Bankruptcy and Credit Card Debt
For those who have fallen head over heels into debt and can find no other way out, bankruptcy can really be the light at the end of the tunnel. Unfortunately, many people have abused the bankruptcy system over the years, using it as the easy way out from under the consequences of financial irresponsibility. Much of this irresponsibility includes massive credit card debt, and because the bankruptcy courts have allowed so much of this credit card debt to be discharged and go unpaid, it has hit the credit card companies right where it hurts – in their own pocket books, so to speak.
When a credit card is issued, the issuer becomes a lender who has, in fact, loaned out a sum of money equivalent to the credit limit on the card. When credit card debts go unpaid, the credit card company suffers a financial blow because they still have to pay the vendors who accepted your credit card for payment.
With the rise in bankruptcy filings, especially due to the poor economy, credit card companies are fighting hard to get some of this consumer debt repaid and avoid suffering the mass financial losses that the bankruptcy courts have enabled.
Reform Not Working
The credit card companies put out a lot of time, money and energy to get a bill passed that would push for reform in bankruptcy laws regarding credit cards. Unfortunately, it’s not working out the way they had hoped. The idea was to push more filers toward repayment plans rather than discharging the credit card debt altogether. Unfortunately, even the best laid plans don’t always work out. Bankruptcy filings continue to surge and few consumers are in the financial position to repay the debt, resulting in more discharged debt, rather than the hoped for repayments.
Ramifications for Both Consumers and Credit Card Companies
Even if the new law starts to work somewhat, it is doubtful that credit card companies will see much improvement in their bottom lines. Consumers can not be forced into filing one kind of bankruptcy over another. While it is at the courts discretion to discharge or reorganize certain debts for repayment, the determining factor is the consumer’s ability to pay. If they can’t pay, well, they can’t pay. In that case, the court is still likely to discharge the debt.
Many credit card companies have warned that their charge-off rates are bound to rise, and when they do, consumers are bound to see higher rates reflected in their credit card statements.
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