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Christopher Todd Morrison, P.C.
Affordable Bankruptcy
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Houston Bankruptcy Blog

Are individual retirement accounts affected by bankruptcy?

When someone decides to file for bankruptcy, it is natural to wonder if the proceeds of a retirement account such as an IRA would be vulnerable to creditors. Another concern is whether IRA proceeds would be safe if the beneficiary files for bankruptcy.

Safe harbor for account holders

Household debt increasing to record levels

In October 2009, the unemployment rate throughout the country was 10 percent. Roughly 10 percent of credit card accounts went into bad status. Between 2008 and 2013, Texans and other Americans had begun to make paying down debt a priority as a result of the recession. However, by the first quarter of 2018, household debt in the United States was at $13.2 trillion, which was the highest total ever recorded.

It is important to understand American consumers have other debts beside their outstanding credit card balances. Mortgages, student loans and auto loans also contribute to the overall total Americans owe to lenders. As the Fed raises interest rates, it could have an impact on how individuals handle their finances. Ideally, people will save as if the economy is booming and spend like they did during the recession.

How to avoid making a debt problem worse

Texas residents who are struggling to pay off debt are advised to create a repayment plan as soon as possible. They are also advised to overcome the urge to go deeper into debt on meals or other items that may provide temporary satisfaction. Part of a debt repayment plan should include making credit card and other payments on time. Cutting down on current expenses can be an effective way to pay off balances faster.

While becoming debt-free should be a priority, it shouldn't be a person's only priority. It is also important to put money aside to create an emergency fund. Having a cash reserve can prevent a person from putting emergency expenses on a credit card and going further into debt. Those who have existing credit card debt should analyze all the costs associated with a balance transfer.

Interest rate hikes may mean higher bills for consumers

Some Texas consumers may be paying a significant amount of money in credit card fees and interest. The personal finance website MagnifyMoney looked at data provided by the Federal Deposit Insurance Corporation and found that Americans had paid over $104 billion in interest and fees over the past year. That number is anticipated to increase.

In 2018, the Federal Reserve has raised interest rates and will probably do so two more times before the end of the year. This usually means higher rates for credit card customers as well as mortgage holders. It is anticipated that the last rate increase will cost credit card debtors over $2 billion more in interest rates.

Automatic stays and creditor violations

Debtors in Texas who have filed for bankruptcy may have legal recourse if their creditors continue to pursue collections. Bankruptcy filers are given an automatic stay, during which creditors are prohibited from contacting the debtors to collect on the debts.

The type of penalty assessed against a creditor who violates the automatic stay is determined by the nature of the violation and whether the creditor willfully attempted to circumvent the bankruptcy law. For actions like foreclosures or repossessions, the bankruptcy court will generally order the creditor to return the seized property back to the debtor and provide compensation for damages that the debtor experienced due to the violation. The creditor may have to pay damages for costs related to having to rent a vehicle to get to work after the repossession of a vehicle or hotel costs if a home was seized in a foreclosure. The debtor's attorney fees may also have to be paid by the creditor if the attorney had to address the issue in court.

Obtaining vehicle loans after bankruptcy

Texas residents who are contemplating bankruptcy are often concerned about obtaining future credit. This is a valid concern, especially in the area of automobile loans since transportation is often necessary to retain employment.

Though a bankruptcy is a blemish on a credit record, it can also be a time for rebuilding credit. There are subprime auto credit companies that will look past a credit score when making a decision to issue a loan. Most will require certain qualifications. The borrower will normally have a steady employment history and verifiable income. In addition, the lender may require proof of permanent residency, often in the form of a utility bill in the borrower's name. Either a landline phone bill or phone contract could suffice.

3 signs you are being harassed by a creditor

Countless Americans are overwhelmed by debt and seeking ways to lessen the burden it imposes on their lives. When debt goes to a collections agency, it is not uncommon for creditors to persistently harass debtors to the point of intimidation. Whether you have maxed out your credit cards or are struggling to pay your mortgage, you should know that there are debt relief options available. 

Consulting with a legal representative can help you understand your options and see whether Chapter 13 or Chapter 7 bankruptcy might be right for you. In the meantime, consider the following three signs that you may be experiencing creditor harassment:

The average credit score in Texas is 656

The average Texas resident has a credit score of 656, which is considered fair but not good, and has $6,902 in revolving debt according to figures from Experian. The consumer credit reporting agency's annual State of Credit report reveals a growing North-South divide. Minnesota residents top the list with an average score of 709 while Mississippi residents have the nation's lowest average credit scores. Experts are not surprised by the data as credit scores have been following this trend for about two decades.

The Experian report also provides insights into why consumers find it so difficult to improve their credit scores. Borrowers who are struggling financially generally have lower credit card limits and therefore use more of the revolving debt available to them. This can have a profound effect on credit scores even when monthly payments are made on time. More affluent borrowers may have better credit scores despite owing more money to credit card companies because their spending limits are much higher.

Waiting to file for bankruptcy could make problems worse

Timing could make a big difference in the outcome of a bankruptcy. The longer a Texas individual or couple waits to file bankruptcy after they know they are in financial trouble, the harder it could be to recover. According to data from the Consumer Bankruptcy Project, two-thirds of the people who eventually file for debt relief struggle for more than two years with bills they are not able to pay.

Waiting may cause a person to have half the assets and a 40 percent higher debt-to-income ratio that those who file for bankruptcy right away. It could reduce the benefits bankruptcy offers to people who need a fresh financial start. After years of depleting their assets making increasing minimum payments, dealing with lawsuits from creditors and even skipping meals to pay debts, it could be challenging for people to regain their financial footing even after bankruptcy.

Study sheds light into credit card debt

During the first quarter of 2018, Americans paid off $40.3 billion in credit card debt. However, many Texans are still in the red. A report by WalletHub, which used data from the credit agency TransUnion, the Federal Reserve and the U.S. Census Bureau, found that although the second largest amount was paid off since the beginning of 2009, credit card debt remains at the second highest point since the end of 2008.

One expert reported that it is not unusual for there to be a surge in debt payoffs in the first quarter of the year. This is usually due to increased spending during the holidays at the end of the previous year. These debts are often paid back with holiday bonuses from work.