William H. Lively, Jr

Smith County Bankruptcy Blog

Credit impact of bankruptcy lessens with time

Many Texas consumers face seemingly insurmountable debt.. They may have credit card bills with balances that got out of control, or they may have found an unexpected illness saddling them with medical bills. They struggle to pay their bills each month and face creditor calls, late fees and high interest rates. While personal bankruptcy could present a way forward out of this situation, many people are concerned about the effects of bankruptcy on a credit score. Of course, a bankruptcy filing is a serious negative entry on a credit report and will affect a person's ability to access new credit.

However, in most cases, people who file for bankruptcy already have a bad credit score. They may have late payments, closed accounts or judgments against them due to outstanding debts. In fact, many people wait for longer periods than may be optimal to file for bankruptcy over these concerns, further perpetuating the negative credit entries on their records. In some cases, people may find that their credit scores actually go up even shortly after bankruptcy as their significant debts are removed.

American consumer debt continues to rise

People in Texas and across the country owe an ever-increasing amount of debt. In February, consumer credit rose less than expected, but still grew by $15.2 billion. Outstanding debt had been predicted to rise by $17.5 billion in February, according to the Federal Reserve. This increase marks a 4.5 percent growth. Every month, the Fed tracks the amount of debt Americans owe. It grew by a smaller amount than it did in January, when outstanding credit obligations grew by 5.2 percent. However, it was larger than the December 2018 growth, which was a 4.2 percent increase.

These figures are subdivided into revolving and non-revolving debt. Revolving credit includes credit card debt and other types of consumer loans. It rose by $35.4 billion dollars in February, 4 billion more than the $31.4 billion increase in January. On the other hand, non-revolving debt, which includes items like student and auto loans, rose by $146.8 billion in February, less than the $181.2 billion growth in this sector in January. In total, Americans owed $4.05 trillion in consumer debt as of February 2019.

Out-of-network medical bills

Some hospital patients in Texas may find themselves unpleasantly surprised when they receive their medical bills. In some cases, certain treatments or services are not eligible for in-network insurance coverage. This can mean that some patients get hospital bills that they cannot afford to pay.

Health insurance plans in the United States typically provide a higher level of coverage for services provided by medical professionals, laboratories and hospitals that are "in-network," which means that they have entered into an agreement with the insurance company. Services provided by out-of-network hospitals, professionals and laboratories may still be covered by insurance, but the patient will be expected to pay a larger percentage of these costs out-of-pocket.

You can still get credit after filing for bankruptcy

Many people who are up to their necks in debt put off filing for bankruptcy because they worry that they will no longer be creditworthy after filing for debt relief. While your credit rating is sure to take a steep hit in a bankruptcy filing, if you are considering filing for bankruptcy, you are already in serious financial distress.

There are a lot of myths surrounding filing for Chapter 7 bankruptcy relief, and one is that you will not be able to obtain future credit. In actuality, you will likely be bombarded with offers of credit after your debt is discharged. True, the interest rates will be higher than those you might be used to, but the offers are real.

Getting help to pay off debt through an employer

Many Texas residents are dealing with debt. Many would likely say that their financial situation is one of their primary concerns. This debt may be related to credit cards, student loans, or medical bills. Because employers understand the considerable impact that debt has on their employees, some companies in the US have started to offer help to their employees. US companies are taking different approaches to help their employees deal with debt.

One approach is offering employees emergency loans or payday advances. This is a better option than having an employee take out a payday loan from a company that solely provides this service. Other companies offer interest-free loans that get repaid by automatically taking it out of the person's check.

Many people face ongoing credit card debt

Many Texans are struggling with significant amounts of credit card debt that they find it difficult to repay. While some people are able to pay off their credit card bills each month and avoid carrying a balance, those who do carry a balance often extend it out over a year or more. According to one report, 56 percent of people who carry balances on their credit cards maintain them for more than a year. Around 23 percent have remained in debt for three years or more while 14 percent have carried their debt for five years or more.

Of course, as balances remain on credit cards, the cost of the initial transaction rises dramatically. People pay substantially more interest the longer they carry their credit card balances. While credit cards can be an important financial option, individuals can also accumulate excessive debt that they are not able to repay. This is particularly true for people who face financial challenges after their initial purchases. Interestingly, while people with lower incomes are more likely to not pay off their credit cards every month, people with higher incomes may be more likely to carry a balance over a long period of time.

Credit card debt growing for Americans

An increasing number of people in Texas are facing significant credit card bills that they may find themselves unable to pay. This is especially true after a change in financial circumstances, such as the loss of a job or a serious illness that incurs medical bills. Across the country, 83 percent of American adults have at least one credit card, but the average person has three. There is over $1.04 trillion of credit card debt in the United States, an increase from $857 billion in 2013. On average, American consumers have $5,331 in credit card debt in 2019, and most people don't pay off their full bill every month.

Credit card debt often varies by age. Younger and older Americans are less likely to have more extensive revolving personal debt, but members of Generation X and the baby boom generation are more likely to accumulate more significant debt. Of course, these are the ages at which people also have the highest income, so they may be the best placed to repay their outstanding debt. On the other hand, retired people on a fixed income may struggle to pay off their cards.

Declaring bankruptcy more than once

Bankruptcy is a powerful financial tool for people in Texas who have burdensome debt, but they aren't a magic shield that protects from future financial woes. Many individuals find themselves in a situation where they may want to file for bankruptcy a second time. While getting a second bankruptcy has certain limitations and waiting periods, it is possible for some. For many, however, there may be other ways to relieve debt.

For a previous Chapter 7 filer, there is a waiting period of at least eight years before another Chapter 7 petition can be filed. To file Chapter 13 bankruptcy, which restructures rather than discharges debt, a person must wait four years after having filed for Chapter 7. People who previously filed for Chapter 13 only need to wait two years before filing for Chapter 13 again. These bankruptcy wait times were introduced in 2015.

Bankruptcy is actually a way to rebuild your credit score

Many people find that even saying the word bankruptcy leaves a bad taste in their mouth. They may have been raised to believe that anyone who seeks such protections is unscrupulous or irresponsible. The modern American lifestyle, unfortunately, often requires the use of credit.

In some cases, even individuals who have always been responsible with money can find themselves over their heads in debt, often due to medical expenses that they have no way to pay. You shouldn't have to live in fear of a creditor coming to call or the potential of losing your home just because you don't want to damage your credit or social standing.

Undue hardship necessary to discharge student loans in bankruptcy

Student loans enable Texas residents to attain their educational goals. However, students often struggle to pay these loans back. Nationwide, borrowers owe $1.5 trillion in student loan debts, and bankruptcy law specifically prohibits the discharge of student loans unless a borrower can show undue hardship.

The federal court system has not established a standard way to assess undue hardship, but courts typically apply the Brunner test when considering factors. Essentially, this test looks at extenuating circumstances and a person's good faith attempts to resolve the debt. If payments make the maintenance of a minimum standard of living impossible and the person has tried to make payments, then a court might view the situation as an undue hardship. Age, income and health could influence this decision.

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William H. Lively, Jr


William H. Lively, Jr
432 S Bonner
Tyler, TX 75702

Phone: 903-920-0008
Phone: 903-593-3001
Fax: 903-595-3715
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