Bankruptcy is not the best way to deal with various credit problems; however, some people resort to this last option being frequently unaware of the fact that not all debt can be eliminated by it.
Chapter 7 bankruptcy as well as Chapter 13 is able to eliminate credit card debt; however, they do not rid the person of the child support or tax or student loan responsibility as well as a list of other things. Besides, there are different situations when Chapter 13 can help and Chapter 7 cannot. Here is more information on the account of what these two bankruptcy options can and cannot do.
Most people who choose bankruptcy as a solution to their financial problems do so because it is one of the most effective ways to deal with debt.
First, it is able to eliminate credit card debt and some other unsecured debts (but not payday loan debts). However, it is most effective with credit card debts. The exception is special secured credit card that is not covered by bankruptcy.
The same refers to unsecured debts; however, the terms are different with regards whether a person files for Chapter 13 or 7 – the former requires repayment of some part of the unsecured debt.
One more thing that bankruptcy can do is to stop all the creditors’ collection activities with regards to a person’s loan. It is especially effective in more serious cases when a case concerns a mortgage or a vehicle. Bankruptcy is also able to help with some of the kinds of liens.
Unfortunately, bankruptcy won’t solve all your debt problems; otherwise everyone would use it.
Bankruptcy won’t help to prevent property repossessing in case of a secured loan. The property is likely to change hands even in case debt is eliminated by bankruptcy. There are cases when term can be more lenient; however, with lien bankruptcy is effective only rarely.
Alimony, child support and similar obligations are not subject to bankruptcy procedure. These debts stay to be owed in full and in full they are supposed to be repaid. Chapter 13 bankruptcy requires a repayment plan for these debts as well.
The same refers to student loans – they also stay the same bankruptcy or no bankruptcy. In very rare cases bankruptcy can cover a student loan; however, it only happens in special circumstances when a person is able to prove that they won’t be able to repay neither at the present moment nor in the future.
Taxes are not covered by bankruptcy and nor are other non-dischargeable debts such as debts of personal injury caused by a person’s intoxicated driving, all penalties and fines imposed by the law and also all the debts that were not listed in bankruptcy papers.
With Chapter 7 the aforementioned debts stay where they were after bankruptcy; with Chapter 13 are supposed to be repaid in accordance with the repayment plan offered. There are also cases when creditors insist on some debts to stay and these are usually the ones that resulted in cases of fraud upon credit application.
Credit score is one of the most essential things when it comes to loan application and it is one of the major reasons of numerous refusals. At the present moment new credit score system is considered; it is likely to be based not solely on credit card and bank information but include some alterative data such as cell-phone bills and cable information. It is believed, that additional information is able to help create a more adequate credit score picture and also provide borrowers with a chance for a credit.
At the present moment TransUnion is developing an alternative system that will produce more options of credit approval to borrowers who initially were considered bad credit.
The system is going to be called CreditVision Link and it is a combination of an old traditional credit score system with a new alternative one, the latter is implemented with a better and thorough analysis of all credit data. In accordance with this system 95% of all the U.S. off-age citizens are expected to be assigned with a credit score.
The new score systems are going to use many types of information instead of several traditional ones. In this respect creditworthiness of a person is going to be estimated not only from a point of view of a bank debt repayments and credit card information but it will also be based on other data. Taking into consideration the fact that about 8% of people in America are considered “bad credit” borrowers, and 11% are “credit invisible”, the new system is designed to make a change.
FICO as well as other traditional scores are based on the following information: bank and credit card company info, credit bureaus’ reports as well. In the situation when a person has never had a credit card or for some other reason lack credit score, their chances for dealing with lenders are non-existent.
New credit system is a much fairer option, as it includes many other aspects apart from credit card information and bases its results on many aspects instead of few. FICO Score XD, a new score, is a product of Equifax credit bureau. The system includes cable and cell-phone bills data as well as property records and some other things (for instance, even the frequency of address change, activity and checking account history, and in some cases – payday loan history) . The system proved effective upon testing – it allowed granting scores to more than half applicants who have been considered unqualified before.
The new score, thus, represents a combination of a traditional score system and alternative analysis options, which makes it more effective in all the ways to borrowers. It is also a more adequate and trustworthy option for risk assessment.
The system is still in the mode of testing and it is not yet clear whether it is going to be implemented and, if yes, then, when. There are many pros as well as cons; is has got drawbacks and is able to affect negatively some people as the result of some information usage. That is why FICO XD is not yet brought into open access” and the traditional score system is still in place so far.
At the present moment the number of payday loan stores in the U.S. is really high – this is not news. Some compare this industry with fast food places, and, apparently, the former win in numbers.
The state of Ohio is one of the several that try very hard to regulate payday lending industry and decrease the risks that customers of such credit option have to face. Many other states seem to follow the lead to a different extent.
Payday loans have long been known for their short-term unsecured nature and for the benefit of easy access to fast cash. It is still, objectively, one of the fastest and most convenient ways to get some finances in case of emergency. However, the growing trend is that customers use these loans not for their initial purpose but for covering everyday and immediate needs – which leads to the problems mentioned in mass media and become in charge of payday loans bad reputation.
In accordance with the Consumer Financial Protection Bureau information, too many payday loan customers get trapped in debt due to the fact that they actually have to renew and roll-over their loans. Interest rates that are justified by the nature of a loan and can be excused when a loan is taken on occasion – in unplanned financial situation, rarely – become a very serious trouble when loan is taken too often and rolled-over several times. Final debt amount becomes excessive and people can’t deal with repayments smoothly. The Pew Charitable Trusts information on this account is quite elaborate – most people pay $520 eventually for a $375 loan.
In Ohio the laws become more and more stringent with regards to payday lending. The state has already passed a law that caps 3-digit number interest on loans; however, lenders have their business that they do not want to lose and they still find various ways to get around the law. Seems like the aforementioned measures haven’t yet produced the expected effect and most lenders stay in place and charge what they used to.
At the present moment there are about 836 payday loan stores in the state and it looks like new ones appear all the time. The same can be said about car title lenders – they are not really much in favor with the state regulators.
The entire purpose of the CFPB creation in 2010 was to put a better order into these sectors of lending that are in the shadows somehow and provide protection to the individuals and families who have to rely on such small loan industries for this or that reason.
At the present moment other steps at payday loan regulation are discussed not only in Ohio but also in other states, with different level of success. Most regulations proposals include cuts on loan costs as well as alternations of repayment terms. Payday lenders stand their ground, correspondingly.
One of the major reasons why many people are unable to apply for a traditional loan in the U.S. is the unhappy line in their credit reports telling that they have filed bankruptcy some time in their past. Although, it is not the end of the world, the matter can complicate a person’s life to a pretty extent. Here is more information about bankruptcy statistics in the U.S.
At the present moment the cost of payday loans and car-title loans in Ohio amounts to $500 mln annually, which is pretty a large amount. Recent research made by the Center for Responsible Lending proved that. However, they have also found that there appeared to be a shift in the sphere: more fees in terms of interest rates are now paid to car-title lenders than to payday lenders. This doesn’t change the fact that APRs are still amount to the same triple-digit numbers.
As of today, there are about 836 lending places in the state of Ohio and about half of them offer both type of short-term loans – car title and payday loans. These two are similar in some ways with the only difference is that car title loans are secured ones and they require a vehicle as a type of a collateral (that a person looses in case of non-repayment).
In 2008 lawmakers passed the law that capped interest rates at 28% with the attempt to lower the amounts for borrowers to repay; however, lenders found the way to go around the law.
At the present moment the bureau is trying to implement some new regulations for such lenders. The objective is the same – to try and cap loan rates and by doing so alleviate the stress of repayment for borrowers. They are also trying to put a limit to the number of loans that can be taken a time. The latter regulation presupposes a limitation of 90 days indebtedness a year with all the roll-overs in total.
The purpose that the Ohio Consumer Lenders Association tries to follow is a good and noble one – to make short-term lending environment easier and more affordable for borrowers. Thus, more attempts are made to not allow payday lenders going around the aforementioned laws.
A Financial Protection Bureau study in the spring found that, nationally, more than 60 percent of loans go to borrowers who have taken out at least seven loans in a row, each time incurring new interest rates and fees, and about half of the loans go to those taking out at least 10 consecutive loans.
In accordance with the recent Financial Protection Bureau study those borrowers who have already taken several laws in a row are more likely to apply for another one. The number of such borrowers amounts to 60% and there are many individuals who actually have about 10 loans like this behind their backs.
The discussion is still open and at the present moment as there are people like Rod Aycox, LoanMax Title Loans founder, who actually donated about $115,000 to the Republicans campaign in the course of the election cycle; and he is followed by the Ohio Consumer Lenders Association contributed $100,000 to the campaign that presupposed reformation of the Ohio’s legislative redistricting process. This means the money inflow from the sector that is expected to be closed and it is definitely the reason for payday loan question to be open and discussions to continue.
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