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San Francisco Bankruptcy Law Blog

Inability to sue credit card companies

Credit card debt is a significant problem for many Californians, and debt can quickly balloon when credit card companies charge additional fees or change interest rates. Even if a credit card company engages in actions that might constitute the basis for a lawsuit, however, most companies have mandatory arbitration clauses in their credit card agreements, preventing consumers from suing in court.

In a study performed by the Consumer Financial Protection Bureau, it was shown that arbitration regarding credit card debt strongly favors the company over the consumer. The CFPB reviewed data from 2010 to 2012 in 1,847 cases. Out of the 1,060 filed in 2010 and 2011, arbitrators ordered consumers to pay more than $2.8 million to the companies while awarding consumers an aggregate of less than $175,000 in damages. Consumers were also awarded less than $190,000 in debt forbearance through arbitration.

Recent trends concerning credit card debt

Debtors in California might be interested learning more about how American consumers accumulated more than $57 billion in credit card debt during 2014, accounting for a 47 percent increase from the previous year. A recent survey suggests that U.S. consumers' confidence has grown, and that more people are being compelled to start spending money again. However, the funds are being spent in greater amounts than many of these consumers can currently afford.

The net credit card debt in the country has now increased for five consecutive years. Hardships created by the financial crisis and subsequent recession compelled many consumers to reduce their spending and prioritize paying off their debts. Since confidence has mostly been restored, many consumers have been reallocating their funds back into new purchases and away from paying off outstanding debts. According to the data collected, consumers added $45 billion during the fourth quarter, and the U.S. is expected to exceed $60 billion in credit card debt for 2015.

A look at the differences between types of personal bankruptcy

San Francisco residents who are dealing with serious consumer debt may be interested in some information on the types of bankruptcy available. While many know that they should be filing for bankruptcy, it can be difficult to understand the difference between the two major types.

The first type of bankruptcy available to individuals is known as a Chapter 7 bankruptcy. To qualify for Chapter 7, the person must have an income level below a certain threshold. If they do, the Chapter 7 bankruptcy will allow them to have their debts discharged at the conclusion of the bankruptcy proceedings, with some exceptions. Certain assets must be surrendered to the court and liquidated to pay off creditors. However, after the bankruptcy is concluded, the creditors cannot file any collection actions against the person.

When Chapter 11 is right for a California business

When an individual files for bankruptcy, he or she may opt for Chapter 7 or Chapter 13. While a business may also be able to file for bankruptcy under these chapters, it often makes more sense to do so under Chapter 11 bankruptcy. This is generally referred to as business bankruptcy, and it gives the company time to reorganize its debts and other obligations.

There are several benefits for a company that files Chapter 11 bankruptcy. First, it may be granted an automatic stay of creditor actions. It may also create a plan that will get the business back to profitability in the proceeding 120 to 170 days. However, creditors may have some influence in how the plan is written. Furthermore, they may be allowed to write a plan if the business owner is unable to.

Credit card debt and unexpected bills

A financial situation involving a substantial amount of credit card debt and little to no savings can be frustrating. When faced with unexpected expenses, California residents may question how they can afford necessary services for themselves and their family members.

The two most common unanticipated emergencies involve car repairs and medical costs. Because these two groups of expenses can be non-negotiable, a person with a lot of credit card debt may not have options for payment. Maxing out credit cards means that there is no credit line available, and if emergency savings are non-existent or not enough to cover the amount, a person may have no options for funding predictable situations.

Medical debt and bankruptcy options

California individuals who are facing medical debt are not alone. Almost half of all collections are for medical debts, and many Americans face lower credit ratings as a result. Some consumer advocates feel that medical debt is a poor assessor of risk and should not be included in credit reports, and while some reporting agencies are changing their policies in this regard, consumers must be vigilant about not letting this type of debt spiral out of control. A collections item can lower a FICO score by up to 100 points. However, debts under $100 do not affect the FICO score.

Another point consumers should keep in mind is that medical debt is often assigned incorrectly. One debt collection agency founder estimates that they receive incorrect medical bills about 20 percent of the time. For some, insurance should have covered the bill and did not. In other cases, patients are either being billed for things never received or overcharged.

RadioShack files for bankruptcy after 94 years

RadioShack stores have long been a familiar sight on the streets and in the shopping malls of California, but residents of the Golden State will soon have to look elsewhere when shopping for gadgets and electronic accessories. The niche retailer filed for bankruptcy protection on Feb. 5, which looks set to end an improbable 94-year run. The company thrived during the 1960s and 1970s as electronics became a key retail sector, but the Texas-based company has been unable to cope with the rise of e-commerce and the appeal of big-box retailers.

The business bankruptcy will see up to 2,400 of the company's 4,000 retail locations sold to Standard General. The private equity firm has revealed that it intends to convert 1,750 of the locations into Sprint outlets. RadioShack's CEO has announced that talks are underway to sell the firm's remaining assets. The filing in a Delaware court revealed that $1.38 billion is owed by the retailer to between 50,000 and 100,000 creditors.

CDC statistics paint a picture of medical debt in America

Readers in California may be interested in learning about data from the Centers for Disease Control and Prevention that illuminate the growing financial burden many Americans are facing when it comes to paying for hospital bills in recent years. Families with incomes that are either at or below 250 percent of the federal poverty line who also have children face the greatest difficulties in paying for hospital bills, according to the data, which was culled from the agency's National Health Interview Survey in 2012 and released in a 2014 report.

The survey involved conducting a series of interviews with different families to compile information about how challenging it is becoming for a variety of households to be able to cover their hospital bills. It found that whenever even one member of a household faces financial difficulty with medical expenses, the entire household could be at risk for experiencing the same financial difficulty. Households in which there were several different forms of insurance coverage and households that included one uninsured individual also face great difficulty in paying for their hospital bills.

Bankruptcy and paying discharged debts

Individuals in California who are declaring bankruptcy may wonder if they can still pay a discharged debt. They may wish to pay a debt if they feel personally responsible for it. For example, it might be a personal debt to a friend or family member or to a local business.

It is possible to repay a discharged debt after bankruptcy even if the creditor has no legal means of pursing the payment. However, after bankruptcy, an individual is not obligated to pay any debts that were discharged. If a creditor persists in trying to collect, the individual can report this to the court. There may be a fine if the creditor violates the court injunction.

Debtor rights against debt collectors

Many people who are delinquent on their debts in California are subjected to abusive and harassing debt collection practices by third parties who have either been retained by the original creditors to collect on the debts owed or who have purchased those obligations. People often receive repeated phone calls, and collectors will sometimes call at inconvenient hours and engage in other harassing practices. Victims of abusive third-party collections practices may have recourse, however.

The behavior of third-party debt collectors is regulated by the Fair Debt Collection Practices Act,, a federal law that prohibits a number of collection practices. Collectors are forbidden from making repeated phone calls, discussing the debtor's account with third parties, using abusive language, lying or threatening criminal prosecution. The law sets a statutory penalty of $1,000 for each violation committed by the offending party.