Did Puerto Rico Pay Off Debt?

Puerto Rico’s bankruptcy was declared in 2017 due to the massive amount of Puerto Rican debt. It was the largest municipal bankruptcy in U.S. history. The federal board that was created by congress oversaw the bankruptcy, which ended in March of 2022, when a plan was confirmed by a federal court for the reduction of Puerto Rico’s debt by 80%.

What is the Puerto Rico Restructuring Deal?

Congress passed the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA), approved by the supreme court and judge Laura Taylor Swain, which created the Puerto Rico Financial Oversight and Management Board with an executive director to restructure the Commonwealth’s deficits. According to PROMESA, the oversight board will end once Puerto Rico has access to credit at reasonable rates and has achieved four consecutive years of balanced budgets. On December 16, 2022, the Oversight Board filed its proposed Plan of Adjustment to restructure more than $10 billion of debt and other claims against the Puerto Rico Electric Power Authority (PREPA). The Plan proposes to cut PREPA’s unsustainable debt by almost 50%, to approximately $5.68 billion and should provide the financial stability necessary to invest in a modern, resilient, and reliable energy system for Puerto Rico. This came after Trump announced that he was the country’s best friend and the Trump administration gave $13 billion to build a new electric grid.

Why Does Puerto Rico Owe So Much Money?

The Puerto Rican gov was in a financial crisis. This occurred when the Puerto Rico government accumulated more than $70 billion in public debt and more than $50 billion in public pension liabilities after years of corruption, mismanagement, and excessive borrowing. There were many issues that led to the debt crisis in Puerto Rico, including Puerto Rican municipal bonds investors receiving favorable tax treatment, which caused Bond investors from the US to purchase Puerto Rican bonds. When a government issues bonds, it is effectively lending money that has interest, to bondholders. Puerto Rico issued too many bonds and began relying on borrowed funds to balance its budget.

What is the Plan of Adjustment for Puerto Rico?

As the financial crisis in Puerto Rico subsides, much of Puerto Rico’s economic future and sustainability are in the government’s hands. Puerto Rico’s future will depend on its commitment to financial responsibility to create sustainable, long-term economic growth and avoid the past practice of overspending. The Plan of Adjustment established a Debt Management Policy to prevent Puerto Rico from repeating past mistakes that led to the accumulation of its unsustainable debt. This plan states: New debt may only be used to finance capital improvements, not operating deficits. Refinancing debt is only permitted if it saves Puerto Rico money and the principal outstanding is not increased. Refinancing without savings is only allowed in direct response to a natural disaster or other similar emergencies. New debt may not have a maturity over thirty years, and refinancing debt may not extend the repayment terms of existing debt (with a few exceptions, such as for public housing). All new debt must begin to be repaid within 2-5 years of issuance.

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Puerto Rico Debt Relief

18 MIN READ

Published April 17, 2023 | Updated May 04, 2023

Written by Christie Hudon

Edited by Wes Silver

In a Nutshell

Puerto Rico has the highest GDP in Latin America, despite being poorer than any state in the U.S.. Its Gross National Income was $21,740 as of 2020, however, this does not make it immune to the same debt issues that we face in the United States. For context, Puerto Rico has a public debt of $72.204 billion, with many residents having trouble paying off credit card debt, medical bills, personal loans, and more. This makes it especially important to understand debt relief options in Puerto Rico that might be right for your unique situation.

Let the experts at TurboDebt help you explore the best options available today with a free consultation, and read on to get the full picture on debt in Puerto Rico.

An Economic Overview of Puerto Rico

Puerto Rico is an island in the Caribbean that is one of the unincorporated U.S. territories. The capital of Puerto Rico is San Juan. It has been home to some of the most devastating hurricanes, including Hurricanes Irma and Hurricane Maria. The country is known for its breathtaking topography, rainforests, waterfalls, beaches, and mountains.

Puerto Rico has one of the best economies in the Caribbean. It includes a diverse industrial sector that has even grown past agriculture as the primary source of economic activity and income. US firms and tourism are both important sources of income for Puerto Rico and are a large part of its economic growth.

While the island is beautiful, its residents are still subject to wracking up debt. When that happens, those who live in Puerto Rico may find themselves struggling instead of enjoying the great place where they live. The good news is, there are debt relief solutions available to Puerto Rico residents. Read on to learn about Puerto Rico debt relief options and how they work.

How Does Debt Relief Work in Puerto Rico

Puerto Rico debt relief works by addressing a personas relationship with debt. This can include several different strategies, with the most effect ones reducing payment amounts, pausing penalty fees, extending the length of repayment terms, or a combination of factors.

Debt and Finance Statistics Specific to Puerto Rico

Based on our research and work conducting our debt relief program in Puerto Rico, we found the following key debt and finance statistics to be important to understand.

Average Consumer Debt

The average consumer debt in the state of Puerto Rico is 14% and is overall lower than consumer debt is on the mainland.

Credit Card Debt

23% of households in Puerto Rico have credit card debt. Credit card debt in Puerto Rico averages $4,300 per resident, which is lower than the $5,100 of credit card debt on the mainland.

Auto Loan Debt

In Puerto Rico, auto loans average about 5 years. Auto loans in Puerto Rico are about $14,800, which is higher than the average auto loan debt on the mainland.

Mortgage Debt

The median home value in Puerto Rico ranges from $100,000 to $214,000. 68% of personal debt in Puerto Rico is mortgage debt. The average mortgage debt on the island in about $70,000, which is a great deal lower than the average mortgage debt of $122,000 on the mainland.

Student Loan Debt

There are about 329,000 Puerto Rico residents who have federal government student loans. Combined, these loans equal about $9.3 billion. There is an average student loan debt of $28,000 for residents in Puerto Rico.

Household Debt

In Puerto Rico, household debt is influenced mainly by mortgage payments, credit card debt, and auto loans. Due to the economic changes after the pandemic, Puerto Rico has seen an increase in household debt. Household debt is the debt-to-income ratio of the family, considering how much more people spend than bring in. Puerto Rico’s debt-to-income ratio is almost 90%.

Bankruptcy

The household median income in Puerto Rico $19,350. With less income and high debt, there is an average rate of bankruptcy. Chapter 7, 11, and 13 bankruptcies are used in Puerto Rico, while chapter 9 bankruptcy is not available.

Average Income and Employment

In Puerto Rico, the median income is stated as $19,350 and the mean income as $30,463. 45% of residents in Puerto Rico are below the poverty level. There is an extremely high cost of living on the island which continues to raise.

The main industries in Puerto Rico are manufacturing, which includes pharmaceuticals, textiles, petrochemicals, and electronics. Other common industries are services, such as finance, insurance, real estate, and tourism. As the most common industries, they have the highest employment opportunities.

Credit Scores

As an unincorporated part of the United States, Puerto Rico is subject to American financial requirements and trends from Wall Street in New York. This includes credit. Residents of Puerto Rico have the same credit opportunities as those on the mainland. The average credit score in Puerto Rico is 689.

Identity Theft

Many Puerto Ricans have been the target of identity theft, although the incidents of having your identity stolen are smaller than most other places in the United States. In fact, Puerto Rico actually ranks 49th in the states with the highest amount of identity theft, with just 47 cases annually.

Banking and Tax Info

There are around 180 banks in Puerto Rico. Each bank has a number of features and services to serve the Puerto Rican community.

Puerto Rico has a well-developed banking system that is regulated by the Office of the Commissioner of Financial Institutions. The office is responsible for the supervision and examination all banks, credit unions, and other financial institutions operating in the country.

The banking system of Puerto Rico includes a few large banks; FirstBank, Banco Popular, and Santander Bank, as well as a number of smaller banks, credit unions, and other financial institutions that provide specialized services and cater to specific market segments.

The Puerto Rican banking system includes the branches of mainland banks of the United States, such as Bank of America and Wells Fargo. There are many of these banks on the island and they offer many of the same services.

There are also many small credit unions and member-owned cooperatives in the banking system of Puerto Rico. These offer personalized services and lower fees than larger banks.

Most institutions within the Puerto Rican banking system offer checking accounts, savings accounts, credit cards, personal loans, mortgages, and consumer loans, as well as a wide range of investment resources, including mutual funds, stocks, bonds, and more.

Puerto Rican residents are taxed on their worldwide income, no matter where their income is from. Puerto Rican non-residents are only taxed in Puerto Rico on their Puerto Rico-source income. Income for services performed is sourced to Puerto Rico based on where the services are performed.

The current tax rate depends on the amount of taxable income:

Income between $9,000-$25,000 has a 7% tax rate of income over $9,000.
Income between $25,00-$41,500 has a 14% tax rate of income over $25,000.
Income between $41,500-$61,500 has a 25% tax rate of income over $41,500.
Income over $61,500 has a 33% tax rate of income over $61,500.

How TurboDebt Helped Puerto Rico Get Debt Relief in 2022

TurboDebt is a debt relief company that provides Puerto Rican residents a break and a fresh start from their debts through its effective and convenient debt relief program.

In 2022, there were 256 total clients in Puerto Rico with 65 enrolled in our debt relief program. The total enrolled debt was $1,434,830 with an average client enrolled debt of $22,074.

How TurboDebt Helped Puerto Rico Residents With Debt Relief Last Year

Top Types of Debt to Get Relief From in Puerto Rico

Puerto Rico residents with growing debts can enroll in the TurboDebt program to find debt relief through debt restructuring and other options. Feel free to take advantage of our free consultation to learn about the types of debt that qualify and the requirements for enrollment in our debt relief programs.

Credit Card Debt

Increased rates have made it difficult for Puerto Rican residents to manage their credit card debt. With high APRs of up to 30%, residents of Puerto Rico have been struggling with their debt, which continues to accumulate. Residents are experiencing many past-due penalty fees and are struggling to make on-time monthly payments. The high-interest rates and late payment fees have caused financial difficulties for many Puerto Rico residents. These people have begun to search for debt relief options.

TurboDebt is focused on helping people in Puerto Rico with their credit card debt. We want to assist residents so that they can be free and clear of their debts in order to move forward in their lives. Enrolling in our debt relief program can help residents of Puerto Rico find freedom from their credit card debt in as little as two to four years.

Divorce Debt

In Puerto Rico, a divorce action only involves the dissolution of the marital union. Therefore, a divorce case in Puerto Rico ends the marriage but does not dive into other areas such as the division of the marital assets, divorce debts, and child custody.

To determine the division of divorce debts in Puerto Rico, the parties must file another case after the divorce case. In the new case, both assets and debts are divided. The case involves a type of legal entity that is not used often in the United States, called the “Sociedad de Bienes Gananciales”. All the assets and liabilities are held in this entity during the divorce and the division process until the court dissolves it.

During this process, you may want to get legal advice about the factors involved in the division of marital debt. You may end up with divorce debt if the court decides to divide your partner’s personal loans or if you had taken out debts together.

By enrolling in a TurboDebt debt settlement plan, you can tackle your divorce debts. This divorce debt relief option offers people a partial cancellation on the debt, which makes it easier to get relief and move on.

Business Debt

There are many businesses in Puerto Rico, thanks to the island’s tax policies for relocating businesses. In Puerto Rico, taxes are kept low for certain businesses and individuals. Under the Act 60 Export Services Tax Incentive, a qualified business enjoys a corporate tax rate of only 4%, which is lower than the 21% corporate tax rate on the mainland.

With reason to open a business in Puerto Rico, many owners find themselves with business debt. If you have business debt in Puerto Rico, you can find relief through TurboDebt’s relief programs.

At TurboDebt, we help business owners address their debt with our debt relief program. This debt relief option will help you with your Puerto Rico business debt by advising you on debt and money management, budgeting, and helping you choose a debt management plan.

Medical Debt

In Puerto Rico, residents can hold insurance or receive medical care through the government-run program, Vital, which provides insurance and healthcare for those who cannot afford it. There are 1.3 million Puerto Ricans on this program.

Residents of Puerto Rico who are not on the government’s Vital program are responsible for their own medical costs. When paying for insurance and healthcare on their own, many people find themselves with growing medical debt. If medical debt is left unpaid, it continues to accumulate and can become a huge struggle in the person’s life.

At TurboDebt, we have a team of experts that can help you with your medical debt. By enrolling, you can receive an average savings of 46% of your total debt before fees.

Homeowner Debt

As with the states on the Mainland, Puerto Rico’s housing market has been impacted by the pandemic. Housing prices and interest rates continue to rise while homeowners struggle to make their house payments due to rising economic costs. Many homeowners are struggling with debts related to homes, including costs of building materials, house payments, loans, and more.

Retirement Debt

Puerto Rico residents and retiree transplants to the island may find themselves with retirement debt. This occurs when their cost of living after retirement is too high and they are unable to make ends meet, causing them to go into retirement debt. This can also be due to pension liabilities and mismanaged hedge funds.

Retirement in Puerto Rico should be a time to relax and enjoy yourself. However, if you find yourself in debt after retirement, it can be hard to settle down and stop struggling. Fortunately, TurboDebt has a team of experts who can help retirees get on track with their finances in order to address retirement debt. When you work with TurboDebt, you can find relief, budget your income, and free yourself for retirement.

Puerto Rico Debt Relief Options

The following debt relief options available in Puerto Rico are among the most popular and effective solutions for paying off debt. Each will have a different speed and amount of debt that it works best for, so it’s important to understand the differences. If you need help, don’t hesitate to reach out to us for a free consultation, and we can go over all of your options.

Debt Management Programs

A debt management program can mean a lot of different things depending on who you talk to. However, they are usually offered by credit counselors. These counselors will recommend the best course of action for you, and often the most effective programs will work to negotiate reduced interest rates on unsecured debts.

This tends to be most helpful for high-interest credit card debts because they lower interest rates to about 9%, create one monthly payment for those who have multiple credit cards, and lower monthly payments. To qualify, you must close your existing credit cards to avoid accruing new debt, make consistent monthly payments to a savings account, and commit to a repayment plan lasting between 3 to 5 years.

Debt Consolidation Loans

With debt consolidation, you take a large loan to pay off your existing debts in a single lump sum payment leaving you with only one deb. Consolidating debts into one and clearing your many debts helps your credit and saves you money by eliminating multiple interest fees, reducing monthly payments, and lowering interest rates. Make sure that your repayment plan doesn’t have high-interest fees as a result of an extended repayment period.

Debt Settlement

Debt settlement is a partial debt cancellation on current debt balances. This debt relief option works great for Puerto Rican residents who are having financial difficulties and have fallen behind on their monthly payments. This option works by agreeing to make a lump sum payment to debt collectors or lenders as a way of compromising on the settlement of your debt. The amount agreed upon for settlement can often be around half of the existing balance. After you have paid the lump sum, your balance will be forgiven. During debt settlement, you may have to stop making your monthly payments in order to save money to make your lump sum payments.

Credit Counseling

With credit counseling, you will get advice and guidance about credit, finances, and debt management. The goal is to give you the information you need to make better decisions about your finances and debt, as well as to find a debt management program that can help you with your financial situation. With credit counseling, you can receive help negotiating a pause on penalty fees, lower interest rates, and lower monthly payments.

Bankruptcy

Filing for bankruptcy is scary for many people in Puerto Rico. The longevity of the impact of bankruptcy gives most debtors pause, as it affects their credit report for 7 to 10 years, making it difficult for them to obtain loans. Still, filing for bankruptcy may be the best option because it can eliminate debt or create a doable repayment plan.

There are three types of bankruptcies to consider; chapter 7, 11, and 13. Chapter 7 bankruptcies settle unsecured debt by liquidating your nonexempt properties and paying off the debt balances. Chapter 11 bankruptcy works by restructuring repayment plans without affecting business operations and is available for businesses who have too much debt. Chapter 13 bankruptcies are for businesses and individuals who can manage debt payments with their consistent monthly income. Their assets and nonexempt properties aren’t liquidated if they stick to the repayment plan.

Debt Forgiveness

Debt forgiveness programs are offered by the federal gov and state gov as an option for debt relief. They are available thanks to federal funding and are managed by the control board. These programs wipe out the person’s debt altogether. The available debt forgiveness programs include federal loans, student loans, teacher loans, and public service loans.

Debt and Financial Hardship Resources

Residents of Puerto Rico who are experiencing financial difficulties may need assistance. The help available on the island includes homeless assistance, medical care, transportation authority help, child care, and food assistance.

Temporary Assistance Programs

The TANF is a cash assistance program available to low-income families for up to 60 months. The program is created to help families build a safe and healthy home with all essential needs met. It helps eligible people avoid homelessness and take care of their families. Although Puerto Rico is unincorporated, it still receives a TANF grant in order to help their needy.

State Health and Human Services

In Puerto Rico, the Department of Health provides many services for people in need, such as:

Medicaid offering medical insurance and healthcare to low income families.

Vital also provides healthcare to low income individuals and families in Puerto Rico.

Child Care

Puerto Rico Child Care provides help to pay for child care for needy families in the country.

Shelter for the Homeless

DRS provides help finding homeless shelters in Puerto Rico. In addition, HUD has resources for helping the homeless in the country.

Conclusion on Finding Debt Relief in Puerto Rico

Puerto Rico residents who need help finding relief from their debt should contact TurboDebt. We have an experienced team that is highly skilled and knowledgeable in all things debt relief. We can help you determine the best program for your needs and ensure that you find relief while having peace of mind.

With so many options, doing your due diligence is essential when pursuing debt relief. Take the time to talk to our team and learn about our experience and what we can do for you.