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Salem MA Bankruptcy Law Blog

Medical debt reporting reforms help few people

Only a few people in Massachusetts who have medical debt will be affected by a reform in reporting this debt to credit bureaus. Under the new regulations, which go into place on Sept. 15, before debt appears on a person's credit report, there will be a waiting period of 180 days. Furthermore, if health insurers pay medical collections, those debts will be deleted from the report.

Unfortunately, the waiting period reform will only help about 0.1 percent of the 220 million people who have a credit report. A 180-day wait in reporting this debt is fairly standard for medical providers. As for the other reform, fewer than 8 percent of the 43 million people with medical collections on their credit report have collections that are marked as paid. It is unclear how many of those were paid by insurers and how many by the consumer, but it does indicate that few people will be helped by the removal of the item.

Evaluating the costs of filing for bankruptcy

Massachusetts residents may be able to either discharge or restructure debt by filing for bankruptcy. It will either be considered as a liquidation or a reorganization, and bankruptcy laws that are created by Congress apply to everyone in the country. The cost of filing for bankruptcy depends on the type of protection sought as well as whether an individual chooses to hire an attorney.

Those who choose to file for Chapter 7 bankruptcy in 2017 will pay a base fee of $335. In a Chapter 7 case, a trustee will collect an individual's non-exempt assets, sell them and use the money to repay creditors. Chapter 13 bankruptcy allows an individual to propose a plan to repay debts over a period of up to five years. The base fee to file for a wage earner's plan in 2017 is $310.

Comparison of debt settlement to bankruptcy

Financial problems could strike almost anyone in Massachusetts after a job loss, death in the family or medical emergency. When debts become impossible to pay, people might turn to debt settlement. Debt settlement generally involves contracting with a company that will attempt to resolve debts with a lump sum payment of less than the total amount that is due.

Although debt settlement might initially attract people who are leery of filing for bankruptcy, the process has drawbacks. Unlike Chapter 7, in which some debts could be discharged in a matter of months, debt settlement negotiations could take years. During that time late fees and interest continue to add to the balances. The debtor also lacks any protection from harassment by creditors during this process, and a creditor could even file a lawsuit.

New bankruptcy rules clarify deadlines for creditors

New rules for consumer bankruptcies will apply to debtors in Massachusetts and nationwide effective Dec. 1, 2017. In April, the Chief Justice of the United States delivered a set of proposed amendments for review by lawmakers. The amendments intend to establish consistent deadline rules for creditors responding to bankruptcy filings.

One of the new rules specifically requires secured creditors to file a proof of claim within 70 days of bankruptcy filing date. Creditors, however, will get an additional 50 days for a total of 120 days after the original filing date to submit documentation of the secured debt, such as a note, mortgage or deed of trust. These deadlines represent a tightening of requirements on creditors. Other amendments grant courts the power to uphold the amounts of secured debts as determined by motions and objections concerning the bankruptcy plan. Court determinations will be binding upon creditors even if documentation submitted later indicates a different amount.

Attorneys balk at bankruptcy trustee demands for online passwords

People filing for bankruptcy in Massachusetts understand that they must disclose financial information for review by the court's trustees. An attorney in another state, however, ran into an unsettling request for the login and password information for the PayPal, Amazon Prime and eBay accounts of his bankruptcy client.

Chapter 7 debtors were receiving the unusual information request, which the lawyer described as invasive. The trustees asking for access to online accounts did not give a reason to support the request. Another attorney and board member of the National Association of Consumer Bankruptcy Attorneys who reviewed the case called the demand frightening. The absence of a reason to justify the request troubled him. Trustees have the right to examine account statements, but a blanket request for passwords is rare. Although debtors need to disclose any cash balances as part of the bankruptcy process, he said that could be done without granting total online access.

Consumer credit balances surpass $3 trillion

Considering the low unemployment and second quarter increase in consumer spending, economic indicators appear strong in Massachusetts and nationwide. However, credit card balances continue to set records. Rates of borrowing have slowed, but the total balances owed on consumer loans like credit cards have reached a record level of $3.86 trillion.

In July, U.S. employers created 209,000 jobs, but a report from the Department of Commerce warned that incomes were stagnating. Since interest rates are rising, some industry analysts believe that those credit card balances will continue to increase. People may want to get their debts paid down because an emergency could force them to take on more debts unexpectedly.

When debt consolidation is not enough

Some Massachusetts consumers may be interested in debt consolidation as a solution to financial problems. While this can be helpful, if the person's underlying problem is overspending, debt consolidation might not be the answer.

One man, determined to avoid filing a second bankruptcy, took out a $17,000 loan from his credit union to pay off 10 credit cards. This lowered his interest rate to 8 percent and gave him a lower monthly payment of $375. However, the man began helping his daughter, a single mother, and took out a payday loan to do so. When she lost her job, the $5,000 tax refund she hoped to use to pay him back had to go to take care of her children.

Americans handling credit card debt well

According to TransUnion, residents of Massachusetts and throughout the United States have done a good job of paying down their debt. This is in spite of recent interest rate increases by the Federal Reserve. However, just because people are able to absorb higher debt payments doesn't mean that they shouldn't have a plan to pay off the principal balance. Those who pay 15.5 percent interest on a $5,000 balance would pay $2,286 in interest over a period of more than 10 years.

If the interest rate on that debt were to increase to 16 percent, an individual would pay an extra $100 in interest. That is money that could be put into a savings account or could be used to pay down the principal balance faster. For those who don't have debt at the moment, an interest rate hike could make future debt more expensive.

New rule for banks, credit card companies

Massachusetts consumers may have an easier time joining with others in order to file a lawsuit against banks and credit card companies thanks to the Consumer Financial Protection Bureau. A CFPB rule issued on July 10 addresses arbitration clauses that do not allow consumers to take a case to court because the companies require alternative dispute resolution. Wells Fargo is one financial organization that tried to use arbitration to shut down lawsuits.

The agency originally published a report two years ago and has since been gathering public comment on the topic. The rule is only expected to apply to new contracts. In July 2019, the CFPB will also begin publishing on its website information about what awards issued in arbitration.

Judge finds no abuse of Chapter 7

Massachusetts residents who are seeking a fresh financial start by filing for Chapter 7 bankruptcy often have questions about how much of their personal assets will be protected by the courts. A Virginia bankruptcy court decision provides some insight into the inner workings of how courts treat real estate assets while offering debt relief. In this case, the appointed trustee reported that the debtor had two homes.

The case involved a married man who filed for debt relief without his wife joining the case. He owned a home with two mortgages, and his wife purchased a larger home, which allowed her mother to occupy the first one. He had both prior mortgages and $60,000 in student debt to contend with at the time of filing for Chapter 7 bankruptcy.