Thursday, June 02, 2005

Higher Minimum Credit Card Payments Are COming

Higher Minimum Payments Coming

“Credit card companies, implementing a 2003 federal regulation, are increasing the minimum monthly payments required for credit card balances. Most companies were requiring a minimum payment of between 2 percent and 2.5 percent. The new minimum will be about 4 percent. In theory, this is a good thing because it means consumers will pay principal faster, reducing their debt. Too many families owe about $9,000 in credit card debt -- an amount so substantial that it will still take most more than 40 years to pay off the balance (assuming a decent interest rate). But what if we're talking about a family that's on the margin? Suddenly an already tight household budget is forced to dig up extra money to pay more on the credit card bill. Remember, the minimum monthly payment, in some cases, will double. Where will these consumers find an extra $300, $400 or $500 each month?” Seattle Post Intelligencer 06-01-05

Analysts and financial observers are predicting more personal bankruptcy filings this summer because the new bankruptcy law which was passed by the US House and Senate recently goes into effect on October 17, 2005. The law essentially drafted by the credit card companies and lending institutions makes it harder for working folks to declare bankruptcy. What the new law does, is force many people who have fallen on hard times or who because of poor judgement and perhaps reckless spending are now unable to pay their just debts to file for Chapter 13 Bankruptcy which is much more stringent than the more popular Chapter 7 Bankruptcy. With Chapter 7 any assets you have are liquidated and paid to your creditors any remaining debts are cancelled out since you have no assets to liquidate or collect and you are given a “fresh start”. In 2004 over 1.1 million AmeriKKKans filed for Chapter 7 Bankruptcy many because they got sick and had no health care or medical insurance or they fell behind in their bills. With Chapter 13 Bankruptcy you are put on a repayment plan by the court which can last up to five years; any remaining debts not included in the repayment plan/process, are not under any obligation to be paid. In 2004 there were 4 445,574 Chapter 13 filings. In addition to these changes which prevent more people from filing for Chapter 7, the law provides a two pronged test to determine whether or not you qualify: you can not file for Chapter 7 if your total income is above your individual state’s median income and you will be subject to a formula that exempts certain specified expenses (rent, food etc). This formula is designed to ascertain whether or not you can pay twenty-five per cent of your non priority unsecured debt meaning your non collateralized debts like your credit cards. According to an article on www.cnn.com/money dated March 10, 2005 by Jeanne Sahadi, “Currently, if you file for Chapter 13 today, the court determines what you can afford to pay based on what you and the court deem to be reasonable and necessary expenses. Under the bill, the court would apply living standards derived by the IRS to determine what is reasonable to pay for rent, food and other expenses to figure out how much you have available to pay your debts. ‘The IRS regulations are more stringent, and to contest them means asking for a hearing from a judge, which can mean more time and expense’, Elias said.”
An article on www.financialplanning.com Website by Michele Heller a banker, reveals the genesis behind the legislation. “Sought by creditors since the late 1980s, debated by Congress since 1997, and derided by consumer advocates since its inception, bankruptcy reform legislation cleared its final congressional hurdle Thursday when the House voted 302 to 126 to send it to President Bush, who plans to sign it shortly. The core of the bill, which the Senate approved last month, is meant to direct higher-income debtors into repayment plans. Doing so could add $3 billion a year to the bottom lines of credit card companies and unsecured consumer lenders, according to some projections. Other provisions should boost the bottom lines of companies such as investment banks, secured creditors, and commercial lenders.” So we can readily see whose interests this legislation favors. The drafters of the bill, the credit card companies, have made it more difficult to file for bankruptcy by making it harder to engage an attorney. Also according to Sahdi, “ ‘Under the new bill, if information about a client's case is found to be inaccurate, the bankruptcy attorney may be subject to various fees and fines. What that means for consumers is it will be harder to find a bankruptcy attorney willing to file because of the liability and the additional work required to verify a client's information’, Elias said. ‘Those who are willing are likely to charge more. Right now, for routine cases, it can cost between $500 and $1,000 to file’, Elias noted. He expects the minimum may go up to $1,000 if the bill becomes law.” What that means is not only is it bad enough you’re having trouble paying your bills, now thanks to the credit card companies, you will have to pay more for legal representation just to file for bankruptcy!
Now many banks and credit card companies are increasing the minimum monthly payment the consumer has to pay. On one hand this is good because it means the principle balance of the loan gets lower after each monthly payment. The bad news for cash strapped consumers drowning in credit card and consumer debt is, they will have to pay more on each credit card loan from a paycheck that is already not enough to keep up with the rising cost of living. So if you were being asked to pay 2% of your current balance and now your credit card ups that to 4% that could mean a couple hundred additional dollars per credit card per month. If you are in a pinch, I suggest you seek credit counseling. If you are considering filing for bankruptcy, do it now, well before October 17, 2005 . If you are not in debt, don’t take the plunge!

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