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Credit Card Havoc May Follow 2017 Federal Reserve Rate Increases

The Federal Reserve has reported that it anticipates raises in the Federal Reserve prime rates for 2017.   This raise in rates may have a massive “trickle down” effect that will alter many current financial norms.   Among these “norms,” credit card interest rates may soon be increasing.

Credit Card Interest Rates are Adjustable

Credit card interest rates are usually set to a variable or adjustable rates according to the terms of the credit card contract. This essentially means that credit cards rarely have “hard terms” when it comes to minimum payments or charged interest.  When the Federal Reserve changes the prime rate, the entire financial industry makes massive changes to adapt to these increases.   Many mortgages, investment loans, and smaller loans like credit cards will instantly become much more difficult to repay or even service monthly.

Credit Card Interest Rate Increases will Create More Payment Defaults

Essentially, the moment that interest rates increase on credit cards via prime rate increases, everything becomes much more expensive. All the items purchased through the credit card and the continuation of the credit card services greatly increase in price.  Because the total cost of servicing the credit cards increases, this increase can sometimes break an already tight budget.  Once a credit card payment is missed or late, many times the interest rate then increases exponentially. Interest rates as high as 24% in such situations are not uncommon. This can equate to charging up to four times the original amount or greater for the good or service that was purchased through the credit card.

Credit Card Defaults Frequently Lead to Bankruptcy

Because credit card defaults are very difficult from which to recover, bankruptcy frequently follows.  An already stretched budget cannot accommodate such large required monthly payments. In fact, the increase in interest rates cause defaults across the entire financial spectrum.  Credit cards are not the only avenue to bankruptcy during a Federal Reserve rate increase. 

The Rates Must Increase: Are We Living on Borrowed Time?

Because of the nature of our financial systems, eventually the Federal Reserve Bank rate must increase. The United States currently operates on an excessively over-leveraged, debt laden financial system.  As a nation, we may only be living on borrowed time.  Massive changes to our nation’s financial and debt systems will likely be required to put things back on track. If you are in need of a personal financial overhaul, do not take it personally.   The entire national financial system is right there with you. If you need to talk to somebody about debt relief or possibly about bankruptcy, do not hesitate to give our office a call.   

7 “Guaranteed” Financial Tips to Start 2017

With the start of 2017, an opportunity for a new financial future awaits for those who are willing to make financial changes in their life.  This article discusses seven tips for turning over a new financial leaf in 2017. These tips are not “pop culture” advice or entertainment: they require great life changes and sacrifice.  However, committing to these simple tips will guarantee new financial growth and success.  These tips are truly life-changing. 

Tip Number One: Reduce Your Expenses

Reducing expenses can quickly relieve financial stress.  Restructure your expenses such as monthly housing costs, automobile payment, or other reoccurring monthly expenses to be as close to $0 as possible.  Nothing is impossible unless you do not try. Remember, finances are determined by the numbers. Numbers do not lie and they do not change. If you can structure your budget with as low expenses as possible, your financial life will always be much easier.   Some of these reductions may require some major life changes. 

Tip Number Two: Go “Paid in Full”

Many Americans have become accustomed to purchasing homes and vehicles through financing. Mortgages, car loans, and personal loans only make life more difficult.  By adopting a paid-in-full mentality, everything in life becomes much less expensive. In addition, a paid-in-full mentality can quickly increase your net worth.  Sacrifice and even massive financial changes such as bankruptcy maybe necessary before you can adopt a complete paid-in-full mentality.  Also, a realignment of what’s important in life may also be in order before a paid in full mentality can be adopted.  If you are required to rent the least expensive option possible as you acquire financial knowledge so that you can live “paid-in-full,” it is still worth it.   Starting from the “ground-up” will revolutionize every financial aspect of your life. 

Tip Number Three: Work Easier

Over the years, we have seen many people working incredibly long hours. Sometimes people work two jobs or work a full-time job while operating a full-time business. Even in these situations, we have seen people desperately struggle just to stay afloat financially. Sometimes the best advice is to simply set up an easier work situation. If you’re too exhausted or simply do not have time to learn about financial things, then you need to shut down the direction you are going.  You need to shut everything down.  Take the time to slow down and plan the financial direction of your life.  Make life easier and much more financially rewarding!

Tip Number Four: Work Smart

Hard work alone can bring very disappointing results.  To achieve success in life, you must also work smart.  How much you can achieve in your financial life usually comes down to a simple equation: how hard you work is multiplied by how smart you work.  If you only spent 1/10 of the time each week planning on how you would work “smart,” then drastic improvement to your financial situation would rapidly occur.  If you make plans to work “smart,” then your precious labor hours will no longer be stolen away on generating just enough income to pay the bills.

Tip Number Five: Do Not Put Off Financial Education Any Longer

Following closely the previous tip of working smart, tip number five is to finally spend time seeking a full financial education.  People who do not have a financial education tend to work more hours with much less reward.   In order to get a full financial education, you must first forget and reject everything that you currently believe about finances. A financial education can be life-changing if you are willing also to make massive life changes in accordance with your new financial knowledge.  If you make following your new financial education a “life mission”, new wealth and ease of living will quickly follow.

Tip Number Six: Have Fun Getting Financially Smart

Getting financially smart can actually be fun. We all enjoyed playing Monopoly and over financial games when we were children. Financial endeavors and the accumulation of financial knowledge can feel more like an adventure then a burden if you pursue it in some a child-like, enjoyable manner. Setting up your life to enjoy a productive financial journey can be one of the best decisions you make during life.  Make it fun.   Turn it into an adventure.   

Tip Number Seven: Get Out of Debt

Getting out of debt is great way to restore financial freedom. If you are able to make a solid plan that can get you out of debt in two to three years, take action on that plan!  Treat it like an adventure. If you are unable to make a reasonable plan for getting out at debt, then you need to speak with a bankruptcy attorney.  It is pointless to “spin your financial wheels” your whole life.   It is also very disheartening to live your entire life paycheck to paycheck.   Make a resolution this year that will truly change your life forever: get out of debt and make it your life mission to make a solid plan for your financial future.

Back Child Support and Bankruptcy

Finding yourself with large amounts of back child support can be a difficult position.  Many people are desperate for a solution for paying their back child support. Bankruptcy can be a solution for back child support in certain situations. It is important to understand exactly what bankruptcy can and cannot do with back child support.

Image of Stressed Man who is behind on Child support

Chapter 7 bankruptcy cannot discharge back child support

Many people turn to Chapter 7 bankruptcy in hopes that it will get them some kind of relief from their difficult back child support situation. However, back child support cannot be discharged in chapter 7. Although Chapter 7 can still be of great assistance because it can discharge many other debts, any back child support amount will remain the same after you file your Chapter 7 case.

Chapter 7 coupled with a child support modification

In certain situations, Chapter 7 bankruptcy can eliminate other forms of debt in order to allow a person to focus on modifying and then repaying back child support obligations.  With heavy debt loads and aggressive collection, paying down a child support debt can sometimes be impossible.   By removing all other debts, the focus can turn entirely to reducing back child support amounts through a payment plan or modification.

Child-support modifications are essential in situations where a party is paying more child-support than what their income requires.  If a period of unemployment or a drop of income has occurred, you may need to seek a family law attorney to help you modify the amount you pay in child support.   Such a modification coupled with a Chapter 7 bankruptcy filing can be life-changing.  Such a combination can turn an impossible situation into a workable and much less stressful setup.  A setup you will be able to afford.  

Chapter 13 can assist in paying off back child support obligations

Chapter 13 can sometimes assist in paying off back child support obligations. Through the Chapter 13 case you can sometimes pay your back child support obligations through the Chapter 13 plan.  This gives workable format for the child support debt to be repaid.  All your debts (sometimes including the back child support) can be repaid through one monthly payment. 

By the end of the Chapter 13 case, the entirety of your back child support debt is required to be paid.  In addition, you must also have your current, ongoing child-support payments up-to-date by the end of the Chapter 13 plan.  Similar to Chapter 7 in how it alleviates your debt situation, Chapter 13 bankruptcy can also be used to powerfully restructure your debts to allow child support obligations fully paid off.

What Happens to the Cosigner in Bankruptcy?

Many times our clients as us, “What happens to a cosigner in bankruptcy?”  If more than one person “signs” on a debt, then the other person who “signs” with you is called a “co-signer” on the loan.  A cosigner is legally required to pay the entirety of the debt just the same as the primary signer.   When a bankruptcy is filed, a cosigner’s obligation to repay the debt remains the same.   However, the cosigner may still be protected in some ways by the bankruptcy filing.

Bankruptcy Does Not Erase a Cosigner’s Debt

When you file for bankruptcy, the obligation for the cosigner to repay the debt is not erased.   The cosigner is still fully responsible for the cosigned debt.   Although bankruptcy discharges the debt of the person who files, it does not discharge the debt of the cosigner who did not file.  If the cosigner wants the debt to be discharged for him or herself, the cosigner will also need to file bankruptcy.

The cosigner of a debt can sometimes negotiate, however, with the creditor in order to settle the debt after one party files bankruptcy.   Because one party is now “off-the-hook” on the loan, the chances for recovery on the loan may now be weaker.  If the cosigner does not want to file bankruptcy, a settlement may be possible.

Bankruptcy Can Offer Some Protection for a Cosigner

Although not much protection is offered to a cosigner during a Chapter 7 bankruptcy, Chapter 13 bankruptcy can have a much different affect on protecting cosigners.   In Chapter 13, a “Co-Debtor Stay” is put into effect by the filing of the case.  This means that if a cosigner is currently in a Chapter 13, then no collection efforts can be made against any cosigners.  This protection is offered because Chapter 13 allows the debtor the chance to pay (sometimes in entirety) the disputed debt through the Chapter 13 plan payments.  Therefore, it would not be fair to give the creditor the chance to collect on two parties at the same time.

The co-debtor stay in bankruptcy does not always protect the cosigner, however.  The Chapter 13 filer must substantially repay the creditor during the Chapter 13 plan for the co-debtor stay to be full-proof.  In addition, if the Chapter 13 plan does not pay back the creditor on the same terms, it may be possible for that same creditor to go back and collect the difference from the cosigner after the Chapter 13 case is completed.   Remember, cosigners have a separate, full obligation to repay the entirety of the debt back to the creditor.   Therefore, although Chapter 7 or Chapter 13 cases can assist in some degree the cosigner, they only very rarely fully release the obligations of the cosigner for repaying the debt.

What happens to the cosigner in bankruptcy?

What Are Priority Debts and Are they Dischargeable in Bankruptcy?

Priority debts are certain debts that take a “higher” priority than other debts during a bankruptcy.  These “priority” debts will be repaid first if any funds become available during bankruptcy.   In addition, most priority debts cannot be discharged through bankruptcy.

What types of debts are considered Priority Debts?

The most common sorts of priority debts are certain taxes and child support.  First, child support is always non-dischargeable during bankruptcy.   Child support is one of the most common forms of priority debt.   It is important to determine if a certain type of divorce-related debt is considered by family law and bankruptcy courts to be child support.  Certain debts such as martial settlement agreements and other payments may not be child support even if children are involved in the divorce.

Certain taxes are also a very common form of non-dischargeable debt.  Income tax debt that is less than 3 years old (going by the due date of the return) is a very common form of priority debt.   Therefore, if you have recent tax debt to IRS or your state revenue department, it will likely be non-dischargeable, priority debt during your bankruptcy.  Other forms of tax debt such as payroll taxes or sales tax is also priority debt.   Property taxes and other various forms of tax may likely not fall into priority status.

Other priority debts include criminal fines, criminal fines, injury caused by intoxicated driving, and overpayment of government benefits.  Some debts, including these, could be classified as “non-dischargeable” (which means they cannot be erased by bankruptcy), but they are not “priority” debts.   A good example of a non-dischargeable debt that is not a priority debt are student loan debts.  Student loan debts are non-dischargeable in bankruptcy but are usually only classified as normal, “unsecured” debts.

Priority Debts are Generally Non-Dischargeable in Bankruptcy

For the most part, priority debts cannot be discharged during bankruptcy. This simply means that you will still need to pay the debt after your Chapter 7 case.  If you file a Chapter 13 case, you will likely be required to pay the entirety of the priority debt through your Chapter 13 plan payments.   Priority debts treated differently during bankruptcy because of their “priority” status: they must at some point be paid.  This priority status protects them from being easily discharged by filing bankruptcy.