Credit Card Debt

Credit Card Delinquencies Exceed Pre-Pandemic Levels

Americans owe a whopping $1.13 trillion on their credit cards. The total increased by 4.6% in the third quarter of 2023.  When it comes to credit card debt, consumers are maxed out.

All stages of credit card delinquency (30, 60 and 90 days past due) jumped during the third quarter of last year, surpassing pre-pandemic levels for the first time, according to a recent report by the Federal Reserve Bank of Philadelphia.

This means a number of consumers are revolving all or part of their credit card balance every month. As of the third quarter, 33.18% of accounts paid off their balance in full. That’s the lowest share since the fourth quarter of 2020, Philadelphia Fed data show.

A nearly three-year stretch of high inflation has sent consumer debt into overdrive. Towards the end of last year, outstanding credit card balances surpassed the $5 trillion mark for the first time, according to Federal data.  These rising delinquencies are becoming painfully expensive for many consumers. Interest rates are the highest they have been in two decades.

As bankruptcy attorneys, we see credit card debt as one of the most common problems facing those with serious financial challenges.  It is not surprising with the high interest rates, unreasonable fees, harassing debt collection calls, penalties and never-ending minimum payments that do not even make a dent in your actual debt.

Filing for bankruptcy is a viable option for those struggling with insurmountable credit card debt. Chapter 7 is the fastest form of consumer bankruptcy and forgives most unsecured debts like credit card debt, medical bills, and personal loans.  There are certain qualifications a consumer must meet in regard to income, assets, and expenses to file for Chapter 7 bankruptcy, which is determined by the bankruptcy means test.

SOURCE: Credit Card Delinquencies Surpass Pre-Pandemic Levels – CNN (January 11, 2024)

Bankruptcy Law

What Debts Are Not Discharged in Bankruptcy?

Bankruptcy offers people who are overwhelmed by debt an opportunity for a financial fresh start, either through liquidation (Chapter 7 bankruptcy) or reorganization (Chapter 13 bankruptcy). However, not all debts are eligible for a bankruptcy discharge. In our latest blog, we delve into what kind of debts are not alleviated when you file for bankruptcy, and what kind of debts can be more difficult to discharge.

Child Support and Alimony

Child support and alimony are debts that will stay with the filer even after a bankruptcy discharge is issued.  The reason for this classification as nondischargeable debts has to do with public policy. These debts involve obligations to support dependents, and the court views these as important, which is why they must be fulfilled to provide for the well-being of the filer’s dependents.

Medical Debt

Can a Bankruptcy Case Be Filed Over Medical Bills?

The cost of healthcare has become a growing problem for many. One that has pushed patients to the brink of financial crisis. According to the Centers for Medicare and Medicaid Services, spending on healthcare in the U.S. has reached a record $4.1 trillion. The good news is bankruptcy can be used as an effective tool to eliminate medical bills, giving the consumer a fresh financial start.

According to figures from the 2021 U.S. Census, approximately one in every five households, or roughly 19 percent of all households, were not able to pay for medical care when it was needed. Many of these bills go unpaid and result in collections actions against the consumer. In fact, according to the Consumer Financial Protection Bureau (CFPB), in 2022, whenever debt collectors contacted consumers, medical debt was the main reason for this communication.

Consumer News, Credit Card Debt

Credit Card and Car Loan Defaults Hit 10-Year High

A number of consumers are defaulting on their credit cards and car loans to the point where the number of defaults reported are the highest seen since the financial crisis. With inflation not nearing an end any time soon and interest rates continuing to rise, the number of consumers defaulting is expected to grow.

This information comes from data provided by the credit agency, Equifax. The agency found that credit card delinquencies have hit 3.8 percent while car loan defaults have hit 3.6 percent. These figures are the highest ones seen in more than 10 years.

Bankruptcy Law, Credit, Credit Score

The Impact Bankruptcy Has On Applying for Loans and Credit Cards

While not all bankruptcies cause a huge drop in a person’s credit score, it is possible a person’s score could rise after bankruptcy.

A consumer’s FICO score is one of the biggest determining factors in whether a person will receive approval for credit or financing. The FICO score will also help determine the interest rate a person receives on a credit card. Some lenders are willing to accept credit applications even with lower scores. However, if this happens, it is unlikely that the terms of the credit application will be favorable to the consumer.

The bankruptcy filing may or may not have a significant impact on the consumer’s credit score, depending on what the score was before the filing. The consumer’s payment history makes up approximately 35% of the person’s credit score. If the person had a poor payment history to begin with, the bankruptcy filing will not have as much of a noticeable impact on the score. If the person had an excellent credit score previously, the effect the bankruptcy will have on the credit score will be more significant.

Consumer Bankruptcy, Credit, Credit Score

How to Repair Credit History After Filing for Bankruptcy

Once a consumer has filed for bankruptcy, he or she will almost certainly notice a drop in their credit score. This drop is to be expected, and while it does temporarily affect a person’s credit, it is by no means permanent. In fact, with good financial habits a consumer can rebuild his or her credit to better than it was before filing for bankruptcy.

Following the closure of the bankruptcy case, certain steps can be taken to bring that credit score back to where it once was or even higher.

student loan debt, Student Loans

Biden Administration to Make Process Easier to Have Debt Discharged in Bankruptcy

The road to having student loans forgiven in a bankruptcy case is certainly not an easy one, which is why so many borrowers forgo pursuing bankruptcy for fear that they will never be able to receive relief from their largest source of stress: their student loan debt. However, all of this could change very soon due to new guidelines issued by the Biden Administration.

In January 2023, the Justice Department updated the required attestation form that borrowers pursuing bankruptcy must complete before being able to seek a bankruptcy discharge of their federal student loan debt. The changes to the form include several modifications, including small changes as to how monthly household income is reported, instructions clarifying when a borrower needs to provide the court with additional information, and new questions looking for information on whether a school closure impacted the borrower’s ability to pay his or her student loans. The changes to guidelines also include more detailed information regarding the borrower’s student loan repayment history, including any consolidations made, deferments, or forbearances.

Lawyers in the News, Legal Awards

BANKRUPTCY ATTORNEY TIMOTHY S. KINGCADE RECEIVES THE PREEMINENT AV RATING FROM MARTINDALE-HUBBELL FOR 2023

MIAMI – Kingcade Garcia McMaken ( www.miamibankruptcy.com) is pleased to announce that Managing Shareholder, Timothy S. Kingcade has received the Preeminent AV Rating for 2023 from Martindale-Hubbell, joining a select group of lawyers recognized for their legal ability and professional ethical standards.

Martindale Hubbell AV Rating

In addition, he has earned the Client Champion Platinum Award from Martindale-Hubbell for 2023. This honor is awarded to attorneys whose clients have acknowledged their exceptional communications ability, responsiveness, quality of service and cost value.

Bankruptcy Law, Consumer Bankruptcy

What Documents do you need to File Bankruptcy in Florida?

At the start of a bankruptcy case, the filer is asked to fill out certain documents, including disclosures regarding the person’s financial affairs. This disclosure includes the person’s income, expenses, assets, debts, and any property transfers.

The filer will also need to provide supporting documentation, and the documents required are essentially the same for both Chapter 7 and Chapter 13 cases, with slightly different variations. It is often helpful to check with the bankruptcy trustee to ensure that all required documentation is submitted. Some trustees require more proof than others, and many times, this evidence will also be determined by the facts of the individual’s case.