Yikes! Credit Card Interest Rates Can Go How High?

As a bankruptcy lawyer, I get to see a lot of credit card statements. Believe it or not, a lot of my clients have no idea what their interest rates are let alone how high they are until I bring it up. It is not unusual to see rates as high as 29.99%. The highest I have seen is 33% but I am sure there is higher. This got me thinking: How high can credit card interest rates go?

The Credit Card Accountability, Responsibility and Disclosure Act (CARD) of 2009 has great provisions that protect the consumer and force the credit card companies to give disclosures about debt. For example, one of the disclosures which really gets attention is the minimum payment warning and how long it will take to pay off your debt if only the minimum payment is made. See the photo above for an example of a disclosure. Paying just the minimum amount results in a monster profit for the lender.

While the CARD Act caps penalties, it strangely enough does not cap the maximum interest rate a credit card can charge. There is no maximum amount. None. It could go as high 44%, 55% or even 125%. The state I live in, Michigan, also doesn’t regulate interest rates. The card issuer can charge any rate at any time they want and it is completely legal. However, a lender must give a 45 day notice before a new rate increase and a borrower can choose to cancel the card and repay the loan at the lower, current rate.

While it is easier said than done, try to pay off your credit card each month to avoid paying any interest. If you are going to incur debt, consider getting a loan or a credit card from a credit union as their rates are capped at 18% by federal law. If it is too late for either of those options and your debt is quickly getting out of control, consider seeing a bankruptcy lawyer to find out how you can eliminate your credit card debt altogether.

“Y” also stands for:

Chris McAvoy is a Taylor, Michigan attorney and consumer bankruptcy lawyer who helps people file Chapter 7 and Chapter 13 Bankruptcy. To find out more about bankruptcy, click here for contact info. We help people in Taylor, Allen Park, Southgate, Lincoln Park, Riverview, Trenton, Flat Rock, Wyandotte, Brownstown, Belleville, Dearborn, Dearborn Heights, and the Downriver, Michigan area.

Your Ex-Spouse and Discharging Divorce Debts in Bankruptcy

Divorce is one of the top three events causing a bankruptcy filing. The other two are  income loss and medical problems. Debt owed to an ex-spouse may help determine the chapter of relief you select when you file for bankruptcy. When the Bankruptcy Code was amended in 2005, a couple of provisions were added that very broadly excepted debts arising from a divorce proceeding from discharge. Here are some general rules you need to know.

Domestic Support Obligations Can Never Be Discharged in Bankruptcy

Domestic support obligations, also called a DSO, can’t be discharged in either a Chapter 7 or a Chapter 13. See 11 USC 523(a)(5). These are support obligations owed to your ex-spouse for either spousal support or child support. Sometimes a party to a divorce is ordered to pay a former spouse’s credit card or attorney fees. Payments to third parties for the benefit of your ex can also be support depending on the circumstances, e.g., the wife was a stay-at-home mom and had credit card debt but no job to repay it so the husband is ordered to pay it.  This could very well be considered a support obligation and not a property settlement.

Property Settlements Cannot Be Discharged in a Chapter 7

11 USC 523(a)(15) excepts any divorce property settlements from discharge. Any debt owed:

to a spouse, former spouse, or child of the debtor and not of the kind described in paragraph (5) that is incurred by the debtor in the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order of a court of record, or a determination made in accordance with State or territorial law by a governmental unit;

So that’s that. Basically any debts owed to an ex-spouse in a Chapter 7 aren’t discharged. Nothing needs to be filed. They are just automatically non-discharged. This includes any “hold harmless” provisions.

Property Settlements and the Chapter 13 Super Discharge

However, property settlements can be discharged in a Chapter 13.Check out  11 USC 1328(a)(2) which gives a list of debts that are not discharged in a Chapter 13. 11 USC 523(a)(15) isn’t mentioned. What does that mean in plain English and not legalese? Property settlements can be  discharged in a Chapter 13 when the repayment plan is successfully completed. If your case is dismissed or converted to a Chapter 7, the property settlement owed to the ex-spouse remains.

Before you jump into a Chapter 7, consider filing a Chapter 13 if you owe a property settlement to an ex-spouse which you cannot afford to repay without help.

“X” also stands for:

 

photo by: Steve Snodgrass

“W” Is For When Can You File Bankruptcy Again

For a lot of debtors, there is only one thing worse than filing for bankruptcy and that is having to file again. But it happens. While there are urban myths of the serial bankruptcy filer, I have not encountered one yet. My clients really don’t want to be in my office let alone coming back to see me years later and file for bankruptcy again. I have had clients fall on hard times, file for bankruptcy, rebuild their credit, only to lose their job years later and have to start over.

While there is no limit on the number of times or how frequently you can file, if there isn’t enough time in between filings, the debtor will not get a discharge. And discharge of the debt is really the goal of course. A common example is the debtor who files for Chapter 7 but, a few years later, he falls behind in his house payments. A Chapter 13 will allow him to save his house and force the bank to take a repayment plan even if it doesn’t allow for a discharge of any new debt incurred after the prior Chapter 7.

So here is your handy-dandy cheat sheet of how much time has to pass between bankruptcy filings in order to get a discharge:

  • 8 years between Chapter 7s.
  • 2 years between Chapter 13s.
  • 4 years between a Chapter 7 and a Chapter 13.
  • 6 years between a Chapter 13 and a Chapter 7 (if you repaid under 70% of your unsecured debt).

The time begins running from the date of filing not the date of the discharge.

Keep in mind that there is a big difference between a “discharge” and a “dismissal.” A discharge gets rid of your debt. A dismissal gets rid of your case and your debt is not discharged.

“W” also stands for:

photo by: takomabibelot

“V” Stands for Bankruptcy Versus Other Debt Relief Options

The typical person overwhelmed by debt really doesn’t know a lot about debt relief options. Most of them, however, seem to innately just “know” that they do not want to file for bankruptcy. It is this fear that is played upon by the debt settlement and debt negotiation outfits. I listen to their ads all the time but because I understand the law, I hear the commercials a bit differently. I find them more interesting not for what they are pitching, but what they fail to disclose to the consumer.

Don’t get me wrong. I am not suggesting bankruptcy is for everyone. I just think that a consumer should understand all their options before they make a decision. For most of the people that sit down and talk with me, bankruptcy becomes the logical choice. Here are some of the biggest differences.

If you need protection from foreclosure, car repossession, lawsuits, wage garnishments, divorce related debt or the IRS, consider bankruptcy. The phone jockey at the debt settlement outfit can’t help you. Period. End of story. If you need help getting rid of medical bills, credit cards, personal loans, and utility bills, the debt settlement guy may be able to get you a reduced balance or more favorable payment terms. Maybe. A Chapter 7 bankruptcy though can get rid of these same debts without any payments or negotiations. It just happens. Poof! Gone.

Remember, creditors do not have to negotiate their debt. Visa does not have to reduce the balance owed just because the debt negotiator called. Maybe they will. Maybe they won’t. Contrast that with a bankruptcy which is a mandatory process. The creditor cannot opt out.

There is also the potential tax liability problem. A debt which is reduced by more than $600 must be reported as income to the IRS which will increase income tax liability. For example, you owe a credit card $10,000.00. The debt settlement company reduces the debt to $2,000.00 which is a great deal. Keep in mind though that the credit card company will send you a 1099 and you will have to pay taxes on that forgiven debt. This is not negotiable. It is mandatory. This is one of the things that gets buried in the fine print. In comparison, there is no tax consequence for debt discharged in bankruptcy. You will not have to pay taxes on it.

Finally, there is the cost. The typical debt negotiator charges around 15% of the debt they settle. So if you have $20,000.00 in debt, there is $3,000.00 in fees. The typical Chapter 7 bankruptcy is much cheaper than that and you don’t have to pay anything back.

Basically, bankruptcy gives much greater protection, works faster, is less expensive and more powerful than a debt settlement. And if you have a skilled bankruptcy lawyer, it is not nearly as scary as you may think. Of course, I am bankruptcy lawyer so what else would I say, right? However, consider this: I can do what the debt negotiator does but they cannot do what I do. So who has more to hide, the lawyer or the debt settlement company?

“V” also stands for;

 

 

photo by: wallygrom

“U” Is For Unlisted Assets In Bankruptcy

Properly listing your assets in bankruptcy is critical.  A debtor’s failure to disclose or significantly undervalue assets in the bankruptcy Petition and Schedules can have serious consequences. Courts have consistently held that debtors have an absolute duty to report whatever interest they have in property even if they believe their assets are worthless or are unavailable to the bankruptcy estate. At a minimum, a failure to report an asset may mean the filer loses the asset but this isn’t a worst case scenario. In some cases, the court may outright deny a discharge and dismiss the bankruptcy case. If a bankruptcy discharge is denied, the debtor will never be allowed to file again and discharge the listed debts.

Here are some real life examples of failures to properly list assets and the consequences.

  • A debtor failed to list a potential lawsuit. The debtor lost the cause of action and was unable to sue after the bankruptcy.
  • A Chapter 7 petitioner didn’t report an insurance claim he had against his insurance company.  He lost the right to collect the insurance proceeds.
  • The debtor didn’t list assets and, consequently, didn’t exempt them. The non-exempt assets were turned over to the trustee.
  • A bankruptcy filer didn’t list money owed to him by corporations that he owned. The debtor’s case was dismissed and he was denied a discharge.
  • Where a Chapter 13 debtor failed to properly explain why he had $72,000 deposited into his bank account eight days after filing for bankruptcy, a discharge was denied.
  • A debtor undervalued his interest in a corporation and the court found that he purposefully hid assets. The case was dismissed and a discharge was denied.
  • A petitioner failed to list significant assets in his bankruptcy petition. The debtor sought to dismiss the case. The court denied his request to dismiss the case and ordered the seizure of the undisclosed assets for liquidation and distribution to his creditors.

As you can see, there are serious consequences for concealing, undervaluing or failing to list assets. In an absolute worst case scenario, a debtor can be prosecuted for bankruptcy fraud and, if convicted, may face fines and prison. When you disclose your assets to your attorney, think as expansively as possible about all property rights you may have. If your grandma put your name on her house to avoid probate, then you have an interest in real estate that must be disclosed. Just because you don’t feel like you own it, if your name is on the deed, you do. If your assets don’t make you a good candidate for bankruptcy, then don’t file. But when in doubt, disclose, disclose, disclose.

“U” also stands for:

Chris McAvoy is a Taylor, Michigan attorney and consumer bankruptcy lawyer who helps people file Chapter 7 and Chapter 13 Bankruptcy. To find out more about bankruptcy, click here for contact info. We help people in Taylor, Allen Park, Southgate, Lincoln Park, Riverview, Trenton, Flat Rock, Wyandotte, Brownstown, Belleville, Dearborn, Dearborn Heights, and the Downriver, Michigan area.

photo by: takomabibelot

“T” Is For Tax Discharge In Bankruptcy.

Contrary to popular opinion amongst most of the people that come into my office, income taxes can be discharged in bankruptcy. It’s true. Whether the money is owed to the Internal Revenue Service or the Michigan Department of Treasury, income taxes can be discharged in a Chapter 7 and Chapter 13 bankruptcy. If you meet all  the following  conditions,  you can discharge your back taxes in full.

3 Years Old:   The tax debt has to be at least three years old. More than three years have to pass between the date of filing and the date the tax return was due. Typically, the due date is April 15th of each year. However, if you filed for an extension for the tax year in question, the three years won’t start running until the due date of the extension. The date you actually filed the tax return doesn’t matter when calculating the three years. The due date controls, not the filing date.

2 Year Filing Requirement: The tax return must have been filed within the last two years. If you failed to file the return, even if the tax debt is more than three years old, you cannot discharge it. If the IRS files a tax return for the taxpayer, that doesn’t count. The tax filer must file the return themselves.

Assessed in the last 240 days: The taxes must have been assessed or determined by the IRS more than 240 days before the bankruptcy filing. For example, if your 2007 tax return is audited in 2010, you must wait until 240 days have passed from the latest date that the tax was finally determined. Tax assessments after the date of bankruptcy filing cannot be discharged as they are post-filing debts. Keep in mind that taxes based on fraudulent tax returns, trust fund taxes, or sales taxes are never dischargeable.

Not a tax lien. Once a tax debt becomes a lien on any of your real or personal property, it is a secured debt and cannot be discharged. The IRS will file the notice in either the county the land is or where the debtor lives depending on what property is being attached

Timing is everything. A mistimed filing that does not take into account all of these conditions will fail to discharge your tax debt. Sometimes, if possible given your circumstances, you may want to delay filing if it will insure wiping out old tax debt. Your bankruptcy lawyer should be familiar with these rules and help you maximize your debt relief.

“T” also stands for:

Chris McAvoy is a Taylor, Michigan attorney and consumer bankruptcy lawyer who helps people file Chapter 7 and Chapter 13 Bankruptcy. To find out more about bankruptcy, click here for contact info. We help people in Taylor, Allen Park, Southgate, Lincoln Park, Riverview, Trenton, Flat Rock, Wyandotte, Brownstown, Belleville, Dearborn, Dearborn Heights, and the Downriver, Michigan area.

photo by: *Sally M*