Law Office of Allan E. Dunaway, PLC

Louisville Bankruptcy Legal Blog

Debt levels surpass $13 trillion after dropping during recession

When the recession struck in 2008, consumers in Kentucky and nationwide tried to whittle down their debts. A survey conducted in 2009 by the Consumer Federation of America found that the number of people focusing on debt reduction rose to 44 percent from 38 percent the previous year. The passage of a few years, however, has reversed this trend as more people lean on credit to make purchases. As of the first quarter of 2018, household debt had hit a record high of $13.2 trillion.

Low interest rates have enabled people to manage their debt more effectively. Some borrowing has changed a little since the financial crisis 10 years ago. Auto loans and student loans form the majority of people's debts and these balances exceed the debt owed on credit cards. Debt for vehicle purchases appears to have gone up because lenders loosened their standards for financing cars.

New rules for undue hardship in student loan bankruptcy proposed

Student debt is a source of major financial burden for younger generations of Americans. Total student debt stands at $1.4 trillion divided among more than 44 million borrowers as of 2017, and total liabilities are expected to keep rising. Nearly 11 percent of accounts are in default or 90 days delinquent, meaning a significant amount of borrowers are having trouble with their payments. It's nearly impossible for individuals in Kentucky and around the country to discharge their student loan debt in bankruptcy.

At least one Democratic congressman believes this situation this change. Peter DeFazio from Oregon introduced The HIGHER ED Act, H.R. 5549 in April 2018. The proposed bill would provide relief to some borrowers by making changes to the student loan bankruptcy rules. Specifically, more borrowers would qualify for undue hardship, a standard that determines if borrowers are eligible for discharging their student loan debt. To date, judges decide who qualifies for undue hardship on a case-by-case basis.

The biggest credit card myth

According to the Census Bureau, more than 183 million Americans have credit cards. This makes credit cards so prevalent that 70.2 percent of all American households rely on them. With that being said, any individual in Kentucky looking to get a credit card needs to know two things: what their credit score is and how they can make it better. Unfortunately, there is a lot of misinformation that circulates around when it comes to that second question.

One of the biggest myths that people seem to believe is that carrying a balance is a good thing. If anything, having a balance can be harmful. For starters, people who carry a balance have to pay unnecessary interest, which can be costly. Furthermore, a large balance can harm an individual's credit score as it can be detrimental to their utilization rate.

3 mistakes to avoid when you are considering bankruptcy

If you have accumulated debt that surpasses what you are able to pay, it can be overwhelming to navigate your options and try to find the best solution to the problem. Bankruptcy is one solution many people in Kentucky consider. In fact, according to the Courier-Journal, Kentucky has one of the highest bankruptcy rates in the country.

It is important not to make any of the following missteps when it comes to handling your debt.

Putting off bankruptcy could increase stress and loss

The desire to pay bills and avoid potential embarrassment often make people in Kentucky delay a bankruptcy filing. Long-term research by the Consumer Bankruptcy Project shows that from 2013 to 2016, 66 percent of bankruptcy filers had suffered financial hardship for at least two years before seeking legal protection. Close to one-third of those surveyed had struggled for five or more years. Known as long strugglers, the numbers of these debtors have doubled since 2007.

Although they could have pursued a legal discharge of debts as soon as they fell behind on bills, long strugglers endured the stressful consequences of overwhelming debts. They took out new loans to pay old debts and sometimes went without medical care or food. Researchers call this situation the sweatbox. When people are in the sweatbox, their assets dwindle. People who file for bankruptcy right away have twice as many assets as long strugglers. About half of long strugglers must grapple with debt collection lawsuits while only 35 percent of other debtors are targeted by lawsuits.

Chapter 13 bankruptcy and buying a vehicle

Some people in Kentucky who are in the midst of a Chapter 13 bankruptcy might wonder whether they can obtain an auto loan. It is possible to do this, but it may take time because it is necessary to first get court approval.

The biggest hurdle may be finding a lender and a dealer who can work with someone in the process of bankruptcy. If a bank or credit union is unwilling to offer financing, a person may want to look into a subprime dealership because bad credit financing is their specialty. The next step is to choose a vehicle and agree on the terms of the loan. The dealer then must write up a buyer's order.

Using Medicare during retirement

Kentucky residents approaching retirement age know that money can be tighter during one's senior years. Cutting costs in the monthly budget might become paramount to making ends meet. Considering medical costs can be the largest line item for seniors, focusing on health insurance is a form of smart financial planning.

Medicare is the most common form of health insurance for those 65 and older. But with Medicare, timing can be everything and affect the amount of medical costs covered. Some may not realize that Medicare penalizes those who sign up late. Worse, the penalties accumulate when the delay is longer. It is important for those nearing retirement age to learn the eligibility rules and to sign up as soon as eligibility is met.

Learning more about Chapter 7 bankruptcy

Kentucky residents who are struggling to pay their credit card or other types of debt may find that bankruptcy is an effective solution to their problem. If an individual doesn't have much in the way of assets, he or she may be eligible for Chapter 7 bankruptcy. This could allow a debtor to eliminate some or all of their unsecured debts while having the option to continue making secured debt payments.

While bankruptcy could help a person obtain debt relief, it may also result in a hit to that person's credit score. In some cases, those who file for Chapter 7 bankruptcy could see their scores go down by as much as 200 points. That could limit an individual's options when it comes to borrowing after a case is resolved. Therefore, individuals might want to look at other debt relief options prior to deciding that bankruptcy is the way to go.

A few reasons to think twice about using payday loans

Many people in the Louisville area are living paycheck to paycheck and do not realize how ill-prepared they are to handle financial emergencies and unexpected expenses. You may earn a decent wage now, but you have been known to occasionally use payday loans to help you meet some of your monthly obligations and unexpected expenses.

It is not unusual for individuals who are struggling to get by or who are low on cash to use payday loans to try to catch up or get ahead financially. However, such loans can sometimes lead to people facing further financial struggles. So, you may want to be cautious about payday loans and consider the following information about them.

Those with crushing debts often put off filing for bankruptcy

Kentucky residents who are struggling to cope with unmanageable financial situations sometimes put off pursuing their debt relief options due to the stigma surrounding personal bankruptcy. Experts have found that individuals often deal with crushing debts and daily harassment from bill collectors for months or even years before considering a bankruptcy filing. In many cases, a traumatic event such as an unexpected bill, wage garnish or lawsuit prompts them to finally take action.

The desire to avoid bankruptcy and handle financial problems without assistance can sometimes lead individuals to make unwise decisions like using their retirement savings to temporarily make ends meet. This is a mistake because these funds will generally be protected during a bankruptcy. Furthermore withdrawing them early can leave individuals financially vulnerable in their retirement years. Withdrawing money from IRA or 401(k) accounts before reaching retirement age can also lead to fees, penalties and tax bills.

Contact the Firm

Get Sound Advice In A Free Consultation

For sound bankruptcy advice you can count on, from a skilled lawyer who truly cares about your future, contact the Louisville Law Office of Allan E. Dunaway, PLC. We have two convenient locations: Louisville, Kentucky, and Jeffersonville, Indiana. Our main office in Louisville is located off the beaten path so you won't have to deal with downtown traffic and can pull right up to our door and walk right in.

Call us at 502-785-1005, or send an email message. Our law firm welcomes the opportunity to serve you in any way we can.

If for some reason personal bankruptcy is not for you, if you do not qualify for the Chapter 7 approach via the "means test" and Chapter 13 reorganization is not the answer, Allan E. Dunaway works hard to inform you of other appropriate means of debt settlement that suits your unique needs.

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