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Thread: Split Thread - Bill to revise US Bankruptcy Laws

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    Senior Member Tonya's Avatar
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    Default Split Thread - Bill to revise US Bankruptcy Laws

    You could also look into getting a secured card. I have one with a reasonably low annual fee, they pay me interest on my money, and it shows as a regular cc card on my credit report.


    -------> from the thread discussing obtaining credit cards after filing bankruptcy
    Last edited by Melonie; 03-10-2005 at 08:39 AM.

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    God/dess VenusGoddess's Avatar
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    Default Re: Need a Credit Card Which One Is for me?

    Quote Originally Posted by Melonie
    Not meaning to change the subject here, but there is a major push underway in Washington to enact a revised bankruptcy law. This new law will have a MAJOR impact on 'personal bankruptcies'. In particularly this new law would enact requirements to greatly limit the ability of a bankrupt person to obtain sufficient credit post-bankruptcy such that a second bankruptcy could occur in short order. I take this to mean that if this new law is passed the future availability of new credit cards to post-bankruptcy persons will be essentially zero for at least several years.


    "The Associated Press

    Highlights of the Senate's bankruptcy legislation:

    --Applies a new standard for determining whether people filing for bankruptcy should be forced to repay their debts under a court-approved reorganization plan rather than having the debt dissolved. If a debtor is found to have enough income to repay at least 25 percent over five years, a reorganization plan generally would be required.

    ...... {for instance, having to continue to make small payments on existing credit card debts post-bankruptcy}

    --Limits repeat bankruptcy filings.

    ...... {undoubtedly by limiting future credit availability}

    --Requires debtors to participate in credit counseling programs before they file for bankruptcy court protection unless special circumstances prevent it. Credit counselors generally inform consumers about the consequences of bankruptcy, such as its potential impact on a debtor's credit rating, and provide guidance on managing finances.

    --Gives highest priority among debts to child support payments, putting them ahead of credit card debt and other obligations.

    --Puts a $125,000 cap on the amount of home equity that debtors can keep out of the reach of creditors in bankruptcy court.

    ..... {this shuts off a major bankruptcy loophole i.e. 'homestead act' states which prohibit a person's home from being sold to pay bankruptcy creditors regardless of its market value}

    --Prohibits companies in bankruptcy from selling their customer lists to raise money to pay creditors.

    --Ends the requirement for children's names to be listed on bankruptcy applications and related documents, to prevent contacts by sexual predators.

    --Requires debtors in reorganization plans to repay the full value of their outstanding auto loans. Under current law, those debtors are generally allowed to repay only the market value of the vehicle plus interest.

    ..... {real bad news for people with rolled over auto loans thus a large 'gap'}

    --Says that people found to have blocked others from obtaining any legal service cannot use bankruptcy proceedings to escape fines and civil judgments. "

    ..... {a potentially huge financial boondoggle for anybody involved in a lawsuit}


    besides the above, the proposed legislation would also enable landlords to quickly evict bankrupt tenants who are unable to pay their rent. The proposed legislation would also specifically exempt any credit card debt run up in the 3 months immediately prior to a bankruptcy filing from being discharged, thus cutting off the popular 'splurge on a European vacation and walk away from the bill' scenario.

    If anybody out there happens to be teetering on the edge of bankruptcy, you might seriously want to think about filing before this new law takes effect.

    ~

    HOLY Shit! When is the law supposed to take effect?

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    Banned Melonie's Avatar
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    Default Re: Need a Credit Card Which One Is for me?

    It's being debated in the Senate this week !

    More details are also starting to come out. One that caught my attention is that persons with an income above the 'poverty line' will not be allowed to simply 'write off' bankrupt debts automatically. Instead the bankruptcy judge has the option of requiring such persons to continue paying small amounts to creditors for many years beyond the point of bankruptcy filing.

    By my read, it potentially boils down to a bankruptcy judge establishing an ongoing monthly budget for bankrupt people which mandates where much of their future income must be spent (first rent and other living costs, then payments to creditors they went bankrupt on until these debts are paid off, and THEN any discretionary or 'new' spending). This is of course a huge departure from the possibilities under current bankruptcy law, where the person filing bankruptcy essentially doesn't have to worry about using any of their post-bankruptcy income to continue paying off pre-bankruptcy creditors.

    In other words, for a person who earns say $50,000 a year who went bankrupt on a car loan and a couple of credit cards, the court could soon mandate that the person's say $3,000 a month after-tax income include a $200 a month ongoing payment to the car loan company plus a $100 a month ongoing payment to each of the credit card companies until these debts are paid off say 7 years down the road. Of course the existance of these ongoing payment obligations to pre-bankruptcy creditors will significantly affect the available credit to that person when they try to obtain post-bankruptcy financing for say a new house or new car 2 or 4 or 6 years down the road.

    IMHO if this revised bankruptcy bill passes it will probably serve to hold interest rates down - particularly interest rates on 'subprime' credit cards and car loans and shaky real estate loans - by reducing the amount of total losses that credit card companies and car loan companies will be saddled with due to bankruptcies and then attempt to make up for from other customers via charging them higher than necessary interest rates. However, it is also likely to knock out a lot of potential future post-bankruptcy new car and home buyers, due to their ongoing payment obligations to pre-bankruptcy creditors, probably leading to a certain amount of decline in actual new car/real estate market prices as well.

    Real estate in certain areas is likely to take a SERIOUS stomping, i.e. states like Florida and Texas and I think California which currently have a 'homestead law' exempting a person's home from bankruptcy proceedings regardless of its market value. This loophole is a favorite of high flying entrepreneurs who can currently buy a 1 or 2 or 5 million dollar house in Florida, go bankrupt on their business and personal debts, and then turn around and sell their house post-barkruptcy and get the 1 or 2 or 5 million dollars back! The revised law would limit such 'homestead' exemptions to $125,000, thus soon forcing the sale of the 1 or 2 or 5 million dollar houses at auction with the proceeds used to pay off creditors. Forced property sales at auction are not conducive to rising real estate values, as some potential buyers will probably wait for an auction rather than making a fat conventional offer !

    Of course, something has to be done in regard to the rate of personal bankruptcy filings. Statistics show that there were 1,600,000 personal bankruptcy filings in 2003 - something over 1 % of ALL households in the USA. In theory, this would translate into say 1/2 million additional homes being sold at auction every year if these changes to the bankruptcy laws are enacted (any valued over $125,000), plus 1.6 million potential new car and new home buyers every year being iced out of future markets as a result of their ineligibility for sufficient credit due to ongoing monthly payment obligations to pre-bankruptcy creditors. After 3-4 years you're talking about a cumulative 5 million potential customers being iced out of these markets, which is going to have a significant impact on the auto and real estate demand.

    In theory this is a GOOD thing for people who are financially responsible and not likely to go bankrupt. In practice, it remains to be seen whether the reduced losses to the credit card and car loan companies, as well as reduced bankruptcy losses to landlords, utility companies, manufacturers, retailers etc. who will also benefit as the result of modified bankruptcy laws, will actually get passed on to financially responsible customers.

    However, I'm not sure how I feel yet about the prospect of having a court/judge involved in the personal finances of a bankrupt person on an ongoing basis for say a 7 year period after filing bankruptcy necessary to pay off the court mandated portion of their pre-bankruptcy debts.

    ~
    Last edited by Melonie; 03-10-2005 at 09:51 AM.

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    Default Re: Split Thread - Bill to revise US Bankruptcy Laws

    well, the bill passed today in the Senate.





    Considering that the republicans have an even stronger majority in the House, at this point you can pretty well count on this bill being signed into law before summer.

    As the CNN Money article points out, anybody who has been considering filing for bankruptcy might want to seriously speed up their filing timetable to avoid the higher legal costs and much stricter rules applying to future bankruptcies once this new bill becomes law.

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    Default Re: Split Thread - Bill to revise US Bankruptcy Laws

    Oof. A former bankruptcy professor of mine used to rail against these bills; he would regale us with war stories about how he lobbied against evil credit card companies in front of Congress. Guess they finally won

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    Default Re: Split Thread - Bill to revise US Bankruptcy Laws

    Quote Originally Posted by tzchar
    Oof. A former bankruptcy professor of mine used to rail against these bills; he would regale us with war stories about how he lobbied against evil credit card companies in front of Congress. Guess they finally won
    Well there definitely is a 'poverty politics' element to this issue ... particularly in regard to bankruptcies by people with poverty level incomes. On the one hand the politicos jump on financial institutions for not extending credit to 'poor' people as discriminatory. On the other hand, the same politicos rail against the financial institutions for attempting to collect a portion of their money which 'poor' customers have already spent and now are attempting to avoid having to pay back. It has been argued by some that the combination of these two issues amounts to an additional 'private' welfare system, with the 'poor' being 'given' money via credit card debt bankruptcies and with more affluent and financially responsible people having to pick up the tab for it.

    Regardless of the political overtones, it would appear that bankruptcy standards and financial consequences are going to be significantly tightened ... and soon.

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    Default Re: Split Thread - Bill to revise US Bankruptcy Laws

    Not to turn this into a "poo-type" discussion but what is really at issue is a conflict between the interests of the "debt agencies" and the "bankruptcy industry".

    The loophole closing on fatcats's homestead exemption and lower income people being less able to write-off debt remove about equal distortions from both income ranges. The losers are the agents and lawyers who make money arranging these loopholes. Sort of like true tax simplification being of greatest damage to accountants.

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    Default Re: Split Thread - Bill to revise US Bankruptcy Laws

    I don't know Melonie, I think the credit card companies are charging these crazy APRs just because they can. I missed a payment over the summer on my bank of america CC and as a penalty my APR skyrocketed from 11% to 29%. Just for that. The really irritating thing is that I had the money and meant to pay, I just for some unknown reason skipped it when I was doing the online billpay thing. *sigh* But if that happened to me I can't imagine what kind of fees are being given to others. And now companies are lowering limits and raising APRs based on your credit score/report, not even because of your history with them. IMO, this kind of stuff is predatory, plain and simple. The profits of the credit industry have gone up, while many of us have ended up paying them more money than ever. I don't think the credit worthy people are the ones who end up paying for people who don't pay, it's the other people in not so great financial situations who are stuck with shitty APRs, sometimes without notice. One of the attempted provisions to the bill was to cap APRs at 30% and they voted against it, which just blew my mind. I can already see the negative campaign ads for the people who voted against that provision, and they'll deserve it. That's appalling.

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    Default Re: Split Thread - Bill to revise US Bankruptcy Laws

    Jocelyn, ultimately, people who do not want to be saddled with very high APR's should not have signed on to a 'contract' with a lender which allows the lender to charge those very high APR's when that person defaults on their end of the contract. Granted, the credit card lenders have begun to use some (IMHO) less than ethical enforcement of technicalities to collect penalty APR's and late fees at their first opportunity. However, in every case it is the credit card customer and not the credit card company that sets the high APR's and late fees in motion. Essentially the high APR credit card lenders and customers are in the same position as 'assigned risk' auto insurance companies and customers - the lenders/insurers know that they are going to be saddled with high losses due to bankruptcies/accidents, and the customers have proven in advance that they represent a higher than average risk that a bankruptcy/accident will occur ! People who fall in the 'subprime'/'assigned risk' category always have the option of paying cash/taking the bus to avoid being "exploited"!

    The flip side of this is, of course, that many people cannot meet the criteria for signing a 'contract' which does not provide for the possibility of these very high APR's and late fees, i.e. Platinum cards. Why can't they meet the criteria ? Because their credit rating and history of financial responsibility probably sucks. Granted there will always be individual exceptions.

    My only point here is that most 'subprime' credit card customers want the right to access to unsecured credit which from the lenders' standpoint they don't deserve in the first place, and the same 'subprime' credit card customers also want the right to go bankrupt on their credit card debts without the possibility of ever having to ever pay it back, and also want the right to obtain a new credit card a year or two post bankruptcy and start the cycle all over again - i.e. exactly what many 'subprime' credit card customers were able to do (repeatedly) under current US bankruptcy law.

    However, there are large costs associated with those 'rights' - costs which must be borne by responsible credit card customers paying higher than necessary interest rates even though they themselves are financially responsible, costs which must be borne by responsible retail customers who must pay higher than necessary retail prices to cover the store's bankruptcy losses, utility companies, car loans, the list of 'hidden' extra costs of a few people's bankruptcies being passed on to financially responsible majority in the form of higher prices and/or higher interest rates is almost endless.

    I also agree that there is a 'bankruptcy industry' i.e. credit counselors, debt consolidators, attorneys and accountants who specialize in bankruptcy etc. who are not going to be pleased when these changes to the US bankruptcy law are enacted. IMHO this is not necessarily a bad thing LOL (parasites !).

    As to the political side of this i.e. future campaign ads against politicians who voted for bankruptcy reform, I suspect that for every 'very rich' person who lost their million dollar mansion loophole, and for every 'poor' person' who lost their 'right' to buy a bunch of stuff on a credit card and not pay for it, who will vote against those politicians, there is likely to be half a dozen middle class people who will be grateful that the 'hidden tax' they have been paying for years in the form of higher than necessary prices and interest rates has been somewhat reduced who will vote FOR those politicians ! Basically this is no different than the existing political party constituencies, with the very rich and the poor tending to vote Blue and with middle class working people tending to vote Red. But as Monty points out, political discussions in Dollar Den should be somewhat limited (so I'll shut up too!).

    ~
    Last edited by Melonie; 03-13-2005 at 03:17 PM.

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    Default Re: Split Thread - Bill to revise US Bankruptcy Laws

    According to a reliable source, the BK bill will go into effect in Oct. this year...


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