Between Life and Death, Bankruptcy Style

[Demeter]

http://www.creditslips.org/creditslips/2008/01/between-life-an.html

The Brits, in their understated way, are on the fast track to revolutionizing the balance between debtors and creditors. With no public fanfare, the Ministry of Justice announced a plan for debtors to stop making payments on credit cards for up to a year if they had a change in circumstances, such as a job loss or divorce. (BTW, job loss, medical problems and family break up are involved in 90% of US bankruptcies.) In effect, the debtor can stand somewhere between regular repayment and bankruptcy, getting the automatic stay, but not the discharge.

There are no reports of mass heart attacks by lenders, no threats to halt all consumer lending, and no reported plague of locusts.


During the time the debtor has the one-year stay in effect, interest will accrue, but not at penalty rates. The debtor will have to show that he/she will be likely to resume payments at the end of the year.

Britain is considering a place in between regular repayment and bankruptcy--a cessation in payments based on changed circumstances. There is some court intervention and some fact finding, but because there is no discharge, the intensity of the inquiry may be considerably less than there might be in a typical bankruptcy.

This move raises an interesting empirical question: If debtors have a not-quite-bankrupt option, will total payments go up? If they can suspend payments, but not get hit with ruinous penalty fees and penalty rates of interest, can they eventually pay off their credit cards? If they can quit paying for a while, will they be able to stay current on home mortgages and car loans?

To ask these questions is a reminder that the world we often describe as debtor versus creditor is, in fact, often creditor versus creditor. Suspension of payment to one group of creditors may help another. In fact, in some cases, it may mean more payments for everyone.

If the British give consumers this option, the debt paradigm around the world shifts just a little. No longer will Americans be leading the way on how to think about financial death and rebirth. Instead, the new paradigm may be to think about how to help a debtor avoid death altogether.

[Connonym]

1. Seems like a very civilized way of dealing with it

Right now credit card companies are just a few steps above a loan shark on the evolutionary scale. Fact of life is that bad things (job loss, sickness) happen to good people and it makes me sick to see the way credit companies kick you when you're down.

[fed-up]

2. excellent approach-when I was two months late on CC payment 5 years ago they wanted entire balance

which was totally impossible

my life went into a downward spiral from there...on top of being sick/injured and not having health care

including a subprime refi to pay off cc's (I should have just filed bankruptcy instead of trying to a good person and pay off debt) I thought I would get better, but without health care that was impossible-also was supposed to be a fixed rate loan that somehow turned into an ARM when I was signing papers at the title company, but I was so desparate and not thinking straight and afraid no-one else would give me a loan so I signed anyway

luckily selling house at end of '06 when loan reset as I couldn't afford payments and kid turned 18 so no funds from child support

then ending up in former undisclosed meth lab and no funds to get a lawyer to get out of it


if only there had been single payer universal health care and a not so greedy CC company my life would not be the current disaster that it is right now

this is why I have no sympathy for the subprime lenders

[juno jones]

3. I feel your pain

I am going thruough a bankruptcy because my business failed and I just wanted to get it all over with. The house was unsellable due to a glut of recent construction. Our last-minute re-fi was with a guy who changed the paperwork on us three times, and after he had us good and confused, snuck an ARM in on us, then managed to grab $4000 that he pulled through unaccounted for. It was a 'find the lady' game the whole time. I hope the bastard jumps out a window. Then the CC companies started circling, even though we had paid off thousands of dollars on those cards on an extremely regular basis. If we could have held them off for a year, we might have been inclined to stay on good terms, but at the moment of crisis...sorry, in my hovel, Me and mine eat before the stockholders do.

Solidarity fed-up, I can offer no advice, but I do offer encouragement. You are not alone, and even though some would try to guilt trip you, it really isn't your fault. We're up against professional criminals here. These here con men have a veneer of respectibility and cultural approval. They dress nice and keep up their little Potemkin village quite well. I'm with you in having no sympathy for these people.