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Nashville Bankruptcy Law Blog

How interest rate hikes impact credit card debt

Tennessee residents may have heard about the Federal Reserve's decision to raise the federal funds rate to between 1 and 1.25 percent. This is the second time that rates have been raised this year, and a third hike could come later in 2017. For those with mortgages or home equity loans with variable rates, it may be a good idea to pay them off faster or refinance to a fixed-rate loan.

Interest rates on auto loans may also go up over time, but a competitive market may keep rates steady for the time being. The average credit card interest rate is 15.07 percent. A person with a $5,000 credit card balance will pay an extra $175 in interest every time the prime rate is raised a quarter point. If the Fed raises rates three times a year, that could equal $525 in additional interest per year.

Strategies for getting credit card debts under control

Tennessee residents who are experiencing financial troubles have options for getting credit card debts under control. People with decent credit ratings could have the option of transferring debts to a new credit card that offers zero percent interest on balance transfers. This move might grant a holder six months to two years of interest-free time to pay down the balance.

A personal loan could be another method for consolidating debts. If a person possesses a sufficient credit history to qualify, this type of loan should reduce the overall interest rate on the debts.

Modifying a Chapter 13 payment plan

When Tennessee debtors seek relief from overwhelming financial obligations by filing Chapter 13 bankruptcies, they enter into payment plans lasting either three or five years. Bankruptcy courts approve these payment plans as long as they are realistic and equitable, but they may be modified or revised in certain situations. Some bankruptcy judges have ruled that borrowers must be able to establish that their financial situations have changed substantially before modifications can be granted, but other courts have taken a different approach.

This was the legal conundrum facing a bankruptcy judge in Arkansas when a couple petitioned to have their Chapter 13 payment plan modified. The couple told the judge that most of the $605 they paid each month on their plan was applied to an automobile loan, and they sought court approval to lower their payments by returning the car. The couple also asked for any deficiency resulting from the return of the vehicle to be classified as an unsecured debt. The couple's plan called for unsecured debts to be paid on a pro rata basis after the car loan had been paid.

3 dangers of credit card debt

Many Tennessee residents have high amounts of credit card debt. In fact, among U.S. households, the typical credit card debt is about $5,700, and the average age of those with the highest amount of credit card debt are those between the ages of 45 and 54, according to a report by ValuePenguin. While credit cards can be helpful to pay for unexpected needs, they can cause serious long-term problems for people.

One negative impact credit card debt has on users is it can severely constrict their income. If credit card users make only the minimum monthly payments, their balances will grow with interest, causing their debt to accumulate. When this occurs, the amount of interest could eventually equal the amount owed. In some cases, it could even exceed the original principal, which would make the entire debt too big for most users to be able to pay in one payment.

Supreme Court rules stale debt claims allowed in Chapter 13

A Supreme Court ruling could directly effect Nashville citizens who are seeking debt relief. The 11th Circuit had ruled that a debt collector was in violation of the Fair Debt Collection Practices Act after it submitted a proof of claim on a time-barred debt to a bankruptcy court. The Supreme Court, however, said that this action did not violate the FDCPA clause prohibiting "false, deceptive, or misleading" practices.

The Supreme Court found in its conclusion that the determination of a deceptive act relies on the "legal sophistication" of the people on the receiving end. In this case, those people are Chapter 13 bankruptcy trustees who examine the validity of right to payment claims and would, in theory, object to all time-lapsed claims.

Small business bankruptcy: know your options for moving forward

As a small business owner, you may be no stranger to financial struggles that threaten your business and perhaps even your personal assets. If you are in this situation, what alternatives there are to bankruptcy for getting debt relief? And if you do choose to file bankruptcy, what are the benefits and potential drawbacks of doing so?

We recently published a white paper to explain how to approach these questions. The paper is called Business Owner Bankruptcy: Opportunities and Threats.

Your worst fears about bankruptcy: Are they based on reality?

Virtually everyone has an opinion about bankruptcy. Some people think it's a sign of weakness, laziness or irresponsibility. Others swear that it is a smart, perfectly legal way to deal with nasty creditors. Still others see bankruptcy court as a place in which to deal pragmatically with life-altering problems that are outside of their control -- problems like illness, divorce or a job layoff. What do you think about bankruptcy?

Without a doubt, bankruptcy can be scary. It should be taken seriously and never entered into without careful consideration and planning. If you are in debt that you know you can't get out of on your own, it is important to weigh the pros and cons of a Chapter 7, 13 or 11 bankruptcy filing. Since there is so much misinformation on the internet, on social media and in the minds of the general public, it can be useful to look inside yourself and decide what fears are logical and what fears are mythological.

How credit can be rebuilt after declaring bankruptcy

Tennessee consumers can take steps to improve their credit after a bankruptcy even though it will stay on the credit record for several years. The first step is to make a budget. This will help a person pay bills on time, and 35 percent of a FICO score is based on when payments are made. A budget should also allow a person to put money away into an emergency fund. About 10 percent of people who declare bankruptcy go on to do so a second time, and this emergency fund may provide the cushion needed to keep a person from sliding into debt again.

Credit reporting agencies offer a free report each year, and these should be checked annually in case there are any errors. There are also more concrete steps a person can take to rebuild credit. Using a credit card regularly and paying it off demonstrates a person's ability to make payments on time.

What bankruptcy CAN'T do for you as a consumer

If you’re reading bankruptcy blogs, it may be because you have an intractable debt problem. Maybe the problem is related to a divorce, a job loss, an expensive health issue, or a situation that seems like a business failure. Perhaps you’ve come to the realization that it’s impractical – or impossible -- to keep up with all your debt payments. Maybe it's time to consult a legal professional about how to get out from under the burden.

It’s important to know that Chapter 7 and Chapter 13 bankruptcy filings are profoundly powerful tools when they are used in an intelligent, strategic manner. But it’s also crucial to recognize that bankruptcy has significant limitations. (Think of a good bankruptcy filing as a sharp sword, not a magic wand.)

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