The Consequences Of Credit Card Company Created Bankruptcy By National Association Of Responsible Lending And Investment

Chances are that back when you first began using credit cards,
the credit card companies were never shy about offering you more
cards and larger credit lines. They acted this way because they
wanted you to live beyond your means and take on more debt than
you could reasonably pay off on a monthly basis. These companies
do not make money when customers charge low amounts and pay off
their balances in full; they make money when customers carry
high balances and pay hefty interest rates. Then, once these
same consumers are maxed out and finding it difficult to make
even the minimum payment, what do the credit card companies do?
They raise their interest rates even higher!

Based on these business practices, it should be no surprise
that the credit card companies actively sponsored recent
legislation making it harder than ever to declare
bankruptcy—even for those who need it most.

Legally, there are two types of bankruptcy available to
individuals: Chapter 7 and Chapter 13. Most people think of
bankruptcy in terms of Chapter 7, which means almost all current
debts are canceled, and after they file, they owe nothing. They
also get to keep all of their current belongings. The credit
card companies are obviously against Chapter 7, because it means
they will never see any more money from those customers.

The more common type of bankruptcy (and the one preferred by
creditors) is Chapter 13. A person filing for Chapter 13
bankruptcy has their debts, income, and assets carefully looked
over by a court representative. The court then decides how much,
if any, of the debt they still have the ability to pay, and then
sets up a strict payment plan (often, money is taken directly
from paychecks). Any and all personal assets, from a car to
furniture and clothing, can be ordered by the court
representative to be sold to pay off your debts.

While the credit card companies would prefer bankruptcy did not
exist, they greatly prefer it when people file for Chapter 13,
because the companies have a chance at receiving even more
money. New legislation passed in 2005 made it harder than ever
to qualify for Chapter 7, which means even more consumers may be
forced to sell their vehicle or their family home to satisfy
debts—debts that in many cases were actually paid off years ago,
with only the years of high interest payments left.

The Real Consequences of Bankruptcy

After filing for bankruptcy, you no longer have your old debts,
but you also no longer have any of your old lines of credit. For
someone who has been living beyond their financial means for a
long time, this new situation can be a painful and difficult
shock.

If you filed for Chapter 13, you will start with a five-year
repayment plan, as ordered by the court. You will not have
access to old credit lines, and have very limited (if any)
access to new credit. Shockingly, your bankruptcy does not
actually start to count down until the end of this five-year
period.

Bankruptcy goes on your credit report, and remains there for up
to ten years. (With Chapter 13, the ten years start after your
five-year repayment ends, adding up to as many as 15 years in
total.) Immediately after filing, your credit score will go
down, and for at least the first year getting any new line of
credit may be impossible. Over time, your credit score will
slowly improve, and you may be eligible for some credit offers.
Be wary of opening any new accounts, remembering your earlier
debt problems. Remember, you can only declare bankruptcy once
every seven years, so no matter what new circumstances come up
(medical expenses, death, etc.), you are completely liable for
any new debts for at least seven years forward.

Your first credit offers post-bankruptcy will likely be for
small credit lines (a few hundred dollars), with high interest
rates and usually an annual fee. To get back on track to good
credit, open one of these cards only if you are ready for the
responsibility. Pay on time, and don't exceed your limit. As
time goes on, you will be offered cards with larger credit
lines, lower rates, and less or no fees.

About the Author: Individuals everywhere, looking to get out of
debt and begin investing can turn to the debt aide organization
National Association of Responsible Lending and Investment at
http://www.NARCLI.org. You may reach debt relief and investment
experts via email to Question@NARCLI.org.