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Bankruptcy Law Blog

Feds go after bank and credit card arbitration clauses

People in Florida who have attempted to sue a bank or credit card company very likely could have been thwarted by an arbitration clause tucked into the fine print of their contracts. These terms empower companies to force disgruntled customers into private mediation instead of the courtroom when disputes erupt. If a group of customers raises a dispute, the companies cite the arbitration clauses to prevent the formation of class-action lawsuits.

The director of the Consumer Financial Protection Bureau described it as forcing people to act alone or "give up." In response, the bureau has crafted a new rule. It will prohibit financial companies from avoiding class actions with an arbitration clause. The bureau will also require reporting of claims and settlements arising from arbitration.

The benefits of requesting debt validation

Some Florida residents may get worried after receiving a notice from a debt collection agency. While many people might be quick to pay these bills in an effort to avoid hurting their credit, it's often better to proceed with caution when a debt collection agency comes calling.

Some experts advise consumers to receive proof from collection agencies before paying. Under the Fair Debt Collection Practices Act, one is entitled to debt validation from a collection agency. This validation can help someone identify if there is a mistake or if they're getting scammed.

Rule changes mean increased credit scores for some

Rule changes may result in credit score increases for some Florida residents. Credit agencies are now required to update a person's credit report every 90 days, and new entries must have that person's name, address and birthday or Social Security number. Civil debts as well as some tax liens may be removed from a credit report, which is why some scores will go up.

Traffic tickets and similar fines will not impact a person's credit score, and there will be a waiting period on medical debt as well as the removal of past debts that have been settled. Overall, it is expected that 8 percent of the population will benefit from the changes, and that the average credit score will increase by about 10 points. Those who do see an increase in their credit score may want to think about asking for lower interest rates on credit card or other types of debt.

Pursuing relief when wage garnishment adds to financial troubles

If you are experiencing prolonged periods of financial difficultly, an inability to repay debts might only be one of the issues you face. Along with the potential of constant calls and letters from debt collectors, there are numerous ways in which you may suffer a lesser quality of life, even if only temporarily.

In some cases, creditors may also seek to recover debts through wage garnishment. A reduction of your pay can be challenging to overcome, especially during a period of significant financial hardships, and this may be the turning point that sparks a need for guidance concerning your options for the future.

Give debt the old heave ho with a Chapter 7 bankruptcy filing

If you are one of the many Florida residents drowning in debt, and you lack the funds to get on top of it, you may be sitting in front of your computer looking for relief options right now. You've probably seen advertisements for debt consolidation, payday loans, lines of credit and various other band-aid solutions that will likely do more harm than good.

However, under the right circumstances, you may have the opportunity to give debt the old heave ho instead by submitting a Chapter 7 bankruptcy petition.

Bankruptcy? Won't that damage my credit? How is that really going to help me? While an approved bankruptcy will show on your credit report for several years, the benefits - even to your credit - can vastly outweigh the downsides of this option.

Over half of debt on credit reports from medical bills

Many Florida residents understand the difficulty of meeting medical expenses, and some of them suffer a negative credit rating when unable to pay those bills. When the Consumer Financial Protection Bureau studied the sources of debt on the credit reports of millions of people, it found that a little over 50 percent of the debt came from unpaid medical bills.

Data from 2014 revealed that medical debt had damaged the credit of over 40 million people nationwide. The CFPB study identified 15 million people with only medical debts on their records. Because insurance disputes often leave accounts unsettled for months or medical providers send accounts to collections in as little as 30 days, the major credit bureaus are shifting how they treat medical debts.

U.S. credit card debt set to surpass $1 trillion

The 2008 financial crisis in Florida and across the country was caused in large part by unsustainable levels of mortgage and other debt. Americans tightened their belts during the ensuing recession, but data from the U.S. Federal Reserve suggests that household debt levels in the United States are growing once again. The rise in revolving debt has been particularly worrying to economic experts, and these concerns have not been calmed by reports revealing that the amount owed by Americans to credit card companies is expected to surpass $1 trillion by the end of 2017.

Credit cards are marketed as an easy way to borrow, but this convenience usually comes at a price. High fees and interest rates can make credit card debt difficult to escape from, and revolving balances can take decades to pay off when consumers make only minimum payments. High rates can sometimes be avoided for a time by transferring balances to new accounts with introductory specials, but savings may be fleeting if they are not used to pay down balances before these offers expire and rates return to normal.

Lawsuits filed in delay of student loan forgiveness regulations

Florida students who may have been defrauded by their colleges may have to wait longer than anticipated for regulations involving student loan forgiveness that would have come into effect on July 1. The "borrower defense to repayment" rules would also prevent colleges from requiring students with complaints to go through arbitration instead of the court system. While regulations already exist that prevent enforcement of student loans if a college has been guilty of misconduct, the Obama-era regulations were intended to make the process clearer and more consistent.

In June, the regulations were delayed after for-profit colleges mounted a legal challenge against them. On July 6, the District of Columbia and 18 states filed a lawsuit against Education Secretary Betsy DeVos for the delay. The same day, consumer groups filed a lawsuit as well. The lawsuits are asking that the administration be forced by the federal court to enforce the regulations.

Credit card debt in the United States continues to rise

Consumers in Florida and around the country now prefer credit cards over cash or debit cards to pay for their purchases, and this has led to revolving debt balances in the United States reaching levels last seen in the months leading up to the 2008 financial crisis. Americans now owe more than $1 trillion in revolving debt, which is largely credit cards, according to the U.S. Federal Reserve, and most experts believe that this figure will continue to rise.

While lending practices have become more constrained in recent years, individuals with poor credit are still able to obtain credit cards. However, they are usually given modest credit limits and are rarely able to carry large unpaid balances. This not only makes delinquencies more likely, but it can also reduce credit scores. Debt ratio is an important component of credit score algorithms, and consumers who have little revolving credit available will generally have lower scores even if they make their payments on time.

Consolidating debt

Florida consumers who are struggling with their financial obligations have several options. Debt consolidation may help pay off high-interest loans such as credit cards, but there are several factors that must also be in place for this strategy to be successful.

A realistic budget is necessary. There are two common errors that people make when putting one together. One is failing to account for infrequent expenses such as holiday gift and entertainment spending. Another is failing to budget for indulgences which can lead people to spend too much because they feel deprived. Not using the credit card is important for paying off debt. People may use techniques like freezing the credit card or cutting it up. These are better than canceling the card because that can damage credit. People should not hesitate to seek support from others as they work on paying down debt.

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