Bankruptcy

Credit Card Issuers Cutting Us Some Slack?

By meaghano

Good news! After issuing a ?Call to Action? last fall, the National Foundation for Credit Counseling has negotiated with some of America?s biggest credit card issuers on behalf of us, the struggling consumers.

While we wait for the Credit Cardholders? Bill of Rights to work its way through Congress, this could help some of us ease our debt burdens.

Non-Bankruptcy Repayment Plans
Traditionally, some people with serious credit card debt have opted for a modified repayment plan with their card issuers rather than filing for bankruptcy.

But, thanks to the recession, even negotiated plans are now out of many borrowers? reach. Here are some sobering numbers from the NFCC:

? More than 405,000 Americans were rejected from repayment plans last year because they couldn?t afford even modified payments.
? Currently, only 25% of borrowers qualify for repayment plans, down from 33% just a few years ago.
? Last year, borrowers averaged $24,000 in debt, with only $39,000 in annual income.

Basically, what was happening was that fewer and fewer Americans were qualifying for repayment plans to eliminate their debt, and many of those ?rejected? from such plans opted for bankruptcy protection instead.

Because credit card debt is often discharged completely in bankruptcy, card issuers were losing money ? rather than getting slightly less money than they were owed in a repayment plan, they were getting nothing at all from a bankruptcy.

The Changes
Before the NFCC?s negotiations, most credit card repayment plans already included the following:

? Interest reductions (and, in rare cases, forgiveness)
? Fee waivers after enrollment
? Agreement (from borrowers) to refrain from further debt accumulation

Under these terms, the average borrower apparently took about five years to repay credit card debt, with payments of about $540 each month.

But, with the new terms proposed by the NFCC, which include further cuts on interest and fees (but no deductions of principal balances), the average family would only have to pay about $420 per month for five years.

Though this savings is admittedly not enormous, it?s significant enough that it could mean more families qualify and are able to maintain payments on their mortgages/rent and other necessities.

Which Card Issuers Have Signed On?
The Foundation reports that the top 10 U.S. credit card issuers have agreed to the new repayment terms, including Bank of America, Capital One, Chase Card Services, American Express and Discover.

Full post as published by The Bankruptcy Blog on May 05, 2009 (boomark / email).