealing with student loan debt immediately after graduation might seem absolutely overwhelming, particularly as students may need additional time to find stable employment. As such, it may be necessary to seek out debt relief.
Under current laws, student loan debt cannot be included in personal bankruptcy filings. This may initially seem to rule out Chapter 7 bankruptcy as a viable option. However, it may be helpful to consider the totality of a person's financial circumstances. By filing for Chapter 7, a person can clear many other types of debt. As a result, this could offer much-needed relief and provide the kind of financial leverage a person needs to be able to manage monthly student loan payments.
Bankruptcy law is known to be rather complex. Gaining an understanding of all available debt relief tools can help a person find a path toward financial stability.
Source: CNN Money, "Average student loan debt: $29,400," Blake Ellis, Dec. 5, 2013
]]>In order to help make the season even more memorable, people often spend significant sums of money on Christmas gifts for loved ones. Even though gift buying is often fueled by good intentions, many people might find themselves overwhelmed with holiday-related debt, particularly on credit cards.
]]> According to a recently released Harris Interactive Poll, Americans understand the stress that comes along with holiday spending. In fact, overspending is the aspect of the season people dislike the most. Of those who were surveyed, 27 percent felt this way, while others noted their distaste for holiday crowds and overeating.Estimates from CNBC suggest that Americans will spend at least $148 billion on Christmas-related expenses. One thing to consider, in addition to money spent on gifts, is that many people have travel expenses for the holidays as well.
Once the holidays have passed, it may be helpful for people to make an assessment of their financial situation. It may turn out that debt relief is in order. Understanding this possibility, it's helpful to know that there are options available to deal with the pressures related to holiday spending. A trusted attorney will be able to explain what can be done to find a greater sense of financial stability.
The previously mentioned poll also found that, unsurprisingly, people enjoy spending time with loved ones the most during the holidays. As Christmas and New Year's celebration approach, this spirit is what people should look forward to.
Source: CNBC, "Eight ways you'll spend $148 billion this Christmas," Kevin Kane, Dec. 16, 2013
]]>At one time in his life, it's likely that Carter enjoyed a healthy income and didn't have to worry about debt. Now, Carter owes creditors more than $2.2 million, while his assets total slightly more than $8,200. Because of this situation, he has decided to seek bankruptcy protection. The Internal Revenue Service is listed as the biggest creditor in bankruptcy filings.
]]> A representative for the pop star said that most of these debt-related problems are the result of mismanagement that took place when Carter was a minor and not in control of his financial affairs. Now an adult, the singer is looking to take charge of this situation and use Chapter 7 as a means to move forward.Generally speaking, tax debts cannot be discharged through bankruptcy. This often causes people to pursue other ways to pay back taxes. In this case, however, Carter didn't have a hand in managing his finances when most of this debt was accumulated. As such, will this case be different?
Those who are looking for debt relief probably have many questions, some of which may be similar to those being asked by Carter in his case. A person's financial stability can be disrupted literally over night, so it might be helpful to seek solutions as necessary.
Source: USA Today, "Aaron Carter files for bankruptcy," Andrea Mandell, Nov. 21, 2013
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