Like most Americans, the majority of people who I help file bankruptcy have some credit card debt. And a small number have a lot of credit card debt.

As a general rule, credit card debt is among the easiest type of debt to discharge in bankruptcy.

However, once a credit card company is notified of a card holder’s bankruptcy, the credit card company will review the credit card account looking for certain activity including:

• Balance transfers;
• Cash advances;
• Charges for travel, vacations or luxury goods;
• Charges while unemployed; and
• Charges made after consulting a bankruptcy attorney.

Sometimes a credit card company or its hired gun lawyers will assert or imply that the debtor did something inappropriate in making charges or taking cash advances and therefore those transactions should survive the bankruptcy.

In my experience, when a credit card company objects, it’s usually rolling the dice and hoping to intimidate a debtor into entering a settlement agreement in which the debtor agrees to remain liable for at least a size-able portion of the credit card balance.

Just yesterday, I received a letter from Weinstein & Riley, a law firm that is really just a collection agency for the large credit card companies. Weinstein & Riley wrote that after a brief review of my client’s Chase Bank USA Visa account, it believed “that there is evidence and a sufficient basis to object to the discharge” of the debt.

How am I going to respond? Like always, I’ll advise my client of the letter and review the specific credit card charges that are at issue. If there is a problem with something my client did, I’ll negotiate the best deal possible for my client.

However, 99% of the time, my client has done nothing wrong. In those cases, I simply send back a sternly-worded letter in which I advise Weinstein & Riley or whoever that if they don’t back off, I’m prepared to defend my client to the fullest extent necessary including seeking to hold the credit card company liable for my attorney’s fees and costs.

In order to have a card holder’s charges or cash advances held non-dischargeable in bankruptcy, the credit card company would have to file and win an adversary proceeding (basically a trial) in the card holder’s bankruptcy case. Normally a credit card company has no intention of going this far. Instead, they’re just hoping to be able to bluff their way into a quick settlement.

However, here are some of the actions on the part of a debtor to which a credit card company can legitimately object:

1. Charges in excess of $500.00 for luxury goods or services within 90 days of filing bankruptcy. See 11 USC 523(a)(2)(C)(i)(I).

2. Cash advances in excess of $750.00 taken within 70 days of filing bankruptcy. See 11 USC 523(a)(2)(C)(i)(II).

3. Charges incurred through false pretenses, a false representation, or actual fraud. A credit card company may claim that the debtor committed fraud in obtaining or using the credit card. If the creditor can prove that the card was obtained under false pretenses (i.e. that the application was false), the credit card debt may be declared non-dischargeable.

4. No intent to repay. A credit card company may also claim that charges were placed on the credit card when the debtor had no intention to repay the debt.

The more time that passes between the questioned credit card activity and the bankruptcy filing, the less likely the charge will cause a discharge dispute.

The best advice is I can give you is this — if you’re considering bankruptcy, immediately stop using your credit cards. Then seek advice from a knowledgeable bankruptcy attorney regarding the best way to discharge your credit card debt.

It’s no secret that credit card issuers have been jacking up their rates over the past few months. And these rate increases haven’t just been targeted at those with poor credit. I’ve had many people with good credit who are current on their credit cards tell me that their rates have been raised to 19.9%, 24.9% and even 29.9%!

But a new credit card issued by First Premier Bank, a sub-prime credit card issuer, makes those interest rates seem like a bargain.

Are you sitting down?

If not, you might want to find a seat before you read any further.

OK. Here we go.

First Premier Bank is now offering a pre-approved credit card carrying the astronomical interest rate of 79.9%!!

No, your eyes aren’t playing tricks on you.

You read it right.

79.9%!!!

That previously unheard of APR is how First Premier Bank is skirting new regulations intended to curb abusive practices in the credit card industry. It’s a strategy other sub-prime card issuers could start adopting to get around the new rules.

Typically, the First Premier card comes with a minimum of $256 in fees in the first year for a credit line of $250. Starting in February, however, a new law will cap such fees at 25% of a card’s credit line.

In a recent mailing for a pre-approved card, First Premier lowers fees to just that limit — $75 in the first year for a credit line of $300. But the new law doesn’t set a cap on interest rates. Hence the 79.9 APR, up from the previous 9.9 percent.

In a mailing sent to prospective customers in October with the revamped terms, First Premier writes “…you might have less-than-perfect credit and we’re OK with that.” The letter notes that an online application or phone call is still required, but guarantees a 60-second status confirmation.

The letter also states there are no hidden fees that aren’t disclosed in the attached form. That’s where the 79.9 percent interest rate and $75 annual fee are listed. There’s also $29 penalty if you pay late or go over your $300 credit limit.

Can you say “predatory lending?”

Source: BusinessWeek.com

When money was tight, Diane McLeod found that she couldn’t pay her bills. So she turned to one of the quickest yet costliest sources of cash – her credit cards.

Now she’s paying a heavy price.

Through it all, however, Diane says that she has learned much. She now understands that for many people, her included, credit cards are just “too easy” and “too dangerous.”

CARE is a free financial education program that makes experienced members of the Bankruptcy Community available to teach the importance of financial education.  The American media has dubbed the CARE program a “scared straight” credit program for students. CARE’s primary target is high school seniors and college freshmen who are most at risk because they are aggressively targeted by the credit card industry at a time when they generally have a low Financial I.Q.

The CARE web site supplements the live CARE presentations with free downloads in the form of handouts, videos, Powerpoint presentations, games and more for your use.  The web site also contains the CARE Locator Map which is powered by Google Maps to make it easy to find a contact person near you in order to schedule a presentation in your area.

To finish this week’s series on the dangerous combination of college students and credit cards, here are 2 videos.

The first is a humorous look at a college freshman’s experience with her new credit card.

The second is a serious look at a college graduate sharing how her unwise use of credit cards in college is having negative effects on her lifestyle today.

Here are some sobering statistics regarding college students and credit cards:

• College students receive an average of 5 mailings and 4 phone calls each month urging them to apply for a credit card.
• Students entering college are offered an average of 8 credit cards the first week of school.
• 55% of college students acquire their first credit card during their first year of college.
• 83% have at least one credit card.
• 20% have four or more credit cards.
• College students carry an average of three credit cards.
• 43% of freshman owned a credit card, compared with 74% for seniors.
• 45% of college students are in credit card debt, the average credit card debt being $3,066.
• 41% carried a balance from month to month.
• Nearly 60% of college freshmen max out their credit cards by the end of the year.
• Nearly 77% use credit cards for food, clothing and entertainment.
• Over 70% have no idea what the interest rate is on their credit cards.
• Nearly 50% report paying late fees, over-the-limit fees, or had a card canceled due to delinquency.
• College students double their average credit card debt and triple the number of credit cards in their wallets from the time they arrive on campus until graduation.
• 20% of graduating college students have $10,000 or more in non-school related credit card debt.
• Colleges and Universities say they lose more students to credit card debt than to academic failure.

Source: Taking Control of Your Credit video and CARE Program statistics.

A recent study based on surveys of 1,200 college undergraduates ages 18-24 found that college students are using credit cards more and more as a financial crutch, according to student lending giant Sallie Mae.

In a recent report, Sallie Mae said students are carrying record-high balances: an average of $3,173 for undergraduates, up 46 percent from 2004; and more than $4,100 for graduating seniors, up 41 percent from 2004.

The study found that freshmen carried an average debt of $939, nearly triple the $373 five years ago. Only 15 percent of freshmen had a zero balance — a significant drop from 69 percent with a zero balance in 2004.

60% of the students were surprised at how high their balances were, and 40% had charged items despite knowing they couldn’t cover the bill.

Source: CNN.com

Since it’s back-to-school time, I’m going to devote this week to a series of posts related to college students and credit cards.

According to a growing body of research, banks are getting both more aggressive and more creative in their efforts to pitch credit cards to college students.

The latest sign: A study released by the U.S. Public Interest Research Group shows that 76% of students say credit cards have been marketed to them through tables set up on or near college campuses, and nearly a third of these students have been offered a free gift to sign up. T-shirts were the most common gift given, but students also received Frisbees, candy, pizza — even iPods — to fill out a credit card application, according to the group’s research.

Research conducted by USA TODAY shows that despite nearly a dozen states’ restrictions on credit card marketing on college campuses, banks have become more aggressive about reaching students through phone calls, e-mail and off-campus locations.

College students have long been an attractive demographic to banks because they have few financial ties. Banks compete to provide students with credit cards and bank accounts in hopes that students will come back to the banks when they need mortgages and car loans.

Source: USA TODAY.com

With a credit score of 789, Lisa Dalton gets offers for platinum cards these days. But in the mid-1990s, her credit was devastated by bankruptcy and divorce. However, she was able to turn things around with the help of a secured credit card.

Secured credit cards require an upfront deposit and offer a very low spending limit — typically $500 or less to start.

Such cards lost favor in the free-credit frenzy prior to the recession, as many banks lowered their credit standards and issued regular credit cards to risky consumers. But with the epidemic of mortgage foreclosures and credit card defaults, and a 31 percent jump in personal bankruptcy filings last year, industry watchers expect the popularity of secured cards to grow.

Dalton had to deposit $200 to get a $250 credit limit. As she established a record as a responsible customer, the bank raised the limit on the card, and after a few years, switched her to a traditional, unsecured card.

The card also helped her establish enough of a positive credit history to get a mortgage. She has since opened other credit cards with better terms, and even financed part of her education.

Secured cards represent just a small slice of the nearly $1 trillion U.S. credit card market, and they are not without their pitfalls.

Besides the deposit, for instance, some cards charge very high fees. In fact, the first bill with some cards could include fees that eat up most of the credit limit. This could hurt your credit score instead of helping it.

Secured credit cards also often charge high interest rates — 19.9 percent is common — and the low credit limits make it easier to end up getting socked with over-limit charges. What’s more, some secured cards begin charging interest right after a purchase, offering no grace period for customers to pay their balance off first.

If your thinking about applying for a secured credit card, make sure that the credit card you’re considering reports to the three consumer credit bureaus.

The moral of this story is that secured credit cards can help you re-establish and rebuild your credit, but you don’t want to use them for the long-term.

Source: Tulsa World

The U.S. Senate overwhelmingly passed legislation yesterday to impose sweeping new restrictions on credit-card companies, responding to consumer anger over mounting fees and higher interest rates amid a recession. The 90-5 vote followed pressure from the White House to deliver a bill that would increase disclosures, limit extra charges and ban a variety of practices on rate changes for the three-fourths of U.S. households that use credit cards. The measure is expected to pass the House of Representatives and President Obama is expected to sign it next week.

This legislation is a major defeat for the powerful credit-card industry. The new rules, which would take effect in February 2010, would bring much needed relief to consumers from abusive, highly profitable credit card industry practices.

Here are several highlights under the new rules:

• Credit card companies will have to apply payments that exceed the minimum payment due first to the principal balances with the highest interest rate.
• Credit card companies will not be able to raise interest rates on existing balances until payments are 60 days overdue. And even after that type of rate increase, the old lower interest rate would automatically be reinstated once the consumer made on-time payments for six consecutive months.
• Credit card companies would no longer be able to double-cycle bill. This is an abusive practice in which a late-paying consumer is assessed interest on a prior month’s balance that had been paid in full, in addition to the late balance.
• Credit card companies also will have to comply with more strict disclosures for credit cards such as sending bills 21 days before the due date and providing a minimum of 45 days notice before changing any significant terms on a card.

Credit-card executives say the new rules could lead to higher interest rates for even more consumers—including those paying their bills on time—to offset the risks of offering unsecured loans, particularly during the economic downturn as delinquencies rise. The Federal Reserve released data Tuesday showing that 6.5% of consumer credit-card loans were delinquent in the first quarter, compared with 4.8% a year earlier.

The new legislation still allows card companies to raise interest rates on consumers’ future charges. And it does little to stop banks from cutting credit lines for consumers deemed risky. Issuers are already increasing interest rates for millions of credit card holders as they try to protect against losses.

A strong credit card industry lobbying effort did block some measures such as a proposal to cap credit-card interest rates at 15% which failed to win enough support to clear the Senate.

Source: WSJ.com