Christopher Todd Morrison, P.C.
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Houston Bankruptcy Blog

Complete discharge of debts and other bankruptcy myths

If you are considering bankruptcy, you need to go into it with an open mind — and open eyes. While it can give you a fresh start if you are heavily in debt, it will not work miracles.

By doing your homework, asking questions and seeking legal advice, you will know what to expect and be better prepared for bankruptcy. Here are five of the most common misconceptions about this method of resolving debt.

Medical debt remains burdensome despite credit bureau reforms

Unpaid medical bills confront many people in Texas. According to the Consumer Financial Protection Bureau, 43 million credit reports contain medical collections. Although the credit bureaus Equifax, Experian and TransUnion will alter how they report medical debts as part of two settlements with state attorneys general, consumer advocates expect little relief for consumers.

The credit bureaus will now wait 180 days before recording unpaid medical bills. Additionally, outstanding bills paid belatedly by insurance companies will be removed. Data scientists at FICO calculate that roughly 200,000 people might benefit from the 180-day delay. This accounts for less than 0.1 percent of consumers tracked by the credit bureaus. As for collections now eligible for removal because of late insurance payments, no one anticipates that many people will benefit.

Disadvantages of debt settlement

Some people in Texas may not realize that there are consequences to choosing debt settlement over bankruptcy. For example, they might not know there will be tax to pay on the forgiven debt. They might also think they will lose all their possessions in a bankruptcy, but laws protect against this. Furthermore, debt settlement still has a significant negative effect on a person's credit score.

Consumers should understand that debt settlement may take years, during which the debtor risks being sued. Additionally, debt settlement is often not a good financial deal. A person may end up settling for up to 90 percent of the original debt once interest and penalties, IRS taxes and the debt settlement fee are taken into account. Debt settlement agencies are not good sources of information regarding bankruptcy since they want to encourage settlement and might mislead consumers.

How older Americans can deal with debt

Texas seniors who are in debt are part of significant portion of the country's older population. According to a report by financial education site MagnifyMoney, one-third of Americans over the age of 50 have non-mortgage debt that they carry from month to month. In addition to that, credit card debt for older people tends to go hand-in-hand with lower net worth and low bank account balances.

MagnifyMoney analyzed data from the University of Michigan Retirement Research Center's annual Health and Retirement Study. The study, which began in 1990, surveys more than 20,000 Americans who are at or over 50 about their finances. MagnifyMoney found that according to the latest survey, the average non-mortgage debt for seniors is about $12, 490, with about $4,786 of that being credit card debt.

Should a couple file bankruptcy jointly or separately?

If you and your spouse are considering bankruptcy, you are probably concerned about the consequences. You have the option of filing jointly or separately, and you do not want to make the wrong decision.

An attorney will tell you that there are advantages and disadvantages to each process. However, be assured that there is a right choice for your particular circumstances.

Some trustees are seeking too much information in bankruptcies

Texas residents interested in bankruptcy matters might like to know about what trustees are allowed to do in bankruptcy cases. With Chapter 7 bankruptcy, trustees may liquidate a debtor's assets in an effort to pay back creditors. As part of this process, two trustees in Maryland have demanded access to debtors' online accounts. However, people and groups have raised concerns about this practice.

The U.S. Trustee Program, bankruptcy attorneys and a representative of the National Association of Consumer Bankruptcy Attorneys are all wary about asking for account passwords as standard practice in bankruptcy matters. In the Maryland cases, the trustees provided a questionnaire that asked for the log-in information for accounts with Amazon Prime, PayPal and eBay. The document also told debtors not to change the passwords and to keep the accounts active.

What is the means test?

Even though you may feel as if you are drowning in debt, you must still find out if you qualify to file Chapter 7 bankruptcy in Texas. This is done through the means test, and according to NerdWallet.com, if most of your financial difficulties are from consumer debts that you cannot pay, you will probably pass.

The goal of the means test is to establish whether you actually have money to pay your debts. So, the first step is to document your income for the past six months. You get to include changes to your income that affect your ability to pay your bills, such as the loss of a job. Getting a new job must also be included. Once you have the answer to the income question, it is applied to the Texas median income to see if you fall below that amount. If you do, then you qualify to file Chapter 7 bankruptcy.

Dealing with credit card debt after death

Many Texas families are overwhelmed with tasks and concerns as well as grief after the death of a loved one. Not only do they need to emotionally process the loss, there are a number of practical arrangements that must be immediately addressed. Some of those include financial matters and the resolution of an estate, even if the decedent had very limited assets.

One of these concerns can be the credit card debt owed by a person. There are a few common scenarios that tend to govern credit card debt after death.

Consolidation does not solve debt problems on its own

Texans who are considering debt consolidation might not know that it is not the only way to solve debt problems. One man who turned to debt consolidation to deal with his money issues found that while it was effective in many ways, it did not solve the problem completely. A credit counselor commenting on his case noted that debt consolidation is more like a bandage than a cure for financial issues, and cutting spending is the way to address the real problem.

The money issues faced by the man came about when he took out a loan and soon started missing payments. Then, when his daughter needed financial help with raising a family, he took out payday loans. The payday loan was very damaging because the majority of his paychecks went to paying back these debts. Finally, his daughter lost her job, which meant that she would be unable to pay him back.

Investment exemptions in bankruptcy

When a Texas resident files for bankruptcy, it can be a scary and uncertain time. How a bankruptcy affects a person's life and assets depends heavily on the type of bankruptcy they file. While there are many questions a person should ask before choosing a bankruptcy type, one important question is what happens to investments.

Both types of bankruptcy have certain asset exemptions, meaning certain assets cannot be included in the bankruptcy or they are included only under certain circumstances. Many types of investments, fall into this protected category, but there are plenty of nuances to consider.