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Russell G. Small

Bridgeport Law Blog

Study looks at bankruptcy effects on employment

People in Connecticut who are considering bankruptcy might be concerned that it will have a permanent effect on their credit and even on their job prospects. However, a study that will appear in the Journal of Finance has found that this is not the case.

The study examined people who filed for Chapter 7 bankruptcy as well as people who had filed for Chapter 13 bankruptcy. With the former kind, people are generally able to discharge most unsecured debt. With the latter, they pay off some debts using a payment plan. A Chapter 13 bankruptcy remains on a person's credit report for seven years while a Chapter 7 bankruptcy remains on it for 10 years.

Bankruptcy may provide protection from debt collectors

Some debtors in Connecticut may decide to file for bankruptcy after facing collection calls, lawsuit threats and other actions taken by creditors to. When a bankruptcy petition is issued, an automatic stay that halts all efforts to collect existing debts is initiated. Creditors that want to pursue a lawsuit, repossess a car or other property, or set off debts need to go to the court for permission. In general, the bankruptcy court becomes the venue to address debts, and filers may find relief from the constant onslaught of creditor actions.

One issue that's not always clear is what creditors are obligated to do to stop collection activities that were already in place before the Chapter 7 filing. Some courts have held that when creditors do nothing, it does not violate the stay; they must take some action to do so. On the other hand, others have held that a creditor could run afoul of the stay by failing to act. In one case, a woman owed unpaid legal bills to her past divorce attorney before filing for bankruptcy. The creditor had already received a judgment against her and filed for wage garnishment, and $1,000 was collected.

Eligibility criteria in a Chapter 7 case

Individuals who are unable to meet their debt obligations may be able to have their debts discharged through a liquidation bankruptcy. As the process implies, assets might be liquidated in an effort to raise money to pay off outstanding loan balances. Those who file for Chapter 7 protection may need to pass the means test as a requirement of obtaining such protection. This checks to see if a debtor's income is lower than the median in his or her state.

Passing the test may not be required of those who have primarily tax, business or tort debts. It is not possible for a person who is part of an LLC or corporation to file for a consumer Chapter 7 bankruptcy. However, it may be possible to file bankruptcy in an effort to discharge business debts that an individual personally guaranteed. Sole proprietors can also file for a consumer Chapter 7 bankruptcy.

Presidential candidate addresses medical debt during debate

Connecticut residents who tuned into the Democratic presidential debate on Jan. 14 will likely have heard Senator Bernie Sanders address the issue of medical debt. Sanders said that half a million Americans turn to bankruptcy each year because they are unable to pay doctor or hospital bills, and a 2018 Consumer Bankruptcy Project study backs up this number. After studying 910 personal bankruptcies filed between 2013 and 2016, the CBP concluded that about 65% of all personal bankruptcies in the United States are linked to medical debt in some way.

The Affordable Care Act was passed in part to address the problem of overwhelming medical debt, but the data suggests that the landmark legislation has failed in this regard. A CBP study conducted prior to the ACA's passage found about the same percentage of bankruptcies linked to medical costs or income lost as a result of injury or illness.

The rules for filing under Chapter 13

Connecticut consumers can file for Chapter 13 bankruptcy regardless of their income. However, they must have no more than $1,257,850 in secured debts and no more than $419,275 in unsecured debts at the time that they file. Those who are looking to file for Chapter 13 bankruptcy will also need to verify where their income comes from, and it will be necessary for a debtor to show that he or she has filed all necessary income tax returns for the past four years.

The first step in the Chapter 13 bankruptcy process is to take a credit counseling course from an approved provider. After completing that step, the next task is to create the repayment plan that will be used throughout the repayment period. In a reorganization bankruptcy, debts will be repaid for either three or five years depending on how much income a person has.

The difficulty of discharging student loans in bankruptcy

Some people in Connecticut may be struggling with substantial student loan debt. The total student loan debt nationwide is $1.59 trillion. Unfortunately, student loan debt is rarely dischargeable in bankruptcy.

There are a few options for debt relief, particularly for people who have federal student loans. Some people may be able to get a forbearance or have the loans deferred, which would allow them to take a break from paying them. Applying for an income-driven repayment plan is another option. These may not be available for a private student loan, but the lender might be willing to negotiate.

Credit cards not ideal for paying medical bills

Medical costs continue to rise, in Connecticut and across the country, and many people have been forced to take on or carry debt in order to afford necessary health care. There are ways that people can avoid putting medical bills on their credit cards or reduce the amounts that they need to charge. Among them are insurance options, paying down existing debts, payment plans and using cards as a last resort only.

High medical bills may be avoided by the use of insurance. While health insurance can be prohibitively expensive in some cases, there are options in the U.S. for people to purchase insurance at discounted rates. Some people do not buy insurance because they are in good health, but medical issues can crop up suddenly and leave the person with significant bills. Paying down other debts might help people avoid putting medical expenses on their credit cards. Paying the same amount in two payments, one earlier in the month, can reduce balances faster.

Tips for dealing with medical debt

People in Connecticut who are struggling with medical debt are not alone. They are among around 137 million people throughout the country who are in the same situation. Many of them are like one 59-year-old woman who lost her job in 2013 and could not keep up with her COBRA payments.

After becoming uninsured, she had several medical emergencies, including kidney stones and a broken leg. Her bills mounted. Surgery as a result of her broken leg was $60,000, and other invoices arrived with figures exceeding $19,000 and $36,000. She said she did not know how much she owed. She spent the $20,000 she had saved for retirement and said she was considering bankruptcy.

Older adults struggle with medical bills

Older adults in Connecticut could be at risk of bankruptcy because of medical debt. When people who are older file for bankruptcy as a result of medical bills, they have usually run out of savings. Many are either not working at all or working reduced hours, so their income is limited. In 1991, just 2% of bankruptcy filers were 65 and over compared to 12% now.

In addition, the number of people 55 to 64 who filed for bankruptcy in 2016 was up 66% compared to 1991. For people 65 to 74, there was an increase of 204%. Some of these people are in the situation of one 66-year-old retired handyman who said that because of multiple injuries, his could no longer keep up with his medical expenses and had to file for bankruptcy. He hoped to be able to work out a loan modification with his bank that would allow him to remain in his home of 40 years.

The statute of limitations for unpaid debts

Connecticut residents who have bills that they are unable to pay often deal with daily phone calls or letters from banks, credit card companies and debt collectors, but state law places strict limits on how long creditors can pursue unpaid debts in court. The statute of limitations for unpaid debts is six years in Connecticut, but consumers who are struggling with unmanageable financial situations are sometimes confused about this timeline and when the clock starts to run.

The six-year statute of limitations for unpaid debts begins to run when the debt goes into default, but it resets when a payment is made. This means that if a Connecticut consumer makes a payment on an unpaid debt five years after it became delinquent, the six years allowed under the statute of limitations would begin all over again. Once the time allowed under the statute of limitations has passed, creditors or bill collectors are no longer able to take legal action against borrowers. However, they may still seek payment.

How can we help?

Financial Freedom Is Just A Call Away

When you are overwhelmed by debt, we can help you explore your options and find relief. Should you choose to file for bankruptcy, calls from creditors and debt collectors come to a stop almost immediately, allowing you to get back to living your life.

Call us today at 800-261-3275 or contact us online to schedule a consultation. Our firm offers evening and weekend appointments and home visits. Credit cards and payment plans are accepted. Se habla Español.

We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.

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