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Louisiana Legal Blog

Many more seniors filing for bankruptcy

While many older people are planning for retirement, others in Louisiana and around the country are considering bankruptcy. Financial hardship has impacted many older Americans, and the number of older people declaring bankruptcy has increased markedly since 1991. This growth in bankruptcy far outweighs the overall aging of the American population, according to a study from the Consumer Bankruptcy Project. Indeed, the report found that around 800,000 petitions for personal bankruptcy are filed each year, and around 100,000 of them are filed by senior citizens.

Many of the cuts to social programs that have taken place in the last decades have been particularly devastating to seniors. The retirement age has been raised for people to access Social Security and seniors have had to pay more of their medical bills out-of-pocket. In addition, traditional employer pension plans have been on the decline, while programs like 401(k)s, which shift the responsibility of retirement savings to workers, have been rising. This comes in addition to an often-crushing burden of credit card debt and other bills well into the retirement years.

The high cost of credit card minimum payments

Households around the country with revolving debt balances owe an average of $6,081 to credit card companies. Paying this debt off can be difficult for Louisiana consumers who are struggling to meet their financial obligations, and many credit card holders are only able to make their minimum monthly payments. Credit card minimum payments are usually $20 or $25 when revolving balances are low, but they climb to 2 to 3 percent of the outstanding amount when debt levels rise.

Credit card balances can take decades to pay off when borrowers make only minimum monthly payments as revolving debt interest rates are generally far higher than the rates offered on mortgages or installment loans. The financial information website NerdWallet calculated how long it would take to pay off $6,081 at 14.99 percent interest, and it found that it would take 14 years and cost more than $4,000 in interest if only minimum payments are made.

Stopping harassment by debt collectors

Debtors in Louisiana who suffer from harassment by debt collectors have legal recourse. While these companies are within their legal rights to contact consumers about delinquent accounts, any harassment that they conduct is illegal. Those that engage in harassment can be reported to the Federal Trade Commission and can be subject to punitive action.

The Fair Debt Collection Practices Act is legislation that protects consumers from harassment from debt collectors. According the FDCPA, debt collectors that are used by third party agencies are prohibited from any behavior that can be deemed as harassing. While the provisions of the FDCPA do not pertain to collectors that are employed by the original creditors, some states have their own laws that address this loophole.

Preparing for your meeting with the bankruptcy trustee

One of the more important individuals in your bankruptcy case will be the trustee. After the United States Trustee Program appoints one, the trustee has several duties to perform for your estate whether you file a Chapter 7 or Chapter 13 bankruptcy. Some of these tasks include reviewing and rounding up all of your property, selling your estate and distributing any payments made to creditors.

The trustee is also in charge of detecting any inconsistencies or fraud in the papers and can make any objections to the bankruptcy plan. If they find anything wrong with your case at the meeting of creditors, they can object to the discharge and put you under criminal investigation. It is crucial that you prepare your case properly to avoid any legal and financial trouble.

When collection calls continue after bankruptcy

When debt becomes overwhelming for a Louisiana resident, bankruptcy is an option. One of the benefits of filing for bankruptcy is the automatic stay, which means that creditors and bill collectors are legally prevented from making contact to collect payments. However, some collection efforts continue after bankruptcy is filed. While this could be an innocent mistake due to a creditor not having yet heard about the bankruptcy filing, it might be a willful violation of the automatic stay. When the latter happens, the creditor or bill collector can be held accountable.

When someone files for bankruptcy, the automatic stay technically goes into effect immediately. In reality, however, it takes time for creditors to find out that they are no longer allowed to contact the debtor. There are various ways that creditors might receive this information, including by email, subscription to services that inform them of bankruptcies or paper notice from the court.

The downside of carrying a credit card balance

Louisiana consumers who are trying to increase their credit score should refrain from carrying a credit card balance. As a general rule, doing so has no bearing on a person's ability to establish good credit. Instead, it results in a person paying interest unnecessarily. The average credit card interest rate is over 16 percent according to data from CreditCards.com. Those who carry too large of a balance on a credit card could actually put themselves at risk of lowering their score.

Ideally, people will consider establishing their credit to be a long-term endeavor. The goal is to pay credit card balances in a timely manner and in full whenever possible. Furthermore, they should try to keep the number of credit lines that they have open to a minimum. When done over a period of several years, they give themselves the greatest chance of obtaining the credit that they desire.

Student debt may be dischargeable in bankruptcy in some cases

Many borrowers in Louisiana and across the U.S. are struggling to pay down their student loans. According to personal finance website Make Lemonade, students graduating in the year 2016 had an average student debt load of $37,172, and $1.5 trillion is owed collectively by more than 44 million student loan borrowers nationwide. Typically, student loans are not dischargeable in bankruptcy, but there may be steps borrowers can take to have student loans discharged or to make their payments more manageable.

Since 2005, both privately and publicly backed student loans have been non-dischargeable in bankruptcy except in cases where the debtor can demonstrate that repaying would cause an undue hardship. All federal circuits other than the First Circuit and the Eighth Circuit apply the Brunner test when evaluating whether or not repaying would create an undue hardship. The borrower must show that there are extenuating circumstances creating a hardship for him or her, that the circumstances will likely continue for the duration of the loan term and that the borrower has attempted in good faith to repay the loan.

Study suggests delaying bankruptcy could increase struggles

It's only natural for people to want to put off filing for bankruptcy, mainly because it's often seen as a sign of failure or viewed as something meant to be a last resort. However, a law review study suggests that the longer individuals wait to file bankruptcy, the more their personal and financial well-being may be affected. What this could mean for debtors in Louisiana considering bankruptcy is more of a struggle with getting a fresh start.

The period before the decision to file for chapter 13 bankruptcy is made is referred to as "the financial sweatbox." This is typically the period when debt continues to accumulate and creditors make collection attempts and threaten legal action. Based on data from more than 3,000 bankruptcy cases, the study notes that more than a third of individuals evaluated waited five years or more to file.

Types of creditor claims for a Chapter 13 repayment plan

People in Louisiana overwhelmed by their debts have the option of pursuing bankruptcy protection under the provisions of Chapter 13. A Chapter 13 bankruptcy requires a debtor to develop a payment plan based on current income. A bankruptcy court will review this proposal, and, if approved, direct the trustee to collect payments from the debtor for three to five years.

Depending on the debts, creditors can have differing levels of claims. A priority claim represents a debt such as taxes or the fees for processing a bankruptcy. Secured claims are loans based on collateral. The creditor has a right to seize specific property if a loan is not repaid. Unsecured claims arise from loans made without any collateral.

Does filing for bankruptcy have to include my spouse?

A popular question Louisiana couples have when filing for bankruptcy is if they should file for joint bankruptcy. Doing so will combine both of their properties and debts into the same filing.

However, this does not have to be the case. If one of you has significantly more debts than the other spouse, it might be better to file for a single bankruptcy case. Before you decide to choose one, it is important to know which option would be better for your circumstances.