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Ann Arbor Bankruptcy Law Blog

May I spend my inheritance prior to filing for Chapter 13?

Michigan consumers who are considering filing for bankruptcy may find the process confusing. A consumer recently wondered whether she may spend expected inheritance money during the period before filing for Chapter 13 bankruptcy. She explained her intention to buy a car and have some repairs done to her house.

Bankruptcy laws differ from state to state, but it will have to be determined whether the inherited money forms part of the bankruptcy estate. A bankruptcy attorney will be able to make an assessment according to the unique circumstances of the consumer. An inheritance received prior to bankruptcy or within a specified time following the filing will likely form part of the estate and will be added to the funds that will be used for settling outstanding debts. When a bankruptcy court suspects that the debtor spent unnecessary amounts of money shortly before a bankruptcy filing, they may decide to investigate. If the court determines that money was spent in order to purposefully reduce the available funds for paying debtors, your application to file for bankruptcy may be rejected.

Reliance on credit cards may cause overwhelming credit card debt

Credit card debt remains one of the biggest causes of financial distress. The National Foundation for Credit Counseling (NFCC) recently conducted an online poll to determine just how dependent consumers are on their credit cards. Michigan consumers may be interested in what the results revealed and how this impacts credit card debt.

When asked whether individuals would be able to manage their monthly living expenses without using a credit card, one in every five respondents said that it would be impossible. Almost 25 percent of participants in the poll said that they would be able to manage, but significant lifestyle changes would be required if they had to live on cash only. The NFCC stated that the inability to get by without credit cards should set off alarm bells, as total reliance on credit cards may lead to overwhelming debt.

Is credit card debt getting you down? Help is available

Michigan consumers may agree that there are few situations that can cause as much stress as facing mounting debt and not knowing how to resolve the problems. While credit card debt is known to be the cause of many such situations, it is the consequent snowball effect that could even lead to a mortgage company threatening foreclosure. Many consumers are overwhelmed and want to take action, but they may not be aware of their legal rights or know where to start.

They may find comfort in knowing that experienced help is available and standing ready to assist those who are facing legal challenges such as credit card debt, medical debt and foreclosure. Due to the known stress levels associated with financial difficulties, consumers often focus on their immediate problem and how to resolve it. However, the guidance of an experienced attorney can show distressed debtors that there is light at the end of the tunnel.

Comparison between Chapter 7 and Chapter 13 bankruptcy

Many Michigan consumers may consider the protection of personal bankruptcy but are unsure which option to choose. Chapter 7 bankruptcy only applies to consumers whose disposable income level falls below a prescribed level. Chapter 7 bankruptcy usually provides debt relief within months, but it involves the liquidation of assets, and only unsecured debts will be discharged. Chapter 13 involves a court approved extended payment plan, and payments have to continue for three to five years, after which remaining balances may be discharged.

While a Chapter 13 bankruptcy may provide the opportunity for you to keep secured assets -- such as a car or your home -- if you maintain the monthly payments according to the payment plan, Chapter 7 simply results in a liquidation of those assets for the benefit of the secured creditors. The discharge of support debts such as alimony, child support or student loans will generally not be allowed under Chapter 7 bankruptcy, and Chapter 13 does not absolve the filed from paying any outstanding balance for those debts after the bankruptcy proceeding is completed. While outstanding debts from a divorce agreement may be wiped out after completion of the payment period under Chapter 13, they will usually not be discharged under Chapter 7 bankruptcy. However, if the ex-spouse agrees or if the court deems it appropriate, the outstanding amount may be discharged.

How can you avoid additional finance charges on credit card debt?

Michigan consumers who want to avoid late fees and other finance charges added to their credit card must avoid late payments. In fact, it may be beneficial for consumers to be aware of all the requirements of their credit card providers. While it is common for card issuers to credit an individual’s account immediately upon receipt of payment, there may be exceptions. It may, therefore, be a good idea to submit payments for credit card debt a few days prior to the due date.

The card provider may require certain conditions to be met by credit card holders in order to have payments reflected in their accounts on the same day. This may include a requirement for submission of the payment by a specific time on the due date. Consumers will generally have until 5 p.m. or close of business on that day. It is advisable to include an identifying account number with the payment to avoid confusion that may lead to a different account being credited.

Medical debt may no longer lower credit scores after FICO changes

Michigan consumers may share the concerns of many about the negative effect medical debts have on their credit scores. Medical debt is mostly unanticipated, and many consumers feel that it should not be treated in the same way as other debts. The company who creates the widely used FICO scores, Fair Isaac Corp., announced that there are imminent changes that will become effective soon.

Consumers who are concerned about their unpaid medical debt may be happy to learn that their punishment will not be as harsh as in the past. The Consumer Financial Protection Bureau recognizes that many medical debts are unpaid due to disputes between insurance companies and medical providers, rather than bills that are simply unpaid. Consumers whose low credit score relates only to unpaid medical bills may see significant improvements in their credit scores.

How long before Chapter 13 or Chapter 7 discharges debts?

Consumers in Michigan who are facing overwhelming debt may be considering the protection of personal bankruptcy. They may be aware of the available options, and know that some debts may be discharged, but they could be concerned about how long this process will take to provide relief. This depends on whether the consumer qualifies for Chapter 7 or Chapter 13 bankruptcy.

Consumers with little or no income would commonly qualify for Chapter 7 bankruptcy. This option is known as liquidation bankruptcy and involves liquidation of the consumer’s liabilities. Most unsecured debts will be discharged, and the proceeds of liquidation will settle some other debts. Once court procedures and documentation are completed -- a process that takes about four months -- the consumer will be able to walk away from the debts. However, while the process is underway, they will be protected against creditor harassment, foreclosures and repossession.

Foreclosure scammers may threaten Michigan homeowners

Michigan residents are likely aware of reports about companies who prowl on struggling homeowners with false promises to save them from foreclosure. The company may advertise its services nationwide on flyers offering to assist homeowners in lowering their mortgage payments and preventing foreclosure. It is reported that one company is facing two lawsuits in different states, and more claims are suspected to follow.

One man described his experience, saying that he responded to a flyer claiming to drop mortgage rate levels to as low as 2 percent. He said that, following the birth of their baby, his wife left her job and they were considering the possibility of lowering their mortgage payments. He allegedly had to pay the company $3,000, and in return, it would negotiate a lower rate with the bank. While negotiations were underway, the homeowner was to pay his mortgage payments to the so-called mortgage rescue group.

Credit card debt errors of others may provide valuable lessons

Michigan consumers who are heading toward overwhelming credit card debt may find comfort in knowing that they are not alone. Many others are in the same position, and other people sharing their stories may help those in trouble. Valuable lessons can be learned from the errors made by others. While there are certainly some common mistakes that can lead to unmanageable debts, the area that seems to cause most concern is credit card debt.

One consumer who had been through the deep waters of overwhelming debt recently shared the errors he made, maybe not even realizing that many people make those same mistakes. He asserts that the most important lesson he learned was to examine the available options and never to hesitate to use the services of professionals to assist in making sensible choices. He described how he had started a business by maxing out two credit cards, but in hindsight, realized that a part-time job would have helped him with living expenses and enabled him to pay off the credit cards.

The Internet may help to reduce unmanageable medical debt

It is reported that a third of American adults have unpaid medical debts that are causing financial anxiety. Michigan residents who are desperate to find a way to manage medical debt may find comfort in knowing that there are ways to go about obtaining possible reduction in charges or extended payment periods. It is interesting to note that it is not only uninsured people experiencing overwhelming medical debt, but also those who have medical insurance.

Armed with a detailed statement of medical service charges, a person can set about checking each charge individually. The availability of the Internet is a great help, and fair prices for most treatments and procedures can be researched. A patient may want to compare the charges on his or her statement with the reimbursement that medical insurers would pay for the same services. It is also important to control the individual charges on the bill with treatment and services that were actually provided. It is not uncommon for a facility’s billing department to, for instance, erroneously charge for medication that was administered three times a day, while, in fact, it was only done once a day.

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