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Louisiana Legal Blog

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.

Court review of car purchase needed during Chapter 13 bankruptcy

People in Louisiana currently making payments as part of a Chapter 13 bankruptcy sometimes need to buy a vehicle. Because a Chapter 13 payment plan lasts three or five years, the legitimate need for a car could arise during that time. Bankruptcy law includes a process for financing a vehicle. A person must first arrange for a loan and then file a Motion to Incur Additional Debt so that the court can approve or deny the request.

Getting a loan while involved in a bankruptcy plan presents a substantial challenge. A person might succeed in gaining approval from a bank or credit union. Subprime car dealerships provide the next option. These car dealers work with people who have bad credit histories. After gaining approval for a loan, a person must bring the written financing agreement to the court trustee managing the bankruptcy.

Not all debts can be forgiven in bankruptcy

Louisiana residents and others who are thinking about filing for bankruptcy can generally choose between filing for Chapter 7 or Chapter 13 protection. In a Chapter 7 case, eligible assets are sold with the money used to pay off as much debt as possible. In a Chapter 13 case, debts are reorganized and paid over a period of time. It is important to note that not all debts can be eliminated in a bankruptcy proceeding.

For example, it is not possible to discharge child support or certain types of tax debt. As a general rule, student loans can't be discharged either. To get rid of student loans in bankruptcy, it is necessary to show that a significant hardship would exist by continuing to repay them. Among debts that are eligible to be reduced or eliminated in a bankruptcy proceeding include mortgage balances, auto loans and personal loans.

Many people unable to pay store credit card bills

When store employees offer a discount or other benefit for signing up for a store credit card in Louisiana, many consumers find the offer tempting. However, the delinquency rate on these store-branded cards has reached its highest point in seven years according to a report from Equifax, the credit reporting bureau. These store-affiliated credit cards have their highest rate of delinquencies since 2011, the bureau said. Approximately 4.65 percent of these accounts are at least 60 days overdue for a payment, an increase from 4.08, the rate of delinquency reported in March 2017.

The credit bureau said that there are a number of reasons that consumers may be behind on their credit card payments. In some cases, they may believe they no longer have to pay the bill if the retailer shuts its doors or declares bankruptcy. However, in these cases, there is almost always a creditor that runs the cards on behalf of the retailer; that lender is still reporting to credit bureaus, pursuing collections and otherwise maintaining ownership of the debt. In other cases, the improving economy has meant that more people are being approved for store credit cards, including some people who are simply unable to pay back the debt they have accrued.

Strategies to manage Louisiana consumer debt

Americans are on pace to hit $4 trillion in consumer debt by the end of 2018 according to LendingTree. In 2010, they had non-mortgage debt equal to 22 percent of their income. Today, that number is 26 percent, and over the past two years, consumer debt totals have increased by 5 to 6 percent. Auto loan and credit card debts have increased by 7 percent on an annual basis.

However, with the credit card delinquency rate at 2.4 percent, most people have been able to keep such debt to a reasonable level. As interest rates continue to climb, it could be beneficial for those with high interest credit card debts to look into refinancing them. Student loan and auto loan balances generally come with lower interest rates, so rate hikes may not have the same impact on a person's finances.

Do I have enough debt to file for bankruptcy?

The bills are piling up. Maybe it happened gradually--a missed credit card payment here, a missed car payment there--or maybe it was sudden: severe illness, loss of employment or another catastrophic change. Either way, it's more than you can handle. You've heard that declaring bankruptcy can wipe out debts and give you a fresh start, but you aren't sure if that's an option. Do you really owe enough to consider that?