The new credit and bankruptcy laws will have a dramatic affect on the lives of consumers that are on the edge of financial disaster due to debt. The bankruptcy law will make some families that feel they need to file bankruptcy almost impossible, and will also offer little protection to those that do qualify.
(PRWEB) August 6, 2005 -- The 2005 Bankruptcy Reform Act is going to make it even harder for consumers to clear their debt. Bankruptcy attorneys promise consumers the ability to clear debt while holding on to assets such as a home or car, after Oct. this will not be the case.
While the quieter credit card law passed by Federal Regulators will help the country in the long run, by shortening the time the money is owed and the amount of interest paid. The new credit card law will drive some families living paycheck to paycheck into financial disaster while allowing the credit card companies even more profitability with add on late fees and over the limit fees.
Basically, the Bankruptcy Reform Act favors the creditors over the debtors. It will make it harder for families and individuals to file for bankruptcy--no matter what the circumstances may be. In recent years, we've seen the credit card companies become more and more powerful, and the new bankruptcy law is going to strengthen their hold on consumers.
As it is, the system already benefits the creditors: millions of people are in debt and their debts are growing. Millions of people live off of credit cards, the effect of which is a debtor's epidemic. The new Reform Act will benefit the creditors even more as it treats all bankruptcy cases as equally delinquent.
Some of the changes:
Credit card debt will not be discharged
The income levels will be tighter ( meaning if you have more than $166 after you pay the allowed amount of money for each expense you can not file )
The allowed amounts for necessities are based on the IRS tax code ( If you have a $1200 mortgage and the allowed amount is only $1050 - tough luck)
Your creditors will have access to you Tax returns (so they can see actual income)
Your income is based on a 6 month average ( if you lose your job - you cant claim an income of zero)
The new Bankruptcy law will mean billions of dollars for the credit card industry over the next decade.
The bankruptcy law by itself wasnt enough though because Federal Regulators passed another law that is not as advertised. The fact that they are requiring credit card companies to raise the minimum payments from 2% to 4%. While that doesnt seem like a significant amount, it could ruin a families finances. Think about if you are paying the minimum on 2 or three cards and the minimums go from $50 each to $100 each. Is it going to affect your finances to come up with the extra $150 a month.
While in the long run it is a very good move to reduce debt as a whole, in the short term it will cause problems for many families. Example a minimum payment based upon a $5000 balance and a 17% interest rate. By increasing the minimum payment from 1.67% to 3% the total interest paid is reduced from over $25,000 to just over $4000.... the amount of time to pay this debt off is reduced from 81 years to 18 years. That is great news for some people, but the consumers that have experienced hard times, job loss, or medical issues are going to have trouble.
Higher minimums will get rid of balances faster, but they will cause problems for the 35 million card holders that only pay the minimum payments every month. Remember that after Oct. you will not be able to discharge credit card debt in bankruptcy.
Customers who often fall behind on their payments should obtain professional assistance from personal finance experts. The FTC advises consumers to take a hands on approach to their finances and do-it-themselves, as there are a number of credit repair and debt elimination scams. If you are going to look at a company to handle your situation then make sure you check them out thoroughly, and check with the Better Business Bureau along with the FTC to see if they have complaints.
RJI offers a complete debt elimination course for consumers. Our course is a step by step, do it yourself instruction manual, with accompanying software and email support. We specialize in educating consumers in Personal Finance and Debt Free Living. Please visit our web site at http://www.takebackcontrolnow.com or call 1-888-871-1218 ext 84 for more information.
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