Deciding When It is Time to File

Many people are struggling with insurmountable debt. 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. Although this particular law has not been completely repealed, in 2010, Congress re-regulated certain rules in the 1980 law pertaining to the credit industry.

Under the new laws, credit card companies had to notify customers 45 days in advance before they made any changes to the interest rates. Prior to the rule change, many credit card companies raised their the interest rates on all of their card holders. The fine print in the agreements sent to their customers stated the company could raise interest rates after a promotion date expired. The credit card companies believed if they increased rates across the board and they had previously notified their customers, the move would protect the companies against the new rule changes.

As a result of the credit card company’s new policies, even consumers with good credit and who fully paid their bills on time had their interest rates increased. In fact, they raised the interest rate on my credit card to 19%. I received the card at a very low interest rate for a year’s period, but when the year past, they hiked up the interest rate just before the new rules went into effect. They did this despite the fact I had a good credit rating, I had never been late with my payments and I had paid my bill completely each month.

The federal APR allowed is 24%, but because of the 1980 laws, you might have a card with an interest rate as high as 29%. These usury type interest rates are allowed because the 1980 laws allows groups, especially chartered organizations like small loan companies and installment plan sellers, to have their own rules. Credit card companies took advantage of the 1980 laws. These exorbitant interest rates can negatively impact middle Americans, even those who make six figure incomes. The high interest rates have completely ruined the financial situation of lower income families who have not been able to keep up with the interest payments on their balances.

This personal bankruptcy story was posted on the internet in April of 2011, “My credit card debt is about $51,000. I also have a 2nd mortgage in collections paying $500 a month. The total amount we pay out monthly for our credit card debt is about $900 and with the 2nd mortgage $1400. We make about $112,000 a year, but we are struggling each month to keep our commitments. Do you think bankruptcy would be a better option? I know bankruptcy can stay on your credit report for 7 years but our credit is already ruined. Do you think it will repair itself quicker if we just stick it out with our current situation?”

This debtor makes a high salary and is considered “middle income”, but he is having difficulty paying his credit card bills. Is bankruptcy the best option for him? Filing for bankruptcy is always an option, but each individual has to decide for themselves whether they should file.

One way of determining whether you should file for bankruptcy is to determine if you are completely bankrupt. As a general rule of thumb, you are completely bankrupt if your current sustainable income plus any cash reserves 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. Paying off debts for five years is chosen because five years is the maximum legal number of years a United State’s Bankruptcy Court allows an individual to work their way out of bankruptcy protection.

Bankruptcy laws can be complicated, and common sense indicates you might need a bankruptcy lawyer to help you understand how they may apply to your financial situation. If you need relief from the stress associated with debt and you live in or around the metropolitan area of Cincinnati, Ohio and Kentucky, contact us here today at .We will help you find a bankruptcy attorney in your area who can answer your bankruptcy questions.

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