Do You Have Too Much Debt?

Do You Have Too Much Debt

Debt gets a bad rap, but debt is not necessarily always a bad thing. In the business world, Fortune 500 companies sell off debt in the form of bonds to raise capital and expand operations. They create jobs in the process. In the consumer world, families routinely finance the purchase of a home by taking on mortgage debt. If they choose wisely, financing the purchase of a home can build wealth. In both cases, debt can be helpful. However, there is such a thing as too much debt. When debt, either business or personal, spirals out of control, life can grind to a halt and money worries can become all encompassing. If you’ve struggled with more debt than you can handle, you know what I’m talking about.

Debt isn’t always bad, but be careful about taking on too much…

So how do you know if you have “too much debt?” We’ve provided a list below which will help you evaluate whether your debt load is healthy or if it may be growing beyond your control.

Have you been denied new credit?

By definition, taking on debt means borrowing money. One of the big factors lenders look to in underwriting a new loan is the current debt load of the prospective borrower. If you’re consistently being denied for new credit, it may be a sign that you are reaching the maximum level of debt you can comfortably handle.

As Wells Fargo points out in their Five Cs of Credit:

A Bankruptcy Lawyer has said that Lenders need to determine whether you can comfortably manage your payments. Your past income and employment history are good indicators of your ability to repay outstanding debt. Income amount, stability, and type of income may all be considered. The ratio of your current and any new debt as compared to your before-tax income, known as debt-to-income ratio (DTI), may be evaluated.

On the other hand, if you’re still able to access credit, it may be a sign that your debt is under control. This is especially true today where underwriting restrictions have become far more stringent than they were in the Wild West days of 2005.

Are you late on payments?

Missing routine payments is a sign that you may be carrying too much debt. Unfortunately, getting in a cycle of paying late when a paycheck finally comes in or a new loan goes through, carries with it a cycle of late fees and compound interest which can make it more difficult to get out of debt. If you’re consistently paying late, it’s a sign that your debt may be an issue.

Similarly, paying debt with more debt is a sign of trouble. For example, if you’re using one credit card to pay another, you may already be in problem debt territory.

Are creditors or debt collectors calling you at home?

For the seriously indebted, this is a big one. Anyone facing bills that they cannot pay knows that creditors call non-stop. Sometimes they will even sue. If you’re getting collection letters and phone calls or if you are the defendant in a collection lawsuit, it is certainly a sign that you have more debt than you can handle.

Do you have savings?

To some, this next question may seem slightly counterintuitive. After all, this is an article discussing too much debt, not how to get ahead. But therein lies the problem, having a year or so worth of living expenses in the bank is not getting ahead, it’s insurance against falling behind. If all of your money every month goes to living expenses and debt, it may be a sign that your debt to income ratio is an issue. Debt to income ratio (DTI) can be roughly defined as the percentage of your monthly gross income that goes towards paying your debts. As I pointed out above, lenders use DTI to evaluate the creditworthiness of new borrowers. A DTI that is out of whack indicates you’ve borrowed as much as you can handle, you don’t have the capacity for new debt.

Do you ever pay down debt?

Perhaps you pay your monthly bills on time and never hear a peep from creditors. That’s great, but are you able to contribute anything to actually paying down debt as opposed to paying interest. Many types of consumer loans, including high interest credit cards and payday loans, carry with them extremely high rates of interest. The monthly payment that borrowers make often goes entirely to satisfying the interest on the loan. This prevents the principal from ever being paid down and traps the consumer in a nightmare cycle of feeding the credit card interest monster. If this sounds like you, it is a sign that you have more debt than you can handle.

Is debt constantly on your mind?

Now we get into less tangible, but still relevant factors. For example, if you’re a man and you’re thinking about your debts as much as you are about sex, you know there’s a problem. Problems with debt can become all consuming. As I’ve written in the past:

It’s never the actual red in the ledger that causes debtors to suffer, it’s the worry about supporting a family, collection phone calls, lawsuits, foreclosure and the myriad of other mental beatings the seriously indebted are forced to endure. Whether it’s fear of having a credit card rejected at the grocery store or concern over a pending wage garnishment, consumers who find themselves in debt are constantly reminded of their predicament. They can’t escape mentally. The debt follows them wherever they go, becoming their constant companion, causing incredible stress that breaks up marriages and ruins friendships.

Is your health suffering?

It’s no secret that excessive stress can lead to poor health, however, most people don’t make the connection between a decline in health and an increase in debt. Make no mistake, the two can be linked. Web MD has published an informative article on the link between debt stress and poor health.

The [debt] stress may be correlated with physical symptoms like heartburn, headaches, and abdominal pains. “If you have a knot in your stomach all the time, or if you’re feeling anxious and worried a lot of the time, that would be an area of concern,” he says. “These are signs that stress is starting to take a toll and you should give it more attention than the average person.”

If you’ve noticed a recent decline in health, or new stress-induced symptoms, debt stress may be to blame. If this sounds like you, consult a doctor.

Thinking about Bankruptcy?

Unfortunately, there is no magic formula for determining whether you have taken on more debt than you can handle. Debt to income ratio can be instructive, late payments on existing debt may be a sign, but each consumer’s situation is different.

Free Consultation with a Bankruptcy Lawyer

If you have a bankruptcy question, or need to file a bankruptcy case, call Ascent Law now at (801) 676-5506. Attorneys in our office have filed over a thousand cases. We can help you now. Come in or call in for your free initial consultation.

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506

Ascent Law LLC

4.9 stars – based on 67 reviews


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Chapter 13 Bankruptcy

How do I file for Chapter 13 bankruptcy?

According to Chapter 13 bankruptcy rules, it is necessary for a debtor to attend credit counseling prior to filing for bankruptcy. After the completion of counseling, the debtor must pay a fee and provide the bankruptcy court with information about income, debt, expenses, and creditor holdings of secured and unsecured debt. Once the court receives the appropriate paperwork, a trustee will review the case. The trustee will request information from the debtor, communicate with creditors, and hold a creditors meeting. The debtor is also responsible for filing a repayment plan with the court. Once the bankruptcy court approves the repayment plan, Chapter 13 bankruptcy is complete.

Does filing for Chapter 13 bankruptcy stop creditors from collecting a debt?

Chapter 13 bankruptcy rules state that a creditor may no longer pursue collection activities when a debtor files for bankruptcy. As soon as debtor files the appropriate paperwork and pays the filing fee, an automatic stay takes effect. An automatic stay prohibits creditors from further attempts to collect a debt. This means that any lawsuit proceedings must cease, a creditor may not report the debt to credit reporting agencies, and the debtor’s property and income are safe from seizure. Collection activities may continue for spousal and child support, tax debt, and pension loans, however.

Will a Chapter 13 bankruptcy erase my student loan?

No.

A bankruptcy court will require repayment of your student loan debt. Chapter 13 bankruptcy rules treat student loan debt similar to priority debt–it is payable in full like back taxes and child support payments. Prior to 2005, student loan debt was only dischargeable when funded by a private lender. With the passage of the Bankruptcy Abuse Prevention and Consumer Protection Act, however, privately funded student loans are now treated the same as student loans guaranteed or issued by the federal government. This means that all student loan debt is only dischargeable upon a showing of undue hardship.

Typically, it is difficult to convince a bankruptcy court to discharge student loan debt. A bankruptcy court will consider such factors as poverty, the inability to pay the loan due to a permanent disability, and a debtor’s good-faith effort to repay the loan for a long period. To have a student loan debt dismissed, a debtor must file a separate action in bankruptcy court called a Complaint to Determine Dischargeability of a Debt.

If I miss a scheduled payment under my Chapter 13 repayment plan, can a creditor sue me?

If a debtor misses a scheduled payment, Chapter 13 bankruptcy rules allow the trustee to institute an action for dismissal with the bankruptcy court. Because the debtor agreed to repay creditors according to a court-approved Chapter 13 repayment plan, a trustee may request the dismissal of the case once those creditors are no longer receiving payments. A debtor may be able to prevent the dismissal of a case by establishing their ability to repay the debt under the current plan or by requesting that the court approve a new plan.

If the bankruptcy court dismisses the case, a creditor may reinstitute collection activities against the debtor. Bankruptcy laws that prohibit collection attempts no longer protect the debtor at this point. Consequently, creditors may collect the current amount owed on the debt and any interest on the debt that accrued while the debtor was in bankruptcy.

Changes to the Bankruptcy Law

In 2005, new bankruptcy laws required potential bankruptcy individuals to be involved in courses educating and informing them of their financial options. Before an individual files for a Chapter 13 or Chapter 7 bankruptcy, you must receive credit counseling from an approved agency. Any Chapter 7 Lawyer will tell you that it’s required. In addition, before a bankruptcy is discharged, the individual must attain a personal finance management course known as debtor education.

Do I have to get Credit Counseling?

The purpose of credit counseling is to assist an individual’s evaluate his or her financial options and to determine if he or she can repay debts through a repayment plan without filing bankruptcy. In credit counseling, the individual will usually provide information regarding his or her income, expenses, and debts. The counselor then evaluates the information and proposes a repayment plan.

Personal Financial Management and Debtor Education

Debtor education information is meant to instruct individuals to be responsible with their finances. The education is meant for the individual to learn from his or her mistakes and never be in the postion to file bankruptcy again. A debtor education course will usually provide tips in developing a budget, managing finances, using credit responsibly, and how to deal with financial emergencies.

As part of the new bankruptcy laws, people wishing to file for bankruptcy (under Chapter 7 or Chapter 13) must now complete a credit counseling program before they will be allowed to file a bankruptcy petition. In addition, bankruptcy filers must obtain debt management counseling before being allowed to complete the bankruptcy process. In order to comply with these credit counseling and post-discharge debtor education requirements, filers must work with agencies that have been approved by the U.S. Trustee Program (a branch of the U.S. Department of Justice that is responsible for overseeing bankruptcy cases).

Two lists of agencies that have been approved by the Department of Justice — the first a list of agencies that provide pre-filing credit counseling to those wishing to file for bankruptcy, and the second a list of agencies that offer post-discharge debtor education to people who are completing the bankruptcy process. The third link below includes tips on choosing a credit counselor, from the Federal Trade Commission (FTC).

On April 15, 2013, the Executive Office for U.S. Trustees (EOUST) announced new policies on credit counseling and debtor education requirements. The list below is some notable new rules.

Quality – The quality of counseling must be consistent whether the debtor takes the course on the Internet, in person, and over the phone. In addition, the counseling must not be generic but individually specific to the debtor.

Use the Cheapest One – Credit counseling agencies and debtor education information providers must charge a reasonable fee that is $15 or less. An individual’s income that falls 150% below the poverty line is eligible for a fee waiver. We reccomend that you use Debtorcc.org – they are fast and the cheapest one that we could find.

Is credit card debt included in a Chapter 13 bankruptcy plan?

To qualify for Chapter 13 bankruptcy, a debtor must repay all secured creditors and priority debts in full and must repay a portion of the amount owed to unsecured creditors. “Secured debt” is a debt obligation backed by collateral such as a car or real property; “priority debt” includes child support payments and back taxes; and “unsecured debt” are those obligations that are not backed by collateral. Unsecured debt includes money owed on a credit card.

A Chapter 13 bankruptcy places a filer’s debt into a repayment plan. A bankruptcy court will not approve a plan unless the arrangement requires that the debtor repay all priority and secured debt in full. The repayment plan must also require the debtor to repay unsecured creditors in an amount equal in value to the filer’s nonexempt property. Nonexempt property includes any interest held in real property, business assets, and artwork. Once a Chapter 13 repayment plan begins, a trustee will disburse the monthly payment made by the debtor to the creditors each month.

Free Consultation with Bankruptcy Lawyer

If you have a bankruptcy question, or need to file a bankruptcy case, call Ascent Law now at (801) 676-5506. Attorneys in our office have filed over a thousand cases. We can help you now. Come in or call in for your free initial consultation.

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506

Ascent Law LLC

4.9 stars – based on 67 reviews


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