Christopher Todd Morrison, P.C.
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Houston Bankruptcy Blog

How to reduce the likelihood of medical debt

Texas residents in their late 30s through their early 50s are more likely to have medical debt than any other generation. On average, Generation X owes more than $19,000 in medical debt compared to millennials, who owe $11,622 and baby boomers, who owe an average of just over $2,400. One in five people younger than 65 who have health insurance struggle to keep up with medical costs.

There are several things people can do to lower their health care costs. One of those steps is understanding the benefits. Medical costs may go up if a person goes to a provider who is out of the network or fails to seek a necessary referral. People may want to take some time to review the policy and call the insurance company about anything they don't understand.

Credit card debt burdens are high in Texas

Houston residents earning the metro area's average wage would have to work for 20 months to pay off the city's median credit card debt, and it would cost them $799 in interest to do it, according to recent a report from CreditCards.com. The consumer financial advice website used the 13 percent interest rate to perform the calculations from the Federal Reserve's most recent consumer credit report. This grim statistic makes Houston's average debt burden the third highest in the country, and the figures suggest that families in many parts of the Lone Star State are struggling to cope with their credit card bills.

San Antonio residents have the highest average revolving debt burden, according to the CreditCards.com study, and people in the city who make an average wage would have to work for 22 months to pay their credit cards off. It would take Dallas residents 19 months to clear their revolving debt, which places Texas cities first, third and fifth on the list of the nation's highest credit card debt burdens.

Are you preparing to attend the 341 meeting?

If you are filing either Chapter 7 or Chapter 13 bankruptcy, you must attend what is known as the 341 meeting.

On the surface, this may seem a bit daunting, since your creditors receive notification of the date and time and may attend. However, if you know what to expect and how to prepare, the meeting should not pose problems for you.

How change in Chapter 13 bankruptcy might affect creditors

Generally speaking, Chapter 13 bankruptcy gives debtors the right to modify their mortgages by dividing the debt into a secured portion that is equivalent to the value of the property if it were to be sold today and a portion that is considered unsecure. However, this bifurcation usually occurs with properties that are not the primary residence of the creditor, such as a second home or an investment property. For example, a person living in Texas and filing for Chapter 13 bankruptcy might have to forego their summer home but not their primary home.

Surprisingly, recent developments in a case in Ohio might cause the ground to shift and allow debtors to go after primary residences. In a nutshell, a judge believed that, under particular circumstances, a debtor should have the right to secure their debt with the primary residence. Unfortunately, the circumstances that were relevant in this case, the mortgage containing a pledge for escrow funds, tend to be more common than creditors would like.

Borrowing from a 401(k)

Many Houston residents are struggling with high debt levels. In many cases, these folks may want to do the right thing and meet their obligations to creditors. For those who are employed and have retirement accounts, borrowing from a 401(k) may be a tempting debt management strategy.

Financial experts tend to be wary of this option, however. For one thing, saving for retirement is an important aspect of personal financial management. Borrowing from a retirement plan to pay down current debts can compromise an individual's long-term financial health. For example, some plan rules may prevent additional contributions until loans are repaid. This can further delay meeting retirement goals.

What a trustee does in a a bankruptcy case

Texas consumers who are struggling to pay their bills may opt to file for bankruptcy. When a case is filed, a trustee will be appointed to oversee it. In Chapter 7, this person will inventory a debtor's assets and move to liquidate any nonexempt property. In some cases, a debtor has nothing to liquidate. In such a scenario, the trustee will notify the court that it is a no asset case.

Under Chapter 13, a debtor proposes a plan to pay off creditors that must be approved by a bankruptcy judge. The trustee will also need to determine if the plan is fair before it can be put into action. Once it is approved, the debtor will start making payments until the repayment period has ended.

How bankruptcy affects a credit rating

Texas consumers who are considering filing for bankruptcy might wonder how long it will remain on their credit record. A Chapter 7 bankruptcy remains on a person's credit report for ten years while a Chapter 13 bankruptcy stays on the credit report for seven years.

More than half a million people file for bankruptcy annually, mostly because of medical debt. Unfortunately, bankruptcy is not always easy and could have consequences. People might struggle to rent a place, buy a home or get a loan after a bankruptcy. Tax debts, student loans, and debts related to child or spousal support generally cannot be discharged in a bankruptcy. With a Chapter 13 bankruptcy, a person even continues paying back creditors although it is on a manageable schedule. In a Chapter 7 bankruptcy, a person may keep some assets while others are liquidated to pay creditors.

If your vehicle is about to be repossessed, you have options

If you have fallen behind on your car or truck payments, the lender may be threatening to take it back. You need your vehicle for work, to take the kids to school, to go grocery shopping. How will you manage if the repo man comes?

Take a deep breath; you have options that will enable you to avoid repossession.

Pros and cons of a 401(k) hardship withdrawal

Some people in Texas who are struggling with debt might be able to use a 401(k) hardship withdrawal. Only certain types of 401(k) plans allow this type of withdrawal, and it can be used only for specific types of expenses. 401(k) hardship withdrawals can be used for funeral or burial expenses, payments that prevent foreclosure or eviction, repairs for some types of home damage, a new primary residence or medical bills.

This type of withdrawal comes with other limits. A person can only take out enough to pay the specific expense. Furthermore, people can only withdraw the amount they have contributed and not returns. An employer must approve a hardship withdrawal, but the IRS will not ask for additional proof. However, eligibility for a 401(k) loan or access to other funds means the employer is supposed to deny the request.

Americans get debt for the holidays

People in Texas might be in for some post-holiday buyer's remorse when they see their incoming credit card statements. Overall, Americans spent a lot during the 2017 holiday season, and many of their purchases were charged. A recent MagnifyMoney study claims that the average American consumer put themselves a little more than $1,000 in debt due to holiday spending. Furthermore, many of those people expect paying off that debt to be a slow process.

MagnifyMoney's annual post-holiday survey for 2017 concludes that holiday spending was up 5 percent from the previous year. About half of the people surveyed said they expect to pay off their holiday debt, an average of $1,054, in three months or less. Roughly 30 percent said they will probably need at least five months to pay it off.