Christopher Todd Morrison, P.C.
Affordable Bankruptcy

Houston Bankruptcy Blog

Why bankruptcy filings are up for the elderly

Older Americans in Texas and throughout the country are filing for bankruptcy more often than they have in past years. Individuals between the ages of 65 and 74 comprise 8 percent of all bankruptcy filings. This is an increase of 1 percent since 2008, and many people in this age group are filing because of medical debt. In addition to higher health care costs, a lack of financial literacy may also play a role in whether an older person files for bankruptcy.

Those who have late or missed debt payments may hear from debt collectors. According to the Consumer Financial Protection Bureau, debt collection tactics were among the most common complaints of people over the age of 62. In some cases, an older person may find both emotional and financial relief by filing for bankruptcy. Some individuals have even managed to save their marriages because they were able to take care of their outstanding debts.

2 common myths about bankruptcy debunked

Many people in Houston are struggling with debts. Some of these individuals may find themselves stressing over how to pay their car notes, mortgages and household expenses each month. As stressful as it is dealing with debt and not knowing where your next dollar may come from, there is hope in the form of bankruptcy. 

There is nothing wrong with considering bankruptcy as the solution to your financial problems. It is essential for you to understand that it can put an end to creditor harassment and give you some relief so that you can get your debts under control. It is not something that everyone qualifies for. Take some time to review the following myths about bankruptcy so you can better determine your next steps. 

Retirement contributions count as expense in bankruptcy

Texas residents who make contributions to a 401(k) plan can generally claim those deductions as expenses when filing for Chapter 13 bankruptcy. A trustee in one case claimed that a debtor needs to make contributions in the six months proceeding bankruptcy for them to count as a valid expense when calculating disposable income. However, an Illinois bankruptcy judge disagreed saying that the debtors in question were not doing so as an act of bad faith.

The case in question involved a couple that wanted to make a $200 monthly contribution to the husband's 401(k). That would have come out of the couple's disposable income, which would have resulted in less money going to creditors each month. As part of a Chapter 13 bankruptcy, payments must be made over a three- or five-year period using regular income. Although the court noted that the deduction may have left creditors with less money to collect each month, that alone was not enough to show bad faith.

Phantom debt and consumer rights

Some consumers in Texas may be contacted by collectors of what is known as "phantom debt." This term is used to describe debt that is either already paid off or never belonged to the person. According to the Consumer Financial Protection Bureau, in 2016, more than 40 percent of the complaints received about debt collection were about debt the consumer did not owe in the first place.

There are two types of collectors that might call and try to force a person to pay this debt. Some are scammers. The others are legitimate debt collectors that are misinformed. Over time, a debt may be sold multiple times, and the records of those sales can get mixed up.

How to read latest bankruptcy filing data

Bankruptcy filings fell 1.8 percent for the latest 12-month period ending on Sept. 30. This marks a 10-year low in filings. Overall, Texas residents and others across the U.S. filed for bankruptcy 790,830 times in September 2017 compared to 805,580 in September 2016. While the number of bankruptcy filings has dropped, those who study the issue say that many people are still in a precarious financial situation.

One variable that could reverse the trend of declining bankruptcy rates is a rise in interest rates. If rates rise, both consumers and businesses may start to turn to bankruptcy in higher numbers. The fact that the economy has been expanding for an extended period of time may leave it vulnerable to a sudden downturn. That may result in more people filing for protection from creditors.

Using debt consolidation to pay off consumer debt

Texas residents who have a lot of consumer debt may be able to find relief through debt consolidation if they are serious about and dedicated to improving their financial situations. In a debt consolidation, a person's high-interest debts are consolidated into one payment at a lower interest rate.

Debt consolidation works best if the debts are not insurmountable, meaning that they can be paid off within five years. The individual's debt load should not exceed 50 percent of their income. The debtor also needs to have a good enough credit score that they can qualify for a 0 percent credit card or fixed-rate personal loan. Home, car and student loans do not count towards an individual's debt load.

How to prevent another bankruptcy

Once the bankruptcy process is complete and you are debt free, it is not time to rest easy. Of course, filing for Chapter 7 bankruptcy will put your burdens behind you and allow you a fresh start. Your next goal is to stay on the right financial track.

If you do not learn from your mistakes, you are bound to repeat them. Here is what you need to know about preventing the need for another bankruptcy.

Federal Reserve reveals worrying increase in credit card debt

Consumer spending in Texas and around the country was subdued in August according to a report released recently by the U.S. Federal Reserve. Total consumer debt in the United States increased by $17.7 billion in July according to the central bank, but only $13.1 billion was added to the nation's debt total in August. However, a closer scrutiny of the figures reveals a potentially worrying increase in credit spending and a sharp decline in student and automobile loans.

Consumer spending is watched closely by experts as it accounts for about 70 percent of American economic output, and how people are spending their money can be just as significant as how much they are spending. Increased spending on big-ticket items like cars indicates that the economy is thriving and consumers are optimistic, but increasing revolving debt during periods when other forms of consumer spending are restrained may suggest that many Americans are using their credit cards to cover the costs of basic necessities.

Things to know before filing bankruptcy

Texas consumers who are struggling with debt may already be aware of the protections conveyed by bankruptcy. Those who are considering filing a bankruptcy petition should take into account at least three considerations as they make their decisions. First, it's important to be aware of the different types of bankruptcy available. Second, individuals should know about the cost of filing and other costs associated with the process. Finally, knowledge of the limitations of bankruptcy protection is important.

There are several different types of bankruptcy, the most common of which for individual filers are Chapter 7 and Chapter 13. Chapter 7 bankruptcy is also referred to as liquidation bankruptcy, in that the filer's non-exempt assets are liquidated to pay of his or her debts to the extent possible. Chapter 13 bankruptcy is also referred to as reorganization or wage earner's bankruptcy. It involves the creation and approval of a three- or five-year plan whereby the filer will pay down debts to the extent possible.

Credit reporting discrepancy fixed

Texas residents may be interested in an important change Equifax made to its credit reporting policies. The change may impact thousands of customer's credit scores if they have filed for Chapter 13 bankruptcy.

The reporting change came after ProPublica questioned the credit reporting agency about its policies. Equifax credit scores could be dramatically lower for a certain group of customers compared to Experian or TransUnion. While there is commonly some variation between the agencies, the differences are usually minor. In this case, a person's ability to get credit or apply for housing or assistance could be severely impacted depending on which of the three reports were checked. For example, if a landlord checked the person's TransUnion score, they may be approved, but if that landlord checked the Equifax score instead, the renter would be denied.