Increased Credit Card Minimum Payments and The New Bankruptcy Law- A Deathblow for Consumers?

Written by Mike Killian
Posted On: October 7, 2005

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (S.256) goes into effect October 17, 2005.    This bankruptcy reform bill has been in the making for over a decade.    Yet questions loom today as to its affects on the consumer, especially in light of the new increases in minimum credit card payments that many cardholders have witnessed.

Though there is no connection between the Bankruptcy Act and increases in minimum payments, I am very concerned about the timing of both issues.    What affect will the new law have especially on those carrying high credit card balances?

I asked Scott Bilker, creator of DebtSmart.com and author of Talk Your Way Out of Credit Card Debt, about his thoughts.   Scott responded,

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"People carrying high credit card debt that are considering bankruptcy will need to be much more careful about considering that option.    It will be more expensive because of increased legal fees, as well as more difficult to eliminate all debts through Chapter 7.

Consumers will be forced to seek credit counseling prior to claiming bankruptcy.    I see this as both an area for credit counselors to take advantage of consumers as well as the reverse.    The reverse being that people will have to work with credit counselors as a requirement but they may only be looking for a "pass" to claim bankruptcy. Therefore, by not following through and/or signing up as a permanent client, such consumers will be more costly than these so called non-profits can tolerate for their bottom lines.

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My advice is that people, more now than ever, need to focus their attention on managing their finances and credit card debt!"

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I also ask him about his thoughts on the effect that increased minimum payments will have on bankruptcy filings.

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My understanding is that the Office of the Comptroller of the Currency had far earlier (2003) made policy/guidance concerning the minimum payment amount and that it's just now going into effect.

I don't believe that the increase in minimum payment will hurt people who actually claim bankruptcy because their payments will be adjusted by the court under Chapter 7 or 13.    The minimum payment increase, intended to help people pay off their debts, will affect people who are maxed-out with their current minimum payments and thereby, ironically, force people into bankruptcy because they will not be able to afford the payments.

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The question is no longer do you favor the new law.    The new law is now signed and the law of the land.    But credit card debt must be reduced as a general rule and we must become less dependant on any credit card as a means of surviving day to day.    We as a society must manage our debt more wisely by reducing what the IRS has aptly labeled as the "got to have it now" syndrome.

To assist in understanding the new bankruptcy law there is an excellent chart as well as a link to the specifics of the new law at BankruptcyAction.com.    Similarly you can read more details on About.com about increases in credit card minimum payments.

We welcome your comments about credit card debt in our popular credit forum!