credit card debt & personal bankruptcy
Source Doug Henwood
Date 05/03/01/13:48

>To make a comparative (and pro-consumer) analysis I need some info re.
>personal bankruptcy regulations and, specifically the way they are
>applied to credit card debt. Thanks.

In the U.S., it's pretty easy to wipe out credit card debt with a
bankruptcy filing, and the consequences for getting credit in the
future aren't all that severe. Few questions are asked; when I
watched a bunch of people streaming through bankruptcy court about 10
years ago, the trustee just asked "Did you buy any luxury goods?
Jewelry? Furs?" Everyone said no, and their papers were stamped.
There's some red tape to go through before you get to that point, and
some lawyers' fees to pay, but it's nothing compared to sweating out
debt service.

The U.S. bankruptcy code has basically two routes for individuals -
chapter 7, which results in a complete discharge of debts, and
chapter 13, which commits bankrupts to a paydown schedule. Chapter 13
is usually a bad idea - many people fail at it, but lingering
Calvinism makes it appealing to some. The bankruptcy reform bill in
Congress would force people with incomes above the median into
chapter 13, instead of giving them the option, as they have now.

Some kinds of debts can't be discharged: notably taxes, mortgages,
and student loans. The major culprit, however, has been credit cards.
Now that people are borrowing heavily against home equity, things may
change, since those debts can't be discharged.

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