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Durham Bankruptcy Law Blog

Discharging credit card debt through Chapter 13

Chapter 13 bankruptcy is one of the most useful tools that the law provides for individuals with debts they struggle to manage. Unlike Chapter 7 bankruptcy, Chapter 13 may not require sacrificing significant assets to discharge debt, instead allowing individuals with sufficient income to repay their debts through a court-approved repayment plan.

Filing Chapter 13 bankruptcy provides borrowers with needed relief, protecting against mounting debt and halting collections efforts by creditors. However, it is important for anyone considering Chapter 13 to understand that not all individuals qualify for the process, and the process itself does not do away with every kind of debt.

Bankruptcy is a fact-specific decision

The decision of whether to file for bankruptcy in North Carolina can be a difficult one, and it turns on the facts of the case. Every debtor's situation is different; a certain amount of debt in one case might call for bankruptcy while debt restructuring might be a better option in another case. Among the first things to consider are the broad financials, income, expenses, assets and liabilities. It's also important to be aware that many creditors have little incentive to settle debts.

An examination of disposable income and outstanding debt levels may solve the question right away. If there is no way that a person can hope to pay down his or her debts, even after stripping expenses as far as possible, it may make sense to file for Chapter 7 or Chapter 13 bankruptcy. In a Chapter 7 bankruptcy, the petitioner is required to give up all non-exempt assets and use the proceeds to pay off debts. Assets like a car, work tools and home equity may be exempt in some cases.

How to save your house from foreclosure

You've slipped behind on your mortgage payments and you have serious concerns about losing your home to foreclosure. As stressed out as you may be, don't give in and assume that you have no options.

There are several ways to save your house from foreclosure, including the following:

  • Mortgage modification: Don't forget that your lender would rather work something out with you than foreclose on your home. They're in the business of servicing loans, not buying and selling real estate. If you're willing to negotiate and compromise, you may be able to modify your mortgage to secure terms and conditions that better suit your finances.
  • Short sale: A short sale is when your lender agrees for you to sell your home for less than what you owe, without any requirement for you to make up the difference. While a short sale allows you to avoid foreclosure, you're unable to stay in your house.
  • Bankruptcy: Even if the foreclosure process is in full force, filing for foreclosure will stop it for the time being. Once you file with the court, federal law prohibits your lender from proceeding with collection activities. The thing you need to remember is that the automatic stay only does so much for you. There will still come a time when you need to work things out with your lender. Bankruptcy doesn't stop foreclosure for good, but it can buy you enough time to figure things out.

Discharging student loans in a personal bankruptcy

Most college students in North Carolina and around the country will be in debt to the tune of thousands of dollars when they enter the workplace, and many of them will find it extremely difficult to make their required monthly payments. The nation's bankruptcy code was revised in 2005 to make student loan debt nondischargeable in most bankruptcy cases, but there is an exception to this general rule when continuing to make payments would impose an undue hardship on the petitioner.

However, lawmakers chose to not clearly define what an 'undue hardship" is when they drafted the Bankruptcy Abuse Prevention and Consumer Protection Act, so deciding what the nebulous term actually means has been left to the courts. The Department of Education is working to develop a nationwide standard, but most courts currently apply what is referred to as the Brunner test to make these decisions. In 2016, the Fourth Circuit ruled that bankruptcy courts in North Carolina must apply the Brunner test.

Credit card debt is increasing rapidly across the U.S.

Credit card debt is a worry for North Carolina residents and people across the United States. Since making ends meet can be difficult, people are frequently using their credit cards to bridge gaps and make necessary purchases. In other instances, people spend beyond their means and find themselves in financial trouble. Research shows how prevalent this is.

A study by WalletHub examining credit card debt in California shows that on average, households owe more than $10,000 on their credit cards. In the second quarter of 2019, $4.4 billion was added to Californians' credit card debt. This adds to the growing debt concerns across the nation with Americans in debt for more than $1 trillion in credit cards from the start of the year. During the second quarter of 2019, there was an overall debt increase of $35.6 billion.

Bankruptcy can be a way to end pending creditor lawsuits

Getting served is usually an experience you don't expect to happen, which makes it relatively unsettling. A stranger confirms your name with you and then hands you paperwork, informing you that this is service for a legal matter. For hundreds of people across North Carolina every year, those papers relate to a creditor attempting to collect on a debt that has gone unpaid.

Whether your family fell behind on credit card payments and couldn't make them anymore or incurred massive medical expenses because of a car accident or illness, you could find yourself facing a lawsuit from your creditors, despite the nature of the debt or your current financial circumstances. In fact, even nonprofit hospitals can and will sue people who make minimum wage over unpaid medical debt.

HAVEN Act gives veterans more protection in bankruptcy

North Carolina military veterans may find it difficult to make ends meet, especially if they are disabled and relying on military benefits to support themselves. Medical bills and personal bills can stack up, leading to creditor calls and demands for payment. As a result, veterans may find themselves facing low credit scores, difficulty renting or buying a home and even threats of lawsuits. Personal bankruptcy can be an important safeguard as a mechanism that helps people escape the crushing burden of excessive debt. Veterans are particularly affected by bankruptcy. While they make up only 10% of the population overall, they comprise 15% of those filing for both Chapter 7 and Chapter 13 personal bankruptcy.

In one year alone, over 125,000 American veterans filed for personal bankruptcy. Those with disabilities faced particular challenges. During the bankruptcy process, disposable income is calculated. Social Security Disability benefits were always excluded from this calculation, but disability benefits provided by the VA or the Department of Defense were included. In order to be eligible for Chapter 7 bankruptcy, people must fall below an income threshold. In addition, disposable income is used to calculate a payment plan for Chapter 13 bankruptcy filers. Therefore, disability benefits could fall within creditors' reach for military veterans.

Disabled vets get streamlined discharges of federal student loans

Student loans are rarely ever discharged in bankruptcy proceedings. Yet, they can still make up a significant portion of the average debtor's mountain of unpaid bills.

Recently, media outlets reported that the President signed an executive order that streamlines the discharges of disabled veterans' federal student loans if the vets are unable to work and repay their loans.

A brief bankruptcy primer

In North Carolina and across the United States, people experiencing heavy debt may file for bankruptcy as a way to cope with their financial problems. However, bankruptcy is not the ideal solution for every person. Whether a person files Chapter 7 or Chapter 13 bankruptcy, he or she may need to relinquish his or her vehicles or expensive jewelry. Nevertheless, one important thing to remember is that bankruptcy offers people with high credit card debt a legal path to a fresh financial start.

In the 1800s, debtors' prisons were banned. Since that time, bankruptcy laws have changed. Many Americans do not earn enough money to pay back their creditors. Applying for bankruptcy via a federal bankruptcy court can help a person with a serious financial challenge. Due to official reforms, today's legal system offers better methods for handling debt. Private individuals who owe more money than they earn may want to explore their bankruptcy options.

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.

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