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.
If a person needs motivation to get started, the snowball method may work best. To start, an individual pays off the card with the lowest balance and works his or her way up to the card with the highest balance. With the avalanche method, a person starts with the card that has the highest interest rate. While progress may be slower with this method, it generally saves the most money over time.
Those who are looking for debt relief may be able to find it by filing for bankruptcy. Doing so might allow an individual to have debt balances discharged quickly or reorganized to repay over time. While a bankruptcy case is ongoing, creditors generally cannot contact a debtor or take action such as foreclosing on property or repossessing property. In some cases, debtors may retain property such as homes, cars and other valuable possessions during and after a bankruptcy case.
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.
Experts say that good credit card management means making payments on time and not overspending. Carrying a balance from month to month means the cardholder is charged interest. As of mid-2017, almost half of Americans had been carrying a credit card balance for more than two years. The average balance is $16,883. The average interest paid yearly is $1,292.
There are two methods experts suggest for paying down credit card debt. The avalanche method targets interest from the top down and involves paying down the credit card with the highest interest rate first and making minimum payments on others until the highest is paid off. The snowball method involves tackling the lowest balance first. The theory is that this can help someone gain momentum by paying off a small debt quickly and then continuing upward towards higher balances.
When someone looks at his or her credit card debt and income and realizes that he or she simply cannot afford to make payments, bankruptcy could be a solution. A bankruptcy filing offers immediate relief from collection efforts by legally putting a stop to them. When someone files bankruptcy, collection calls, wage garnishment and all other attempts to collect money are halted.
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 CreditCards.com 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.
People who had the typical debts, such as student loans, car payments, credit cards and home loans, actually expressed more optimism about paying off debts than people with medical debts who use payday loan services. Despite the survey's dismal findings, some people did report that they foresaw a debt-free future. On average, these people felt they would overcome debt in nine years.
A person feeling the pressure from increasing financial burdens could explore the possibility of filing for Chapter 13 bankruptcy. This action might lead to a fresh financial start if a court approves a new payment plan. The services of an attorney could guide someone through the court filings necessary to initiate a bankruptcy. Legal counsel might identify protected assets, such as a primary residence, that could be protected while the debtor prepares a proposal for repaying creditors.
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.
Both age groups have significant mortgage debt, but that is generally offset by having little in the way of other debts. Those who are in Generation X are likely recovering from losses related to reduced home values during the Great Recession. They also have an average of $30,334 in non-mortgage debt, which is the highest of all the age groups.
Those who are overwhelmed by credit card debt or other obligations may benefit by filing for bankruptcy. Filing could result in a temporary stay of creditor contact or other collection efforts. There are a variety of eligibility and other requirements that an attorney can outline.
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.
Withdrawals are not the only vulnerable funds. Money that parents and grandparents set aside for college in 529 plans is exempt from bankruptcy as long as it was deposited two years or more prior to the filing. However, anything contributed to a 529 plan in the year before they file for bankruptcy protection may be seized.
Bankruptcy offers people who are struggling financially the opportunity to get a fresh start. In most cases, retirement assets are exempt. However, it's important for anyone with significant retirement assets or currently getting disbursements from their retirement accounts to consult an experienced bankruptcy attorney. Bankruptcy trustees handle assets differently in Chapter 7 and Chapter 13 bankruptcies, so people who have trouble paying their bills may wish to work with an attorney to make the right choice.
Credit cards are being utilized by consumers in Massachusetts and other states now more than ever. According to a report from Consumer Financial Protection Bureau, credit card accounts and the average amount of credit card debt among consumers have increased over the last two years. The number of credit cards paid late or not at all has also increased.
By the middle of 2017, credit card companies had extended over $4 trillion in credit to U.S. consumers. This also represents an increase but is lower than the $4.4 trillion extended in 2008.
Over the last two years, credit card debt has increased by about nine percent. For consumers with poor credit history, average debt has increased by 26 percent. This may be a troubling economic sign because consumers with poor credit must pay a higher interest rate to borrow the same amount.
For all consumers, the average credit card debt load is about $15,654. According to creditcards.com, the average interest rate is about 16.21 percent, which represents the highest rate since the website has been tracking interest rates since the middle of 2007.
When consumers find that they cannot pay their debts, filing for bankruptcy may be an option that can enable them to get a financial fresh start. A Chapter 7 bankruptcy allows a debtor to keep much of their property while discharging their unsecured debt such as unpaid credit card bills and medical debt. Not all debts are eligible for discharge in bankruptcy--child support, student loans and tax debt are usually not eligible to be discharged.
A person considering filing for bankruptcy may wish to consult an attorney about their options. Debtors who are married can file bankruptcy either jointly or individually. Debtors may also file a Chapter 13 bankruptcy which requires the debtor to pay back some of their debt over several years according to a Chapter 13 plan if their income does not allow them to qualify to file under Chapter 7 or if they want to keep property that is not exempt under Chapter 7.
For many Massachusetts residents, owning their own home is an important part of achieving the American Dream. However, a recent study from the consumer finance company NerdWallet suggests that house, apartment and condominium buyers run up far higher credit card bills than those who rent their homes. While homeowners are usually able to deduct mortgage interest and certain other expenses on their income tax returns, they also pay almost twice as much each year in revolving debt interest, according to the study.
The NerdWallet study places much of the blame for the higher revolving debt balances of homeowners on annual property maintenance and repair costs. These expenses typically amount to between 1 and 4 percent of a property's appraised value, but they can be much higher when major work, such as replacing a roof or repairing foundations, has to be done. It is the unanticipated nature of large repair costs that often prompt homeowners to turn to credit cards, according to NerdWallet.
Home buyers often expect to live in the houses they buy for a long time, and the NerdWallet study suggests that this may lead them to spend more than they can really afford. A report from Harvard University's Joint Center for Housing Studies indicates that 39 million American households allocate at least a third of their disposable income to paying for the roofs over their heads, and that figure rises to more than 50 percent for almost 1 in 5 families.
Property owners with unmanageable financial situations and spiraling credit card debt often fear that pursuing bankruptcy could cost them their homes. Attorneys with experience in this area could explain how filing a Chapter 13 bankruptcy allows individuals to keep assets like their homes and cars while paying down their obligations over a three- or five- year period.
Massachusetts creditors and debtors alike should know about the modifications made to the Federal Rules of Bankruptcy Procedure. The changes, which became effective on Dec. 1, 2017, pertain to Chapter 13 bankruptcy cases and can impact creditors who have judgment liens and secured and unsecured claims against the debtors in bankruptcy.
Secured creditors are now required to submit proof of claims in order for the claims to be recognized in the Chapter 13 plans. While the failure to file the proof of claim will not cancel the creditor's lien, no plan payments will be allocated to the creditor.
Creditors also have less time to file proofs of claims, which must be filed no more than 70 days after the bankruptcy was filed. The previous deadline was no more than 90 days after the meeting of creditors. Creditors who have claims that are secured by a primary residence have 50 extra days to provide supplemental documentation that verify the claims.
Debtors are now able to request that a creditor's judicial lien be removed in the same motion they file for their Chapter 13 plan. Previously, debtors had to submit the request in another motion. Notices of confirmation hearings will be issued to creditors 28 days before the hearing takes place. Objections to the hearings have to be filed no later than seven days before the hearing takes place. In order to have their secured debts declared satisfied, debtors can now file a motion at the end of their bankruptcy case. This is applicable to those filing Chapter 7, 12 or 13 bankruptcies.
While these new Chapter 13 rules don't have a significant effect on actions that filers need to take, they might benefit from them if their creditors are not paying attention. An attorney could explain additional ramifications of these rules to a client who is considering filing under this chapter.
Although a new national Chapter 13 plan form went into effect on Dec. 1, Massachusetts residents may not have to worry about using it. This is because 81 of the 94 judicial districts decided that they aren't going to use the national form. Instead, they are going to use a local form. This is allowable under Rule 3015, which states that the official form must be used unless a local one has been established.
Local forms must contain language informing a debtor as to whether there are nonstandard provisions. If there are, they must generally be listed in the final paragraph. One of the reasons that a standard Chapter 13 plan form was adopted was to help make the process more uniform throughout the country. Although many districts may create their own plan forms, they will still have many of the same characteristics nationwide.
While many people have praised the new national form, some individuals believe that it is too complicated. One person who was involved in crafting a form for the Northern District of Florida says that the national form asks for too much information. In many cases, the information may not be needed to actually file for bankruptcy, which may make the process needlessly complicated for those looking for protection from creditors.
A Chapter 13 bankruptcy may be ideal for those looking to retain their property as they pay off their debts. Repayment periods generally last three or five years, and during that time, creditors are generally unable to take action to collect a debt. This may make it easier for individuals to stay in their homes, drive their cars or otherwise retain control of secured assets. Attorneys may be able to talk more about who may be eligible to file.
Massachusetts residents who are filing for Chapter 13 bankruptcy should be aware of the new bankruptcy rules that became effective on December 1, 2017. The changes include modifications to federal rules regarding proper bankruptcy procedure and a new plan form.
According to the president of the American Bankruptcy Institute, although a nationwide Chapter 13 plan prohibits the use of a local plan form, the changes are an improvement. The changes will enhance the Chapter 13 bankruptcy process so that it will be more consistent throughout the country. It will also allow Chapter 13 plans to be confirmed and finalized more quickly.
People with a steady stream of income can file for Chapter 13 to resolve their debt and maintain ownership of their property. However, they are required to submit a three-to-five-year payment plan that uses their future income to repay part or all of their debts.
According to amended Rule 3015(c), unless there is a local plan form in place, Chapter 13 filers have to use the official form. Bankruptcy practitioners should verify with the rules, public notices and general orders of the local bankruptcy court whether they are to use the local form. Research has shown that out of 94 districts, 81 of them have elected to not use the new national form.
Amended Rule 3002(c) requires secure creditors to submit proof of claims for Chapters 7, 12 and 13. The claims must be filed 70 days after the bankruptcy petition.
A bankruptcy attorney may advise debtors who qualify for Chapter 13 about how the new bankruptcy rule changes might affect their opportunity to find debt relief. The attorney may assist with devising a payment plan that could pay off all debts within the timeframe allowed by the bankruptcy process.
Read Full Article
Read for later
Articles marked as Favorite are saved for later viewing.
Scroll to Top
Separate tags by commas
To access this feature, please upgrade your account.