Bankruptcy Law backfires on credit card issuers

MSN Money ^

[SDGOP]

An unprecedented spike in filings before reform took effect in fall 2005 is chewing into lenders' bottom lines, and the subsequent lull is showing signs of being short-lived. Bankruptcy attorneys say their caseloads are starting to pick up, and credit counseling agencies -- which provide now-mandatory sessions for consumers who want to file -- say they're seeing significantly more people than they initially predicted.

All this is raising questions about whether lenders will profit as much from the new bill as they hoped.Credit card interest out of control? Find a lower rate.

It wasn't supposed to be this way. The new law contains a “means test” that was supposed to steer higher-income filers toward repayment plans. Lenders expected a rush of consumers trying to beat the bankruptcy deadline, but nothing like the surge that actually occurred. More than 500,000 bankruptcy cases were filed in the two weeks before the law took effect, compared with a normal weekly volume of 30,000 to 35,000. So far this year more than 2 million cases have been filed, 49% more than the same period last year and eclipsing all previous records.

[HamiltonJay]

And banks must pay for poor lending practices... not expect the government to be their agent of force. Banks are just as if not more irresponsible than the individuals they attempt to demonize.... only difference is.. they can spend $100 Million dollars to bribe Congress.

[Raycpa]

So what I don't get is how many people can carry about $12K in credit card debt and be okay, but they get a $12K medical bill, which they also can pay through an installment plan, and they file for bankruptcy.

With the medical bills comes lost work time. THe loss is far greater than the bill.

[wouldntbprudent]

Yep, itza why soldiers always keep a small bottle of Tabasco in the ole leg pocket.

[ladyjane]

The credit card companies know exactly what they are doing. Yes, there was a huge increase in the number of filings. Small money compared with how much they'll make under the new legislation.

The new legislation will bring them billions - that's why they fought so hard to get it.

[wouldntbprudent]

Thank you for that info on HIPAA. There do seem to be a lot of tools available---besides bankruptcy---to shore up one's financial footing.

[wouldntbprudent]

My take on the "half of bankruptcies due to medical costs" angle is that when people incur a medical debt that reaches several thousand dollars, they are more likely to file because there is no tangible product of the expense or intent to incur the debt in the first place. One thinks: "Where did this come from? I didn't ask for this?"

I agree. I think the response to $12K in medical bills often is "it's not fair!" No one actually has to *pay medical bills,* do they?

But racking up $12K on the ole card for a couple of vacations or various consumer items seems very "fair."

[wouldntbprudent]

With the medical bills comes lost work time

Sometimes. Just as often, the family income remains at the same rate as before the incident.

[wtc911]

About half of all bankruptcies are medical.

==================================================

78% of statistics are made up on the spot.

[Alberta's Child]

That's an excellent point. It illustrates why a good disability insurance policy is the most important insurance protection for just about anyone.

[servantboy777]

"I have little sympathy for credit card issuers. Their judgment is no better than those who do not handle credit well."

Thank ya very much. Not discounting individual responsibility when extending yourself with debt, however allot of people get caught up in the web of predatory lending practices.

[Pilsner]

I handled a probate for an elderly widow a couple of years ago. Her husband left $80,000+ in credit card debt, all in his, a pension plan that expired when he did, and a few thousand dollars in assets. His estate was so small that all of it was set aside to support the widow, so the credit card companies, being unsecured creditors of an insolvent estate, got nothing.

In the past few months I have gotten at least six credit card offers addressed to the widow but mailed to my office. The only way the credit card companies could have gotten her name and my address was off the letters I sent out telling them that I was her attorney and she was the executor of her husband's insolvent estate, for which they would not get paid.

There comes a point when credit overextension is dangerous not just for lenders and borrowers, but for the whole economy. When credit card companies are competing for the business of an impoverished elderly widow whose husband beat them out of $80,000 and left her with next to nothing, I am afraid that we have come to that point.

[petercooper]

Oh, yeah, this is one of the big engines of bankruptcy: NO STIGMA.

Exactly. And I don't buy this it's all due to medical bills excuse. Are there really that many people out there on their death beds mired in medical expense debt? I just don't believe it.

[takenoprisoner]

Idiots (cc issuers) gave my daughter an unsolicited credit card while she was in college on my dime and unemployed.

Actually she had enough sense to not use it...although she admits to activating the card. But guess what? The card came with fees. You got it, she never paid the CC fee and interest and late fees began to accrue at a usury rate. Next thing she knew, the CC issuer was demanding somewhere around 1500.00 due.

Just this week I learned my wife had received an unsolicited shell credit card. She ran them thru the shredder and figured it done. But no, now comes a bill from shell cc for 25.00 for some mysterious select fee with a minimum payment of 10.00 due by the 13th of Jan.

I lost it and immediately called the offshore Indian agent about this bogus charge on a cc we never asked for nor never activated. Had we not handled this immediately that 25.00 dollar fee would have turned into thousands due in no time with our credit ruined...just like our daughters did and was.

Credit cards and the companies that issue them are evil. I checked the rate on the bogus shell card statement, it was 21.99 apr with a one day late fee of 39.00. That's evil.

[NCLaw441]

You said: I was in the industry. Actually there were very few people
who ran up credit cards for no reason. Vast majority....

No health insurance...hospital bills.
Divorce
Job loss
***
These are valid problems that create liability, but not necessarily valid reasons to incur credit card debt, unless one thinks that he/she can pay back the debt under the terms of the card. Better to have a judgment at the legal interest rate (8% here in NC) than the rates some credit card issuers charge.

[ColdSteelTalon]

I am crying river for the credit card companies right now. Have my interest rates gone down since the law went into effect? Of course not. And I have a good credit rating too. luckily I can pay all mine of in a couple of months so I don't carry an unmanagable balance. Those puppies are getting paid off.

[Doohickey]

Not quite (I used to work for a credit card company). High interest rates, late fees, over limit fees and the like are a great source of "free" money for issuers. However bad debt isn't deducted, it's charged off; meaning it comes straight off of the bottom line.

Charge-off rates are tracked by investors. The usually run in the 5% range. Anything over that is considered a very bad thing, and it's why you don't see companies like Providian anymore.

Most people don't know that credit issuers have to raise the money they loan to people, usually through securities. Companies that make too many bad loans won't be able to raise as much money to loan.

[A. Pole]

Idiots (cc issuers) gave my daughter an unsolicited credit card while she was in college on my dime and unemployed.

Actually she had enough sense to not use it...although she admits to activating the card. But guess what? The card came with fees. You got it, she never paid the CC fee and interest and late fees began to accrue at a usury rate. Next thing she knew, the CC issuer was demanding somewhere around 1500.00 due.

Just this week I learned my wife had received an unsolicited shell credit card. She ran them thru the shredder and figured it done. But no, now comes a bill from shell cc for 25.00 for some mysterious select fee with a minimum payment of 10.00 due by the 13th of Jan.

I lost it and immediately called the offshore Indian agent about this bogus charge on a cc we never asked for nor never activated. Had we not handled this immediately that 25.00 dollar fee would have turned into thousands due in no time with our credit ruined...just like our daughters did and was.

I am not sure if the usurers of the past were so brazen.

[NCLaw441]

Divorce is an obvious cause of financial problems (all financial problems need not lead to bankruptcy, however. It may be better to have a judgment against you than to file bankruptcy, especially if you have fewer assets than your judgment exemptions cover). When two people who were living together as husband and wife separate, two homes are required. It is never as cheap to live separately. Child support usually works for one parent and against the other. Legal bills can be substantial, and the quick sale of property results in lost equity. This is completely predictable, but few bother to think even a little bit ahead.

[Kokojmudd]

I was in the industry. Actually there were very few people who ran up credit cards for no reason. Vast majority.... No health insurance...hospital bills. Divorce Job loss

I work in the industry and you are 100% correct. This BK bill is a boon for the scam credit counseling companies and lawyers. There will be more bankruptcies filed than before. Leave it to washington to "fix" things.

[A Ruckus of Dogs]

I was in the industry. Actually there were very few people who ran up credit cards for no reason. Vast majority.... No health insurance...hospital bills. Divorce Job loss

Thanks. I've been asking the where-is-the-debt-from question any time credit card debt comes up for discussion.