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Salem MA Bankruptcy Law Blog

Credit card debt on the rise again

In 2017, folks in Massachusetts and throughout the country added $92.2 billion in credit card debt, which was the most since 2007. That pushed the overall credit card debt in the United States to over $1 trillion, according to the Federal Reserve. In the final quarter of 2017, the average American household owed $8,600, which was up 6 percent from the same time period in 2016.

Over the final quarter of 2017, Americans added $67.6 billion in credit card debt, which was a 16 percent increase from the fourth quarter of 2016. It was also the largest increase in a single quarter since 1986. One explanation for this surge is that banks are lending to people who don't have great credit scores. Another explanation is that credit cards are being used to pay medical debts.

Student loan debt may be hard to get rid of

The Federal Reserve chair acknowledges that there is little he can do to help student loan borrowers in Massachusetts and elsewhere in the United States. However, he did say in testimony to the Senate Banking Committee that he wasn't sure why student loan debts couldn't readily be discharged in bankruptcy. He also said that student loan debt could have a negative impact on a person for his or her entire life.

Currently, student loan debt can only be discharged if forcing a person to make payments would cause an undue hardship. There is no set standard for what an undue hardship is, but courts generally assume that it is a high standard to meet. Over 40 million Americans have student loans, and their combined debt is roughly $1.4 trillion. In addition to having negative consequences for an individual, the Fed chair expressed concern that it could have a negative impact on the entire economy.

Vehicles and Chapter 13 bankruptcy

Massachusetts debtors who file for Chapter 13 bankruptcy while possessing a vehicle may be able to keep that vehicle. Filers may also be able to purchase a vehicle after they have filed or after they have been discharged.

Chapter 13 bankruptcy is a legal process that gives debtors three to five years to use their disposable income to pay off their debts. Filers are very likely to keep the vehicles they already have, but this is not the case in certain situations.

Why people file for bankruptcy

The rate at which Massachusetts residents and others are filing for bankruptcy is dropping. However, there were still 772,594 bankruptcy filings during a 12-month period that ended in June 2017. One of the main reasons why people file for bankruptcy is because they lost their job. Typically, an individual didn't have enough money to cover his or her mortgage, car payment and other expenses. Ideally, a person will have an emergency fund that can last for up to 12 months.

Even if someone doesn't lose his or her job, a reduction in hours or salary could still make it difficult to make ends meet without an emergency fund. Dealing with medical bills can lead to bankruptcy for a couple of different reasons. First, it may be necessary to put those expenses on a credit card. Second, an individual may choose to make medical payments as opposed to staying current on a mortgage or other debt.

Cities with the highest average credit card balances

Many Massachusetts residents are struggling to make their credit card payments, but a study from reveals that individuals and families in other parts of the country have even more serious revolving debt problems. The consumer financial advice website looked at how much the residents of America's 25 most populous cities and regions owed to credit card companies and how long a worker earning average wages would take to pay this debt off, and Boston ranked sixteenth with an average balance of $6,455.

The figures suggest that credit card debt is an especially serious problem in Texas. Dallas-Fort Worth, Houston and San Antonio occupied the second, fourth and fifth places on's list, and paying this debt off would take workers in these cities at least 19 months. Boston residents earning the area's median wage would have their revolving debt balances cleared in 14 months.

How to start paying down credit card debt

Rising interest rates and growing credit card debt balances may create financial issues for Massachusetts residents and others in the future. While increasing debt levels are generally seen during good economic times, it is possible to have too much debt. Now may be the best time for a person to take a strong look at his or her overall financial situation.

This could include taking a look at the amount of money a person owes and how much interest is being paid on that debt. It may be possible to reduce the interest rate by transferring a balance to a new card. Those who have credit card debt may also want to create a plan to pay off the debt and stick to it. How a person chooses to pay off the debt depends on what will work best for them.

Credit debt is up, but so are credit scores

Residents of Massachusetts who have higher credit card debt than they did a year ago might take some comfort in knowing that they are not alone. Americans have more credit card debt now than they did a year ago, according to an Experian annual study, and the Federal Reserve reports that in 2017, the country reached a record high of more than $1 trillion in credit card debt. But the good news is that credit scores are up, too, which suggests that Americans are doing a pretty good job of handling their debts.

The average American has credit card debt of $6,375, which is up 3 percent from last year. But credit scores, which are based on credit history, are averaging 675 on the range of 350-850. That's the highest the average American credit score has been in the decade since the 2008 recession.

Survey of over 1,000 adults shows lifelong expectation of debt

Most people in Massachusetts live with some form of debt, whether it be from credit card bills or home loans. A survey of 1,114 people across the nation conducted by produced a pessimistic view about people's expectations of ever escaping debt. Large majorities of respondents across all age groups expected to never achieve a debt-free life.

Among Millennials, 65 percent believed that they would never pay off debts or could not imagine when it might happen. A slightly larger number of Generation X members, 68 percent, accepted the likelihood of always being in debt. Baby Boomers showed even less confidence as 70 percent doubted their abilities to overcome debt. Within the Silent Generation, which represents people over age 72 in this survey, 83 percent anticipated dying in debt.

Looking at debt levels by generation

Massachusetts residents may be pleased to hear that the average credit score in America has increased in the past year to 675. That is the highest it has been since 2007. While many assume that millennials struggle with credit, they do not have the lowest average credit score when broken down by generation. That would be Generation Z with an average score of 634.

Millennials have an average credit score of 638, and their overall financial situation may be improving. They tended to enter the workforce during the height of last decade's recession, which made it difficult to find jobs or secure their financial futures. However, their debt levels have decreased 8 percent while their mortgage debt has increased 6 percent. Baby boomers and those who are over the age of 70 both have average credit scores of more than 700. Baby boomers have an average score of 703 while those over 70 have an average score of 729.

Retirement assets may be exempt from bankruptcy

People who file for personal bankruptcy typically do so because they cannot pay their bills with their current earnings and assets. However, many people who seek relief from the Massachusetts bankruptcy courts have some money saved for retirement. Bankruptcy laws protect some retirement accounts from being liquidated, but there are circumstances that could cause a person to lose all or some of their invested savings.

Employer-sponsored accounts are covered by ERISA, the Employee Retirement Income Security Act. This means that people with 401(k) accounts don't have to take hardship withdrawals in order to pay their bills and may file for personal bankruptcy instead. Traditional and Roth IRA owners who have less than $1.3 million invested in those accounts won't have to worry about bankruptcy trustees liquidating any of their funds as long as they aren't in the process of taking distributions from the accounts. Pensions may not be exempt from bankruptcy depending on whether they are covered under ERISA or qualified as exempt under the tax code.