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Bridgeport Law Blog

Planning for credit recovery after bankruptcy

Many Connecticut consumers know that a bankruptcy stays on a filer's credit report for a long period of time. This is one reason why even people with overwhelming debt continue to resist filing. They are concerned that they will never be able to access credit again and that their credit reports will lead to disaster. Of course, one of the problems is that most people who file for bankruptcy already have significantly damaged credit. They may show very high utilization of existing credit lines, late payments, unpaid bills, or even judgments.

In many cases, people who file for bankruptcy are already ineligible for most new credit lines due to their poor credit rating. Therefore, they may find that in some cases the bankruptcy even improves their credit score, given that it discharges some existing debt. A Chapter 7 bankruptcy lasts on a credit report for 10 years, while a Chapter 13 bankruptcy, which includes restructuring and a payment plan, lasts on a credit report for seven years.

Consumer credit moderates

Many people living in Connecticut rely to some degree on credit. Of course, this is isn't unusual as Americans typically maintain a high level of credit card debt. As of February 2019, the amount of revolving credit debt in the United States was $35.4 billion, according to the Federal Reserve. Overall, the increase in consumer credit overall was less than expected.

While credit can be useful for many consumers, it also has its drawbacks. People use credit to afford large purchases and manage unexpected expenses. In addition, people who travel often rely on credit cards as opposed to carrying large amounts of cash. However, too much debt can lead to financial problems. In some cases, consumers are unable to manage even minimum payments on what they owe. Late fees and interest can make it almost impossible to pay off these debts.

Many patients surprised by out-of-network medical bills

Even when Connecticut patients seek care at an in-network hospital, they may be faced with surprise out-of-network medical expenses. In fact, roughly 1 in 7 patients are surprised by medical bills, according to data on medical billing processes and practices. An analysis of more than 600,000 in-network inpatient admissions found that instances of at least one out-of-network claim ranged from nearly 2 percent of all admissions in Minnesota to nearly 27 percent in Florida.

Out-of-network expenses that may result in some degree of medical debt tend to involve anesthesiology and independent lab services. Specialties representing the most out-of-network professional claims also include primary and non-physician care, emergency medicine, and radiology. The "surprise" bills often occur when a patient goes to an in-network provider and needs services that are inadvertently assigned to out-of-network providers. Unfortunately, patients often have no control over out-of-network care, nor do they always get straight answers when seeking such information.

A better understanding of chapter 13 bankruptcy

Some Connecticut residents may have questions about how chapter 13 bankruptcy works. Chapter 13 is a reorganization bankruptcy, so it may be the right solution when an individual has a good income but is not able to pay off their creditors immediately. Chapter 13 bankruptcy will last for a period three or five years, giving an individual the opportunity to pay their debts off over an extended time.

The Chapter 13 process begins with an individual receiving credit counseling from an agency that has been pre-approved. After the credit counseling is complete, a person can file for bankruptcy. Then, the individual filing for bankruptcy, along with a court-appointed trustee, will create a repayment plan that allows them to clear out their debts. The length of time a person will need to clear out their debts will vary based on their income.

The length of credit card debt

Most consumers in Connecticut and around the country who owe money to credit card companies carry the debt for more than a year according to a poll conducted by CreditCards.com. Almost a quarter of the consumers who participated said that they had carried such debt for at least three years, and 14 percent said that credit card companies had been charging them interest for five years or longer. The study also reveals how income influences the way consumers handle credit card debt.

While individuals who are struggling to earn a living are more likely to have credit card debt, Americans with higher incomes tend to carry their balances for longer periods. Only about 7 percent of the consumers earning less than $30,000 indicated that their credit card balances were five years old or older, but that figure jumped to 17 percent among respondents earning $80,000 or more.

The ACA has done little to address crippling medical bills

About two-thirds of the people who file personal bankruptcies in Connecticut and around the country each year do so to avoid crushing medical bills, according to a recent study published in American Journal of Public Health. A team of researchers that included a doctor from the Hunter College of City University of New York, two lawyers and a Consumer Bankruptcy Project sociologist came to this conclusion after studying 910 Chapter 7 and Chapter 13 bankruptcy petitions filed between 2013 and 2016.

The research has attracted a large amount of media attention as it is the first major study of medical debt-related bankruptcy since President Obama signed the Affordable Care Act into law in 2010. Lawmakers hoped that the landmark health care law would address the problem, but the researchers found little evidence to suggest that this has happened. According to the research team, as many as 530,000 American families face financial ruin because of illness or injury each year.

Reasons to consider a living will

Life-altering accidents and infirmities are not conversations that Connecticut residents like to discuss. Unless they are faced with a terminal illness or unless they lose someone close to them, most people would prefer to focus their mind on things like their plans for today or the future. This is why many procrastinate or completely put off creating a living will or a health care directive.

A living will or a health care directive will provide instructions that cover what should be done for people, their estates, and their dependents if something happens and they are no longer able to care for these decisions themselves.

How student loans are dealt with during a bankruptcy

Prior to 1976, Connecticut residents could potentially have their student loans discharged through bankruptcy. In 1976, the law was amended to include student loans that had been in repayment for at least five years. That was later extended to seven years before Congress moved to exclude student loans from most bankruptcy cases. Today, an individual can only have such debt wiped away in bankruptcy if making payments constitutes a hardship.

Most courts use the Brunner test to determine if such a hardship exists. To pass the test, a person would first need to show that he or she couldn't maintain a minimum standard of living because of student loan obligations. Furthermore, it must be shown that the hardship will exist for as long as the debt is outstanding. A borrower must make a good faith effort to make payments even if none are actually made.

Dischargeability of tax debts in bankruptcy

Bankruptcy is an option for people in Connecticut who are struggling to pay off their debts, but there are certain types of debts that may not be discharged. Tax debts are not dischargeable unless they meet special requirements. Generally speaking, tax debts cannot be discharged if they are withholding trust fund taxes for which the person is liable, associated with a tax liability for which the person did not file a return or associated with a frivolous or fraudulent return.

Additionally, if the person willfully tried to evade liability for the taxes or the tax debts are tied to returns that were filed late within two years prior to the bankruptcy filing, they will generally not be dischargeable. In order for a tax debt to be eliminated in bankruptcy, it must be related to a return that was due three years or more before the bankruptcy filing and filed two years or more before the bankruptcy filing. These taxes must have been assessed 240 days or more prior to filing for bankruptcy.

Options for dividing a home in a divorce

When people in Connecticut get a divorce, they may have to decide what to do with the home they own. Some couples might agree to sell the house, but this often comes at the order of a judge rather than through negotiations.

If one spouse takes the home, that person should make sure that the mortgage, taxes and other upkeep is affordable. Another common error spouses make is not removing the one who no longer owns the home from the deed even if they refinance the mortgage. While this can be a way to reduce paperwork, it also means the couple remains linked financially. If an amicable divorce stops being amicable, this could create problems.