Law Office of Allan E. Dunaway, PLC

Louisville Bankruptcy Legal Blog

Understanding bankruptcy exemptions

Bankruptcy can provide people with a fresh financial start. However, the process does come with certain sacrifices.

Thankfully, there could be ways to reduce these sacrifices. Certain bankruptcy exemptions are effective ways to accomplish this. There are a few important aspects to understand about these helpful options.

Young Americans are buried under $1 trillion in debt

Kentucky readers may be shocked to learn that younger Americans are falling deeper and deeper in debt, according to a new report. The study, which was issued by the New York Fed Consumer Credit Panel and Equifax, found that American adults between ages 18 and 29 are buried under $1.05 trillion in debt. That age group hasn't owed over $1 trillion since just before the financial crisis of 2008.

The majority of the debt comes from student loans. Other types of debt owed include credit card debt, auto loans and mortgages. Meanwhile, the report finds that older Americans owe even more money. For example, consumers between 30 and 39 are $2.9 trillion in debt, consumers between 40 and 49 are $3.4 trillion in debt and those between 50 and 59 are $3.2 trillion in debt. Consumers between 60 and 69 owe $2 trillion, and consumers ages 70 and older owe $1 trillion.

Medical expenses cause the majority of bankruptcy filings

Health insurance is often ineffective at protecting people in Kentucky from financial hardship when serious injuries or illnesses strike. A study that examined a random sample of 910 bankruptcies filed between 2013 and 2016 attributed 58.5 percent of filings to unpaid medical bills. Another 44.3 percent of bankruptcies blamed income loss due to sickness as the source of overwhelming debt. Often, both factors drove people to bankruptcy court.

The university professor who led the research project explained the inadequacy of employer-based health care coverage. Medical problems that last a long time can cause people to lose their jobs, which then leaves them without coverage. He called private health insurance a "defective product." Furthermore, even people with insurance face high expenses from copays and deductibles that can sink their finances.

How to choose which type of bankruptcy to pursue

Many different types of debts can be discharged in a Kentucky bankruptcy. Almost every type of unsecured debt such as personal loans, medical bills and credit card balances can be addressed in both Chapter 7 and Chapter 13 proceedings. Secured debts such as mortgages and auto loans are also likely to be discharged in a Chapter 13 case. A few types of debts, such as back taxes, fines and child support, cannot be discharged.

Student loan debt is also unlikely to be discharged in a bankruptcy case. Instead, a borrower will probably need to switch to an income-based repayment plan. While both Chapter 7 and Chapter 13 bankruptcies can help a person get rid of debt, these methods are not necessarily created equal. Chapter 7 proceedings involve liquidating nonexempt assets and using the money to pay creditors. Liquidation bankruptcies are generally only available to those who have a low income. It may also not be the best choice for those with property.

Student loan debt and bankruptcy

Student loans continue to be a significant financial concern for many people in Kentucky, even many years after graduating. Of course, there can be a number of factors contributing to an overall debt burden, including credit cards, medical bills, and mortgages. However, student loans are also some of the most difficult debt to eradicate, especially as it can be nearly impossible to discharge them in bankruptcy. Across the country, over 44 million people owe $1.5 trillion in student loan debt. This is the second largest category of debt in the United States, behind home mortgages and above credit card bills.

Student loans were more easily discharged before Congress passed laws exempting both private and federal loans from bankruptcy discharge. There are still some exceptions, even though they are infrequently recognized. A borrower would need to show undue hardship, a phrase which lacks a clear definition in the law. Most courts use a common test to evaluate whether a borrower has undue hardship. This test looks for special, extenuating circumstances that prevent borrowers from maintaining a reasonable living standard while paying off the loan.

The consequences of minimum credit card payments

Kentucky consumers who are attempting to get out of credit card debt may want to make more than the minimum monthly payment. According to the American Consumer Credit Counseling, individuals should put 5 percent of their income toward paying down debt. However, paying anything above the minimum required payment is considered a good move. This is because it can take about 23 years to pay off a balance of $8,000 making only minimum payments.

There are many different strategies that people can use to repay credit card debt. First, it may be possible to transfer balances from their current cards to those that have a lower interest rate. Even if it isn't possible to pay the entire balance during an interest-free period, paying down a portion of the principal balance means paying less in interest overall.

Young adults struggle with medical debt

When many people in Kentucky think about large medical bills, they may first consider older Americans. However, a growing number of millennials are beset with significant medical bills that they find difficult to repay. Serious illnesses and injuries can leave people facing large amounts of debt, especially if they are uninsured or carry high-deductible policies that they never expected to rely upon. If young people aren't able to pay back the thousands or tens of thousands of dollars in medical debt that they have accumulated, they could face collection calls, judgments and a severely worsened credit score.

In fact, younger adults actually receive a higher level of medical collections than older people. The highest percentage of medical debt that went to collections belonged to people age 27: 11.3 percent. That level remained relatively steady until the mid-40s, when it began to decline. Because many people in their 20s do not expect to face serious illnesses, they may be more likely to be uninsured, especially if they already are struggling to make ends meet. Almost 20 percent of people in their late 20s and early 30s are uninsured, and this group of people has lower income than other demographics. However, people may face severe problems even with smaller amounts of medical debt incurred as part of an insurance deductible.

Avoid these common bankruptcy mistakes

Filing for bankruptcy can help you handle accumulated debt and start the path back to financial stability. However, many people make mistakes that cause problems during the process and prevent them from fully accessing the help they need.

Whether you decide to file a Chapter 7 or Chapter 13 bankruptcy, steering clear of the following errors can make matters easier for you.

Rights debtors have when talking to debt collectors

The Fair Debt Collection Practices Act provides debtors throughout Kentucky and the rest of the country with protections against certain debt collector activities. For instance, a debt collector does not have the right to harass a debtor or act in a deceiving manner. When a person receives a call from a debt collector, it is important to verify that the amount in question is actually owed.

The debt collector is obligated to provide the debt amount and the creditor in writing within five days of such a request. In the event that an individual does owe the money in question, debt collectors are limited in the actions that they can take. For example, a collector cannot threaten to deport or physically harm a person for not paying a debt in a certain amount of time. They are also barred from disclosing the debt to other people either privately or in a public forum.

Waiting periods for multiple bankruptcy filings

Excessive debts sometimes force people in Kentucky to seek bankruptcy protection multiple times. Bankruptcy law does not limit how many bankruptcies people can file, but waiting periods realistically limit how often people can do it. For someone who has already gone through a Chapter 7 bankruptcy, eight years from the date of the previous filing must pass before petitioning for Chapter 7 protection again.

A person may file a new Chapter 13 bankruptcy case right after the closure or discharge of a previous Chapter 13 bankruptcy. Sometimes people who have already begun the proceedings to file a Chapter 7 bankruptcy need to pursue a Chapter 13 filing. In that case, they must wait a minimum of four years from the original Chapter 7 filing date. A longer wait of six years is necessary for people who first filed for Chapter 13 bankruptcy and now want to file under Chapter 7. A Chapter 13 payment plan that is 70 to 100 percent paid off, however, could enable a person to request Chapter 7 protection before six years have passed. Courts have the ability to bar people from filing again if they had a previous bankruptcy case dismissed.

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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