Using Credit Cards to Bide Time

This personal bankruptcy story was posted on the internet  recently as a comment in a discussion on bankruptcy: “…My husband was a foreman in construction and made a lot of money. Then 9-11 happened and due to economic slowing, he got laid off and has been unable to find a steady job since…Now he is in trucking – and gets paid by the mileage – some weeks it is good pay – other weeks not so much. We really struggle. Many of our credit cards have gone into collections and we just do what we can to get by. We have started paying just minimum payments on everything…”

The debtor in this personal bankruptcy illustration  lost income and replaced it with credit card debt in order to bide time. This practice is relatively common,  and so are the results of getting so far into debt that you are "robbing Peter to pay Paul."  As a general rule of thumb, you are financially bankrupt if your current sustainable income will not pay all of your living expenses, pay interest on outstanding loans, and reduce some of your principal on those loans while paying on them for five years. Five years is the maximum legal number of years a United States Bankruptcy Court allows an individual to work their way out of bankruptcy protection.  This is called a Chapter 13 bankruptcy case.

In 1980, the federal government passed a special law which allowed national banks to ignore state usury limits and peg the rate of interest at a certain number of points above the federal reserve discount rate. In addition, specially chartered organizations like small loan companies and installment plan sellers have their own rules. This means that the banks can charge ridiculously high interest rates which keeps you from ever paying off the account.  As a result, in many cases, about the only way a person can relieve exhorbitant debt from various banking institutions is through filing bankruptcy

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If you put $30,000 on your credit card and the company has a 24% APR attached to it with a 2% minimum payment, your minimum payment will never reduce your debt. If you pay $600 a month for the rest of your life, at our current federal maximum rate legally allowed, you will never pay down any of the $30,000 of credit card debt. That is why the debtors in our illustration are really financially struggling. They are making the minimum payments on many of their cards. This practice is a recipe for making a bankruptcy happen.

Using credit cards to bide time until you can replace the income you have lost may not always be a wise decision, and paying the minimum payment on credit cards may also cause you heartache in the long run.  If you have found yourself in the situation of having recently lost income, you are using credit cards paying the minimum payments, and you cannot reduce your debt load within a five year period, you may be a candidate for filing a bankruptcy. Choosing the appropriate bankruptcy to file can be a complicated and tricky process, and common sense indicates you will need a bankruptcy lawyer in order to properly understand how complex bankruptcy laws may apply in your situation.

 If you would like more information on this topic or other bankruptcy topics, please contact  our Pasadena office at  888.368.8941 (toll free) or 626.389.8575.  Mr. Phillip Myer will be happy to answer your questions for you.  . If you need assistance regarding a Chapter 7 bankruptcy or a Chapter 13 bankruptcy, bankruptcy litigation, legal debt settlement, mortgage modification, lien stripping, getting rid of the second mortgage on your house, stopping a foreclosure or wage garnishment, asset protection, discharging debt, etc. we can help!  Please contact us to receive a free consultation or visit our website at http://www.phillipmyerlaw.com/  to request an in-person consultation with an experienced bankruptcy attorney in the Pasadena, Glendale, Altadena, Alhambra, Sierra Madre, Los Angeles and San Gabriel Valley areas.