Podcast #2: Credit Card Debt

Disclaimer

While the information given in this podcast is instructional, it is not intended to be taken as legal advice for your particular legal or financial situation. The recommendations that we give to one person may not be appropriate to your particular situation. The information contained in these podcasts is also not intended to replace the advice that you would receive from an actual consultation with a competent legal professional practicing in the area of consumer bankruptcy law.

Welcome

And welcome to Morsebankruptcy.com podcasts. These podcasts we answer various, topics related to the practice of bankruptcy law. This podcast is actually taking questions raised by visitors to our websites, so these are their initial inquiries into whether or not a bankruptcy might be a good fit to them and to protect their identities of-course we edit our emails to take out anything that would be a good identifier for them but it doesn’t change the fact that, these actually a good questions for somebody looking into a possible bankruptcy. This first e-mailer writes:

Viewer Question

I have a full time job then I’ve been trying to get out of credit card debt for many years. I wait tables on top of being full time employed to pay off credit cards. Recently I was injured and will not be able to wait tables for several months. My full time job’s income allows me to pay my monthly living bills. I am very interested in a fresh start that a bankruptcy may provide.

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This is sort of a phenomena that we have been started seeing for couple of years that you didn’t see before and I’m sure it’s something that credit card companies would love to encourage its where you see a whole subset of the country who has a full time job to live their regular lives paying their car payment, their rent, Their mortgage, their food, their gas, grocery whatever. But then they have an entire a second career usually a part time job doing something that does not involve either their learned skill set or their degrees just anything that they can get to make money to either just keep up with the credit cards or usually in the hopes that they will be able to throw enough cash at the credit cards that eventually go away those of you who have had 15, 18, 20 plus percentage interest more than a couple of years could probably tell them little something about how that doesn’t or necessarily always work.

I mean there is a time and place where you can do that pick yourself up of by your bootstraps and generate enough money to invade that principle and get it paid off. By and large what will generally happen is you just make yourself more able to pay minimum the payment in other words you are basically an interest payer for life if you not finding that you are invading that principles seeing the balance actually go down. Some people kinda they’ll ask when that should happen and how they can tell the difference and its actually quite simple you just look at your statements if you’ve been working a second job or doing overtime trying to throw more money at the credit cards and after two or three month of that if you are not seeing the balances actually go down oh that’s your litmus test if the balances are not going down that debts not going away you just getting better at paying penalties, fees, and interest. Now what’s happened with this person making the inquiry is also very common life happened.

You know you can make the best plans you want to make but eventually life will happen something will intervene and you may find yourself in a spot where you are not producing the kind of income you’d anticipated so in this particular instance our writer was injured and can no longer perform their second job, very common we have people not who always get injured but its either the injury that prevents the second job or they realize that after working considerable amount of overtime for considerable amount of time the damage and toll it takes on their health, it’s amazing to see people who are chronically ill file bankruptcy and all of sudden their health has returned and they can’t explain why probably has something to do with actually sleeping and not taking all of the energy drinks and supplements towards second job or the second job where they have hours things along that line.

But in this case the person has tried their best taken a second job to try pay off some these credit cards and physically because of injury get no longer do it and they want to know if they can get a fresh start, well the answer is going to depend on few things, there are two primary chapters that most consumers file that’s chapter 7 or 13 so what we would do is analyze their households income for the six months prior to filing and then compare that average income to the number of people in their household what happens is you have a income limit based upon the number of people in your household that if your income average is under that limit then you are allowed to file a chapter 7 which is a liquidation bankruptcy.

In chapter 7 most unsecured debts most commonly is going to be credit cards, medical bills, things of that sort those are discharge that simply eliminated and you move on to the next chapter in your life of course you’d also want to analyze your assets in a chapter 7 to make sure that everything you own is protected. Most clients come in and tell me that they don’t have anything well they are walking in generally with clothes on their back and they came here in something, some type of an automobile in many cases. And they’ve also got a place to live, so what most of us might in lay mans terms considered to be no assets the law looks at quite differently quite a literal piece so we want to look everything you own and make sure everything you own is protected.

Now if this person’s income when averaged out over the last 6 months is over that household size based limit to file chapter 7 then they going to look at chapter 13 filing, the main difference here is that a 7 you eliminates your debts that you just have them received discharge in the courts. In a 13 you are going to pay back at percentage of those debts but that percentage is going to be based on your household’s income so you’ll take a look at what the household brings in and deduct from that total amount of income what it costs you to live what’s your IRS standards say you should be spending on certain things and another category is what your actually spending, so it’s not like you being asked to pay back half of it no matter who you are all of it no matter who you are, it’s quite tailor to your particular living situation.

So if this person did not qualified for a chapter 7 which would no hopefully annihilate eliminate all of their debt they might look at chapter 13 where based upon their personal household budget they might be able to eliminate a great deal of this debt if nothing else they would be chasing rapid interest rates, penalties and whatever their credit card can think of, they have a set structure made one payment per each month to the chapter 13 trustee and then when they were done with the payment they’d know that they are actually done with it, they would be just be chasing an interest pony remainder of the days.

So in either event this person just essentially needs what they ask for here a fresh start and whether that’s in that chapter 7 discharge or through a chapter 13 reorganization they should be able to get what they are looking for one way or the other. The first step probably would be to just to contact a bankruptcy professional sit down, make sure that all their assets are protected, make sure all their liabilities or the type of being able to be discharge and they should be on their way.

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