US Households Owe Record Amount – More Than During Recession

The New York Times and the Associated Press have been reporting new statistics just released by the “New York Fed.” I’m sorry, but I talk Minnesotan and “New York Fed” is not something in my vocabulary.  So I looked that up and find that it’s the Federal Reserve Bank of New York.  If you can’t believe them, then who can you believe.

The New York Fed says that consumer debt in the US now exceeds the level it was at before the recession.  I will admit that I’ve been wondering a bit, because over the past couple months my phone has been ringing a lot more than it did in 2015 and 2016.  I think the ringing of my phone might be a better barometer of what’s going on than the financial reports in the media.  I remember in 2008 when it started ringing like never before, they were still saying on the financial news networks that there was no sign of a recession.   The media in general wants to downplay economic problems.  So I figure if they are actually reporting a story like this, things are probably worse than they are admitting.

The New York Fed goes on to say, however, not to worry.  The new debt is proportionately more auto loans and student loans than it was in 2008, and besides the people with the debt are more credit worthy now.  In addition, home ownership is down and a higher percentage of mortgage debt is held by people over 65, as if that somehow was good news.  They admit that the student loan debt is getting up there and could be a bit high.  Also it might be that defaults on those auto loans are on the rise.  But a lot of the language in these stories is very soothing, so not to worry.

My opinion, based more on what I see with my own eyes, is this.  I think it is time to worry.  People may be back to work, but their earnings are down.  They still need to drive and the old car can only go so far, so they are getting car loans that they can’t really afford.  If they are not back to work they are back to school, getting student loans that they can’t afford.  Getting credit might be a bit more work than it used to be, but with the help of Credit Karma and other similar sites the lenders can still be manipulated into granting credit to people who really can’t afford it.  Maybe on paper they look more credit worthy, but that could be as much a fiction now as it was in 2008.  In other words, I believe individuals in this country are getting overextended again.  For many, another bubble may be about to burst.

This post is for general information purposes only, is not legal advice and does not create and attorney-client relationship.

 

Motorcycles, Boats or Horses Can be Toxic to your Chapter 7 or Chapter 13 Minnesota Bankruptcy

I recently posted on Google Plus about how certain things tend to be toxic to a possible bankruptcy. The most common one I see is a Harley Davidson. Other items in this category would include boats and horses, especially if they are fancy and not paid for. This statement resulted in questions being asked about exactly what I meant.  If the problem is that a Harley, a boat or a horse are assets which would be lost in a Chapter 7 bankruptcy, then wouldn’t it be better for them to not be paid for.  If they weren’t paid for, after all, they wouldn’t be much of an asset.

My answer was that such items make a bankruptcy difficult whether paid for or not. If they are paid for, they are assets that very likely would be lost in a Chapter 7 or would increase the required payments in a Chapter 13.

If they are not paid for, you have a situation where the Debtor will want to tell the bankruptcy trustee that he or she can’t afford to pay debts, except that somehow they CAN afford to keep paying for the Harley, the boat or the horses. This does not play well. The only thing to do if they really need the bankruptcy is to sell or surrender before filing, or state in the bankruptcy petition an intention to surrender the items after the case is filed.

Many have been the times when I have had a potential client disappear never to be heard from again when I said that the Harley has to go. There’s a whole subculture where any kind of misery is preferable to giving up the Harley. Boats are usually a bit easier to let go, but horses are also very hard to give up.

One exception might be a case with a 100% Chapter 13 plan. That would be a plan where 100% or the unsecured debts are to be paid. Since the bankruptcy trustee can’t ask for more than 100%, the Debtor would have more wiggle room when it came to something like keeping a motorcycle. Even then the trustee would not like it, but more than likely the trustee could not prevent it. I see very few cases where the payout is 100%. Most people who can afford to do that don’t need a bankruptcy.

This post is for general information purposes only, is not legal advice and does not create an attorney-client relationship.  I am a Debt Relief Agency.  I help people file for relief under the federal bankruptcy code.
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