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Salem MA Bankruptcy Law Blog

Lowest bankruptcy levels in 10 years

Although consumer confidence in Massachusetts could be boosted by statistics indicating low levels of bankruptcy filings in the last year, it is important to have a balanced view of the data. The Administrative Office of the United States Courts has reported that the most recent fiscal year reflected the lowest number of bankruptcies filed in a decade. At the same time, the figures suggest that the decline in bankruptcy filing rates was the lowest since 2011.

The dramatic economic downturn of 2008 triggered a major rise in bankruptcy filings. The number of bankruptcies began to fall again in 2011 after reaching a high of more than 1.5 million cases the year prior. While the most recent data represents a decrease of approximately 50 percent since that peak year, there are concerns because of some serious national events that have created financial challenges for individuals and businesses across the country. Weather-related events such as hurricanes in 2017 have been among the most devastating situations, leaving many people struggling to relocate and return to work.

Getting rid of the debt limits for Chapter 13 bankruptcy

Minnesota residents who have substantial debt but do not do not qualify for Chapter 13 bankruptcy due to its debt limits may soon become eligible if some bankruptcy experts get their way. Many legal practitioners support a statement made by a bankruptcy judge at a meeting of the American Bankruptcy Institute Commission on Consumer Bankruptcy who stated that the debt limits for Chapter 13 should be modified or removed.

Chapter 13 bankruptcy allows debtors who have a steady stream of income to reorganize their debt and keep their property. Debtors are required to submit a plan that shows how they will use their future income to pay all or part of their debt over a period of three or five years. However, current regulations disqualify individuals who have secured debt that is more than $1,149,525 or unsecured debt that aggregates in excess of $383,175

Poor debt management is avoidable

Many people living in Massachusetts carry heavy debt loads. Unfortunately, while most of these individuals would like to reduce or eliminate their debts, they make self-defeating mistakes that can make debt management difficult, if not impossible. Financial education, combined with better spending habits, can often provide relief.

While it is true that many people go into debt for reasons that are beyond their control, such as high medical bills, many others rack up debt due to poor spending habits and overuse of credit cards. Many financial experts note that the very act of shopping and spending money can affect brain chemistry, giving the spender a temporary "high." Unfortunately, this means that some people spend more money than they can afford on items that they don't genuinely need.

Understanding debt consolidation

Massachusetts consumers who have substantial financial obligations have some options when it comes to resolving their situation. One of them could be debt consolidation. With this method, people can convert their debts with high interest into a single, manageable payment with low interest. It is a personal finance method that allows them to lower and reorganize their debt.

However, while debt consolidation can help people pay off their obligations quicker, it does not tackle the spending behaviors that resulted in the accumulation of the debt. Consolidation should also not be used if people have overwhelming debt that they would be unable to pay off even with small payments.

Tips for getting out of credit card debt

Massachusetts residents who are struggling to pay off their credit card debts may be having problems because they don't know the root cause of the debt. For many, a job loss or surprise expenses were the reason. However, it is likely that the debt could have been avoided if an individual had an emergency fund. Those who are struggling with credit card debt are urged to stop using their card while they pay off existing balances.

It is difficult to get out of debt by producing new debt in its place. This is true even if a person is looking to score airline miles or other rewards because of the interest that a balance could accrue. Often, the interest costs more than the value of any rewards program. It is also generally not a good idea to use a credit card simply because it has a low interest rate.

Americans and credit card balances

According to a survey of more than 2,000 adults, nearly 50 percent of Americans carry a credit card balance for two or more years. In some cases, Americans have been holding onto credit card balances for more than five years. This can have an impact on the finances of Massachusetts residents who carry such balances. Those who are 63 and older are the most likely to carry such debt.

Many Americans have credit card debt because they use their cards to buy groceries, pay utility bills or otherwise keep up with expenses. Of those surveyed who were between the ages of 18 and 26, 50 percent said that they got into credit card debt because of daily living expenses. Medical bills and repairs to a home or car were other common reasons why people were in credit card debt.

Consequences of ignoring credit card debt

The Federal Reserve says that Americans collectively hold more than $1 trillion in credit card debt. Each household has $8,377 in credit card debt. While some may advise debtors to not pay their bills, it may be better to acknowledge the issue and make a plan to resolve it instead of ignoring the debt. Massachusetts residents who may think that they will miss a payment should reach out to their creditors immediately.

Doing so may make it possible to avoid having a late or missed payment show up on a credit report. It may also make it possible to avoid paying late fees or dealing with an elevated interest rate. Creditors may already have programs aimed at helping those who are worried about missing a payment that allow them to either skip payments or merely pay the interest due.

More people falling behind on their credit card payments

An increasing number of people in Massachusetts are falling behind on their credit cards. This is concerning for banks because it may indicate that more delinquencies may also occur with other types of loans.

According to the New York Federal Reserve, several large credit card companies and U.S. banks reported increases in their delinquency rates for credit cards in August. This increase in the delinquency rate was the second month in a row. Capital One reported a delinquency rate increase from 3.87 percent in July to 3.97 percent in August. JPMorgan reported an increase to 1.16 percent in August from 1.15 percent in July. Discover reported an increase to 2.1 percent in August from 2 percent in July.

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.