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Durham Bankruptcy Law Blog

Protecting your homeowner status with Chapter 13 bankruptcy

For many people living in North Carolina, their homes may be the biggest asset that they own. As much as a third of their monthly income will go toward paying their mortgage each month. However, people take great pride in their homeownership status, as it is symbolic of the American dream for quite a few people.

Unfortunately, chasing the American dream could endanger your homeowner status. Getting yourself over-extended with credit card spending could leave you vulnerable financially. When you don't have enough money to pay for all of your debt every month, you can quickly fall behind on some bills, an issue which tends to snowball.

Bankruptcy myths to know about

While filing for bankruptcy is not something that should be taken lightly, it can be an effective way for North Carolina consumers to obtain debt relief. In many cases, bankruptcies are the result of a person losing a job or experiencing an unexpected medical debt as opposed to spending too much money. Those who file for bankruptcy may be able to keep some or all of their property.

Typically, a vehicle, equity in a home and other personal items are exempt from being liquidated or otherwise seized by creditors. In most cases, filing for bankruptcy has no impact on an individual's ability to find or retain a job. An employer will usually only take an employee's bankruptcy into consideration if a position involves working with money. In some cases, an employer may appreciate the fact that a worker took steps to get his or her financial house in order.

The perils of being a debt zombie

According to a study from the Consumer Finance Protection Bureau, 55% of credit card balances have revolved for two years or longer. The study also found that 82% of outstanding balances have been allowed to revolve for at least a month or more. When a balance is allowed to linger on a credit card, it is referred to as zombie debt.

Many people are enticed to open an account because of the 0% introductory rate. However, when the introductory period expires, the rate can increase to an average of 15%. In some cases, it can go as high as 28%. Those who carry a balance on their credit cards are more likely to pay for things that they don't need compared to those who pay off their balances in full each month. Examples of luxury purchases include dinners out, online entertainment and high-end clothes.

How long will your bankruptcy show up on your credit report?

One of the reasons people give for rejecting bankruptcy as an option for dealing with their debt is the impact it will have on their credit. Too many people mistakenly believe that they will never be able to get credit again after they file bankruptcy, but that isn't really the case.

It is true that bankruptcy is a strong negative mark that will decrease your credit score and alert lenders to you potentially being higher risk as a borrower. However, bankruptcy is relatively common, and many people bounce back financially after discharging some of their debts. You can typically get credit cards within weeks of your discharge and qualify for a mortgage or car loan within a few years, provided that you make good credit decisions.

Debt collections can result in litigation

Financial challenges face many North Carolina residents, with unemployment and unexpected expenses as two of the more typical reasons why people find themselves with significant credit card debt and barely able to make the minimum monthly payments. When even that becomes too much, it's not long before creditors start calling and sending demand letters. When there is simply no money to pay the debt, it is understandable to try and ignore the problem, but that will only serve to make matters worse. Debt collectors can and often do file lawsuits, and it's important to respond if that happens.

Debt collectors tend to be a persistent bunch and often inundate debtors with correspondence that may go unread. Ultimately, depending on the nature and amount of the debt and the particular collection company, a lawsuit may be filed, but the debtor must be properly served before the suit can proceed. Debt consultants can explain that ignoring the lawsuit will result in a default judgment in which the debt collector will get everything it asks for in the lawsuit. An answer to the lawsuit must be filed by the debtor.

Many Americans are unaware of credit card debt

Throughout North Carolina and the rest of the United States, one out of every five American consumers do not know if they owe money on their credit card. Three out of every 10 Americans have no knowledge regarding the interest rates on their lines of credit. In a new online survey, 24% of the participants owed money in excess of $10,000 while 21% of the consumers did not have a clue as to whether they even had any debt.

The survey also showed that 37% of consumers only used one credit card. However, 27% had two credit cards, and the other 12% said they used at least five credit cards. On a different note, 60% of the participants stated that they always paid their bills by the due date and that they did not have any credit card debt. Additionally, 50% mentioned that they did not experience any difficulties managing several payments per month.

Life after bankruptcy: Budgeting tips

If you declare bankruptcy, it is crucial to learn how to budget in the future. If you use Chapter 13 bankruptcy and have a repayment plan, your budget is a critical part of determining how that plan should work and what you can afford. If you use Chapter 7 bankruptcy and liquidate your debt, your budget helps you make sure you don't wind up in debt again.

Either way, the budget helps. It can assist you in rebuilding your credit and moving forward with your life. Here are some key tips that will help as you get started:

Young people are facing more credit card debt

The profile of credit card debt is changing for many young people in North Carolina. Millennials were once known for their aversion to overdue bills, especially as many of them became adults and entered the workforce during the 2008 financial crisis. As a result, many of them steered clear of credit cards. However, as millennials' salaries have grown and card issuers have developed new offers that are particularly appealing to younger people, they have taken on a growing burden of debt.

Along with that overall increase in credit card debt, young people now also have a greater share of delinquent debt. Over 8% of credit card balances carried by young Americans were at least 90 days overdue. This marks an eight-year high in the level of delinquent debt carried by younger people. Experts say that many people have been inspired to open credit cards as their own personal income has grown. These new cardholders often feel confident that they will be able to pay back their bills. Of course, personal circumstances like job loss or a sudden illness can interfere with those plans. When credit cards are involved, overdue payments can add up, especially as interest rates are high. Even people with good credit pay interest rates of 18%.

Should you dip into your home equity for unsecured debt?

Life has a way of getting ahead of us. Maybe you got into a car accident and couldn't work for several weeks. Perhaps an unexpected bill, like a busted furnace, threw a wrench in your budget. Regardless of how it happened, when you fall behind with your bills, it can become impossible for you to recover financially.

When you have trouble making ends meet, you are more likely to spend money on credit that you don't necessarily have. Your credit card bills can quickly start to exceed your monthly ability to pay. If your financial problems relate to an illness or injury, you may also have medical bills to worry about.

How medical debt can affect credit

Some people in North Carolina may be among the 30% of Americans who have at least $500 in medical debt. While medical debt can affect a person's credit score, it is treated differently from other kinds of debt. Medical providers do not report debt, but once it is in the hands of a collection agency, this can change. Even if the collection agency reports the debt, credit reporting agencies wait 180 days before they in turn report it to credit bureaus. FICO, the most common credit rating model, ignores balances that are less than $100.

There are steps that people can take before the debt reaches this point to help reduce the likelihood of affecting their credit. First, people should be familiar with their insurance and what it covers. They should get itemized bills from the provider as there are often billing mixups between insurance companies and medical providers. Some providers will agree to a payment plan.

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