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Bridgeport Law Blog

Survey looks at attitudes toward credit card debt

Some Connecticut consumers may be among the more than 20% who say they do not know whether or not they have credit card debt. An online survey of over 1,000 consumers by U.S. News & World Report also found that almost one-quarter of respondents had over $10,000 in credit card debt. Another quarter said they kept a revolving balance of around $2,000.

The survey also found that 30% of people said they did not know their interest rate, and 16% said they had a balance, but they did not know what it was. Although half of respondents said that making payments did not cause them difficulties and 60% said they carried no credit card debt, 15% said their balances were increasing and that they struggled as a result. Furthermore, 13% said they struggled to make ends meet, and 14% said they had some difficulty with their bills.

Cautious millennials are now accumulating more debt

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.

Dealing with overwhelming medical debt

Many Connecticut residents are struggling with high levels of medical debt. It may seem nearly impossible to pay off expensive health care bills. In fact, around 30% of all Americans have over $500 in unpaid medical debt. Medical debt, like other kinds of debt, can have an effect on one's credit score. This means that unpaid medical bills can also lead to challenges when buying car insurance, renting an apartment or seeking a loan.

Of course, medical debt does not need to be reported to a credit bureau. In general, health care providers do not directly report unpaid balances. However, they do sell unpaid debt to collectors, and those agencies regularly report to the credit agencies. If one's medical balances are low, they may not be reflected on a credit report because the most common model does not include amounts under $100. There are various ways people can help to prevent medical debt from being an even greater burden than it already is. They may need to actively engage with or lobby an insurance company to have their bills paid, or they may be able to work out a payment plan with the health care provider.

Lawmakers work to help student loan borrowers

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.

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.