Why Your Credit Card Company Hates Bankruptcy Law

It's no surprise that most people at one point or another find themselves stuck with a lot of credit card debt. Americans in general have embraced the use of credit cards as a way to buy products and services that they otherwise would not be able to afford.

Credit cards serve a very important purpose. They allow anyone to leverage borrowed money to make large purchases. The problem though, is that while convenient, credit card usage also poses the real risk of getting consumers into an overextended credit situation. It's far to easy to simply whip out a credit card for everyday purchases and worry about the bill later. It doesn't take very long before all those little purchases to add up to a significant amount of money.

Sooner or later, the bill can become a very real problem. Credit card companies often charge interest rates that border on loan sharking, and late payment fees and service fees only make it more difficult to pay off the debt.

Your credit card company surely doesn't mind though, as long as you keep making that minimum payment, their wallets stay flush with cash. According to CNN, the average American household is carrying around over $10,000 in credit card debt. That is not a typo. $10,000 in credit card debt. That is an obscene amount of money, and if you extrapolate that across the roughly 105,000,000 households in the US, that is well over one trillion dollars.

Take it a step further, and add up the interest rate, assuming a VERY conservative interest rate of 12%, and that's $126 Billion dollars in interest revenue that credit card companies earn each year. In reality, I would bet the average interest rate on credit card debt is closer to 18-20%. This is VERY big business.

It's no wonder that credit card debt is one of the most common reasons that consumers file for bankruptcy. The system of credit card debt is set up in such a way that it becomes extraordinarily difficult to pay off the debt, and I'm sure it was set up that way on purpose. It is effectively a way for the credit card companies to print money.

Now you can understand why the credit card companies lobbied so heavily to get the bankruptcy laws changed in 2005 to make filing for bankruptcy protection more difficult. Prior to the new laws in 2005, pretty much anyone who needed help could file for chapter 7 bankruptcy and get rid of all of their credit card debt in just a couple of months. Now, petitioners have to qualify for chapter 7 based on their income, or get into a more complicated chapter 13 case.

The good news is that, while it has become harder to qualify for chapter 7, most people still can, and that really irks those credit card companies. Bankruptcy offers people in real financial trouble a way to erase all credit card debt, and get the fresh start promised by the US Bankruptcy Court.