Every year, people who run up impossible levels of debt on their credit cards have no option but to pay something back through bankruptcy filings and Chapter 7 liquidations. It’s about $25 billion worth of liquidations of personal assets every year that help with debt payoff in these circumstances. While this might seem like a good way to help the credit card companies make back some of what they have lost, irresponsible behavior of this kind has a way of making things very difficult for every kind of business that deals in lending – retailers, mortgagee, banks and credit card companies.
It all comes down to unplanned living. When people casually charge their home loan payments, their car payments, their utility bills and all their living expenses to their multiple cards without really thinking about the interest they are paying on their credit card debt, there can be only one way for all of this to end up – bankruptcy and financial ruin.
Some borrowers, though not many, have a way of gaming the whole system. They know that eventually one day, they will have no option but to declare Chapter 7 bankruptcy. They try to get the most they can out of their cards before declaring bankruptcy. They’ll charge purchases worth thousands of dollars to their credit cards and then finally declare Chapter 7. They know that their credit card companies stand at the end of the line when it comes to debt payoff by a court-appointed trustee. They can practically get away with everything they got off their credit cards for free this way. It’s a terrible way to live of course; but to many people, it seems like a workable way to live life large.
While secured debt like car loans or mortgages have always to be paid no matter how bankrupt one is and even student loans, taxes and child support obligations need to be met, unsecured claims such as credit card debt can easily be signed away with not so much as a penny paid. All it takes is the order of a judge in bankruptcy court. The credit card companies can’t really ask for any enforced debt payoff. They can’t even sue the borrower for fraud. If a borrower files for Chapter 13 bankruptcy, nothing can be done even if fraud is suspected. There are actually a few rumblings of change here. The authorities are beginning to notice that borrowers regularly try to game a system originally designed to help those in real need of consumer debt protection.
Creditors enjoy the best chances of a debt payoff when a debtor files for a Chapter 13 bankruptcy. The court structures the debtor’s earned income each month to help pay off all credit card debt. Almost all outstanding credit can end up getting paid for this way. There is a cutoff repayment period that the court enforces; the way they structure these debt payoff plans, if everything isn’t paid off in five years, whatever is left over gets wiped clean off the slate. This of course is no way to live, to have the courts come in and tell you how to spend your money. It’s just the price to pay when one lives one’s life on the edge.