Friday, November 11, 2005

Is a New Bankruptcy Crisis Looming?

While the new bankruptcy laws have received wide attention in the media, there is another potential crisis looming that my cause credit card holders to think twice about what they purchase on credit this Christmas. In response to new federal regulations, card companies over the next three months plan to raise the amount card holders must pay each month. In many cases, consumers might see their minimum payment nearly double.

The new minimums are designed to prevent consumers from being hobbled for decades by credit card debt. Many credit card holders do not realize that they will never pay off the debt by simply paying minimum payments.

It would take a consumer making only the minimum monthly payment nearly 30 years to pay off a $2,000 credit card balance at 18 percent interest. Total interest payments over that period would be about $5,000. Increasing the monthly payment from 2 percent to 4 percent of the outstanding balance will require only 10 years and $1,100 in financing costs to pay off the same amount.

In the long run, this will benefit consumers because they will pay off their credit card more quickly. In the short term, families that are barely making ends meet with minimum payments may be forced into credit counseling or even bankruptcy. The higher minimum payments must be implemented by the end of December 2005.

Under the new bankruptcy laws, most consumer debtors must obtain credit counseling before they may file for bankruptcy. If you are still unable to meet your obligations after credit counseling, you may be eligible for Chapter 7 or Chapter 13 bankruptcy. For some debtors that cannot meet the new minimum payment requirements, bankruptcy may be the only option.

The decision should not be taken only lightly and only after consultation with a qualified bankruptcy attorney. Please contact us for a free initial consultation if you need further assistance. We are a bankruptcy and debt relief agency. We help people file for bankruptcy.

About the Author: Carl H. Starrett II has been a licensed attorney since 1993 and is a member in good standing with the California State Bar and the San Diego County Bar Association. Mr. Starrett practices in the areas of bankruptcy, business litigation, construction, corporate planning and debt collection.


Sponduliqs said...

Very Good post. With the doubling of the minimum payments for credit cards, one needs to eliminate their credit card debt.

I beleive that we should get this message out faster.

With Christmas fast approaching many people will be tempted to use their credit cards this season. This may be the clarion call for debt destruction.

However, you are misleading in one point of this point. Someone doesn't have to do credit counseling, they only need to do a debt management course which is to be done through a credit counseling company.

This may lead to a consumer using the services of a CCC but that is not required.

A lot of good advice on this blog. Keep up the good work.

Jae Burnham
Free eliminating credit card advice at

Carl Starrett said...

Thank you for you comments. What you call a "debt management course" is a form of credit counseling. If you click on the appropriate link, you will see another article I posted on my blog that lists the credit counseling companies currently authoring to give the require counseling here in the Southern District of California.