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Orlando Bankruptcy Law Blog

How Chapter 7 mitigates credit card debt

Debt is a reality of life for many American households. Florida residents will likely agree that modern life demands expenditures, sometimes beyond what is feasibly affordable. In this case, debt (especially insidious types like credit card debt) can accrue rapidly and leave an individual or family in a precarious financial position. Thankfully, for those facing serious debt, Chapter 7 bankruptcy is a viable option to help ease that burden.

Credit card debt can happen slowly and almost without notice, until letters from creditors begin to arrive. If the debt continues to go unpaid, collection agencies may become involved. This can lead to hassle and stress for everyone in the household, and is often the point at which people begin to consider Chapter 7 as an option to handle their debt problem.

Risk of credit card debt when using cards to build credit score

A good credit score is ideal to have in a variety of circumstances, from leasing a car to renting an apartment. Many people recommend getting a credit card as a good first step to building credit. However, many credit card companies in Florida and across the country encourage spending on these cards, and people who are not careful can end up with credit card debt.

Credit cards build credit scores when they are paid off properly each month because they offer lenders a positive payment history. Payment history is the most critical factor considered in determining a consumer's score. A credit utilization ratio is also factored into this number, and a having credit card can help with that as well.

Handling credit card debt: Balance transfers

Debt can be one of the most stressful burdens an individual or family can carry. Here in Florida, the average family carries a considerable amount of debt, including mortgages, medical expenses and the most insidious of all: credit card debt. Thankfully, there are a variety of ways for residents to handle that debt creatively, from renegotiating interest to Chapter 7 bankruptcy, that can help make debt manageable.

One such tactic is the balance transfer. Simply put, a balance transfer is a way banks use to move accrued debt from one credit card to another, often charging a minor transfer fee. In this way, one credit card is "paid off" by another, a move that can be beneficial to the debtor in certain situations. Of course, it is important to remember that in some cases, a balance transfer is nothing more than a lateral move when it comes to cutting down debt.

Retaining assets through a Chapter 7 bankruptcy

Bankruptcy is often seen in popular culture as a last-resort option for people who have been careless with their money. In reality, as some Florida residents can attest, insurmountable debt can come from a variety of sources, including unexpected costs like medical bills. Regardless where the debt comes from, Chapter 7 bankruptcy is a viable solution for those who cannot carry debt further. However, many people wonder whether it is possible to weather a bankruptcy without losing certain assets. It is.

In Chapter 7 bankruptcy, assets are typically liquidated to pay down creditors. While some assets are considered exempt from liquidation, large assets like houses and expensive cars often are not. However, many people would choose to keep their vehicle rather than surrender it to the lender. There are two ways to go about this.

Clarification on wage garnishment and lump sum payments

There are many indicators that the economy is moving in a positive direction for Florida residents and across the nation. However, some consumers may have not experienced the improvements and are still struggling financially. Situations may have arisen where borrowers have been unable to repay their creditors. In these circumstances, a wage garnishment may occur.

A court may order a wage garnishment to repay a creditor by withholding part of a person's wages. This amount will be sent directly to a creditor until the debt is satisfied. While some states have specific statutes addressing garnishments, there are clear guidelines established on a national level.

Report shows amounts of credit card debt, number of cards

Many Florida residents and others around the country frequently use credit cards for their purchases. There are a variety of ways consumers choose to utilize their cards to fit their budgetary needs. However, with credit card debt now exceeding $1 trillion in the nation, it is clear that those carrying balances may have difficulty eliminating them.

A credit rating company and a personal finance website developed a report that compared credit card usage by state. One startling statistic showed that 43 percent of consumers with credit cards carry balances each month. Since these card holders must pay interest on the balances, they end up paying more for the purchases they have incurred.

Florida city on list of fastest-growing credit card debt

Many Florida residents are living under a mountain of unsecured debt. That can make it hard to juggle one's debt service, living expenses and other financial obligations each month. Some are not surprised to learn that a Florida city has been listed as an area with one of the nation's fastest-growing credit card debt

Some attribute high levels of credit card debt to the Great Recession. People who relied on credit cards to fund expenses during that span of time may find their balances catching up to them. Others may have cut expenses at that time but, now that the housing market has recovered, may be seeking new credit at higher rates. 

Does home foreclosure create a different type of tenant?

Many economists and social scientists have examined the financial crisis that led many Americans to lose their homes in 2008 or shortly thereafter. Some believe that this home foreclosure crisis drastically altered the rental housing market in certain hard-hit areas. As many Florida families continue to struggle with making ends meet a decade later, this concept is not surprising. 

When significant numbers of homes are lost to foreclosure, an opportunity arises for investors to purchase those properties and convert them into rental homes. That is true even in high-dollar neighborhoods in certain parts of the country. As long as there are sufficient tenants to keep those properties occupied, single-family homes continue to be a good investment for landlords. 

How to avoid another bankruptcy

You have just completed the bankruptcy process, and although it led to positive results and a chance to start fresh, you probably do not want to go through it again. That is why it includes mandatory credit counseling courses both before and after.

However, attending just two classes is not going to guarantee you are safe from another bankruptcy. Frequently review the following tips to ensure you are staying on track toward financial security.

Is filng Chapter 7 or Chapter 13 bankruptcy the right choice?

Though many consumers in Florida and all around the country have recently seen some positive changes in the economy, there are families that are still struggling to make ends meet. Some may have experienced a job loss, while others may face a mountain of unpaid bills. While certainly not the first solution, some residents realize that filing for Chapter 7 or Chapter 13 bankruptcy may help them more quickly recover financially.

The Federal Reserve reports that at the end of 2017, the country had over $13 trillion in household debt. This total includes over $1 trillion in credit card debt, $1.2 trillion in car loans, $1.4 in student loans and $8.8 trillion in mortgages. According to the nation's Trustees Program, over 700,000 individuals and businesses are projected to file for bankruptcy relief in 2018.

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Paul Urich
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