Bridgeport Law Blog

When people in Connecticut are dealing with piles of unpayable bills or aggressive collection calls, they may be looking for a solution that allows them to obtain some debt relief. Bankruptcy can provide people with a new start that enables them to escape a mountain of debt. There are some credit consequences, but many people who turn to bankruptcy have already suffered serious hits to their credit. However, there are different types of personal bankruptcy. Each may be appropriate for people in different situations.

Chapter 7 bankruptcy is perhaps the best-known type of personal bankruptcy. Known as a liquidation bankruptcy, a filer's unsecured debts are eliminated and assets sold off to pay a portion of the creditors. The process lasts around three to six months before the bankruptcy is completed. However, only people who make an amount of money equal to or less than the median income in their state are eligible for Chapter 7 bankruptcy. People with high-paying jobs and large debts may find that this option is not available to them. Others may want to retain certain types of property, such as a family home, that would be sold off. Chapter 13 bankruptcy may be an option for both.

The Consumer Financial Protection Bureau reports that more than 70 million people nationwide have at one time or another had to deal with debt collectors. Around one-quarter of people said they felt threatened by the collection agency during their interactions. In such situations, it can seem like the creditors have all the power, but there are things people in Connecticut can do to respond to debt collection actions.

One of the first things is to respond. If the debtor fails to respond, the collections agency may be able to get a default judgment, which may allow them to garnish the person's wages or reach into bank accounts to secure funds. When filing a response, called an answer, it is important not to admit liability for the debt. The answer should be filed with the appropriate clerk of court. It is a good idea to get a stamped copy of the answer from the clerk and send the copy to the debt collector.

Once known for their cautiousness with being burdened by financial obligations, millennials and their younger Gen Z counterparts in Connecticut and elsewhere in the U.S. are accumulating more debt. Some of this debt is student loan debt, which can be a "good" kind of debt since interest rates are usually low. It's the rise in credit card debt among younger generations that's especially worrisome.

A large chunk of credit card balances with 90-day or more delinquencies are owed by Americans between the ages of 18 and 29, the highest this figure has been in almost a decade. One of the reasons for the spike in millennial debt is the appeal of extravagant signup offers, some of which include perks such as travel credits. Interest rates, some of which can be as high as 25%, are also on the rise.

Many different types of debts can be discharged in a bankruptcy. However, student loan borrowers in Connecticut may not be able to get their debts cancelled through this process. That is because lawmakers in previous decades felt that students would try to get out of paying their loans by discharging them after graduation. To get a student loan erased in bankruptcy, a borrower needs to show that he or she cannot keep paying because of an undue hardship.

Unfortunately, there is no standard definition for what an undue hardship is. This can make it difficult for borrowers and advisers alike to predict how a case may unfold. If the Student Borrower Bankruptcy Relief Act of 2019 passes, it would be easier for student loan debtors to erase their balances. It has bipartisan support and has been praised by numerous groups including Americans for Financial Reform.