Posted on 12/28/2005 12:43:50 AM PST by SDGOP
An unprecedented spike in filings before reform took effect in fall 2005 is chewing into lenders' bottom lines, and the subsequent lull is showing signs of being short-lived. Bankruptcy attorneys say their caseloads are starting to pick up, and credit counseling agencies -- which provide now-mandatory sessions for consumers who want to file -- say they're seeing significantly more people than they initially predicted.
All this is raising questions about whether lenders will profit as much from the new bill as they hoped.Credit card interest out of control? Find a lower rate.
It wasn't supposed to be this way. The new law contains a “means test” that was supposed to steer higher-income filers toward repayment plans. Lenders expected a rush of consumers trying to beat the bankruptcy deadline, but nothing like the surge that actually occurred. More than 500,000 bankruptcy cases were filed in the two weeks before the law took effect, compared with a normal weekly volume of 30,000 to 35,000. So far this year more than 2 million cases have been filed, 49% more than the same period last year and eclipsing all previous records.
(Excerpt) Read more at moneycentral.msn.com ...
And the rest of us pay for the poor business judgment of the credit card companies in giving accounts to dogs.
Who ultimately is going to pay these extra millions in charge-offs? The rest of us, who didn't file bankruptcy, and who are paying our credit card bills responsibly.
I don't doubt that could be true, but I'd sure like to see some statistics. I've only anecdotal evidence, but I've mostly seen people who live consistently above their means (rent money on credit cards) and then can't make it through a relatively minor shock to their system (short period of unemployment, car accident (no injuries), etc.).
If it's true that most bankruptcies are based on medical bills, then maybe the law should address those cases separately.
Half of Bankruptcy Due to Medical Bills -- U.S. Study
by Maggie Fox
WASHINGTON - Half of all U.S. bankruptcies are caused by soaring medical bills and most people sent into debt by illness are middle-class workers with health insurance, researchers said on Wednesday.
The study, published in the journal Health Affairs, estimated that medical bankruptcies affect about 2 million Americans every year, if both debtors and their dependents, including about 700,000 children, are counted.
"Our study is frightening. Unless you're Bill Gates you're just one serious illness away from bankruptcy," said Dr. David Himmelstein, an associate professor of medicine at Harvard Medical School who led the study.
"Most of the medically bankrupt were average Americans who happened to get sick. Health insurance offered little protection."
The researchers got the permission of bankruptcy judges in California, Illinois, Pennsylvania, Tennessee and Texas to survey 931 people who filed for bankruptcy.
"About half cited medical causes, which indicates that 1.9 to 2.2 million Americans (filers plus dependents) experienced medical bankruptcy," they wrote.
"Among those whose illnesses led to bankruptcy, out-of-pocket costs averaged $11,854 since the start of illness; 75.7 percent had insurance at the onset of illness."
The average bankrupt person surveyed had spent $13,460 on co-payments, deductibles and uncovered services if they had private insurance. People with no insurance spent an average of $10,893 for such out-of-pocket expenses.
snip.
Bankruptcy specialists said the numbers seemed sound.
"From 1982 to 1989, I reviewed every bankruptcy petition filed in South Carolina, and during that period I came to the conclusion that there were two major causes of bankruptcy: medical bills and divorce," said George Cauthen, a lawyer at Columbia-based law firm Nelson Mullins Riley & Scarborough LLP.
"Each accounted, roughly, for about a third of all individual filings in South Carolina."
He said fewer than 1 percent of all bankruptcy filings were due to credit card debt. "That truly is a myth," Cauthen said in a telephone interview.
Cauthen said he was not surprised to hear that so many of the bankrupt people in the study were middle-class.
"Usually people who have something to protect file bankruptcy," he said. "The truly indigent -- people that we see on the street -- there is no relief that we can give them."
snip
She said many employers and politicians were pressing for what she called "stripped-down plans so riddled with co-payments, deductibles and exclusions that serious illness leads straight to bankruptcy."
Hard to feel sorry for outfits that charge 20+% interest.
CD's sure don't pay that.
Thanks! but also this---
http://www.mensnewsdaily.com/archive/u-v/usher/2005/usher030905.htm
Divorce is a primary predictor of bankruptcy. Data on the actual percentage of bankruptcies driven by divorce is often considered “too hot” to talk about, so most studies keep things lumped (or merely expressed in terms of the women’s perspective). It is difficult to clearly identify the real percentage.
But we do know this:
In the “Fragile Middle Class”, Teresa Sullivan first emphasizes divorce as the primary cause; “Because people’s financial troubles so often arise from other sources, such as divorce or serious illness, they also reflect in part the social pathology of the great middle of American society.”
The National Consumer Law Center placed an emphasis on divorce as a primary causal factor in their testimony before Congress in 1998: the average bankruptcy occurs “because of the convergence of consumer debt, job loss and divorce ... when a family splits up, the pressure of running a household with less total income is impossible.” They also cite downsizing, economic dislocation, income disruptions and underemployment as major factors.
Divorce. That's kinda interesting, but makes sense. I don't know enough about the law, but I'd bet shared debt is a problem when divorce happens.
I think that the stigma of bankruptcy has also pretty much dissolved. When you hear that--for example--that Donald Trump's companies have declared bankruptcy a few times, you start to wonder what's so bad about the process, given that the guy has his own TV show.
"About half cited medical causes, which indicates that 1.9 to 2.2 million Americans (filers plus dependents) experienced medical bankruptcy," they wrote.
This article states that the role of credit card debt in bankruptcy is "truly a myth." My problem, at least with how the data is presented here, is that it seems to me you need to know a person's comprehensive financial situation before you can take their word for it that medical bills broke the camel's back. A person already maxed out (or beyond) on consumer debt is much less likely to be able to absorb a $12K or so (the average in the article) medical bill. A person with little debt probably can---considering that the people in the first category may have around $12K in credit card debt alone anyway and they were carrying that somehow before the medical bill. Also don't most medical billers have ways to pay by installment, etc.? So what I don't get is how many people can carry about $12K in credit card debt and be okay, but they get a $12K medical bill, which they also can pay through an installment plan, and they file for bankruptcy. I could see huge medical bills ($50K +) putting an individual into bankruptcy, but these numbers are not that big compared to voluntary debt many individuals take on anyway. (Note the article specifically says these are mostly individuals with middle-class and upper incomes.) You can hardly buy a car for $12K, but most people would think nothing of taking on car debt. Even if they have a bunch of other debt! They want a car, they get it. But a $12K medical bill--file bankruptcy. ?? I guess what I'm saying is that it seems to me that it's not necessarily correct to conclude that "medical bills" caused a bankruptcy when it may be that the reason the medical bill "could not" be paid is that the individual was already too deeply in debt.
Shared debt and the fact that one spouse usually has a dramatic drop in income while the other spouse has new liabilities (child support + paying for another (separate) residence, etc.).
Oh, yeah, this is one of the big engines of bankruptcy: NO STIGMA.
In fact, I was surfing a little on this subject and quickly looked at the wiki entry. One interesting comment: the negative impact on an individual's credit of bankruptcy is "very overblown" because the individual's credit at the time of bankruptcy is already ruined.
One of the most disturbing things about bankruptcy, except in the truly legitimate cases, is what it says about keeping one's word. Those who abuse bankruptcy are just stealing.
Well, well, well, what happened to ye ole formatting? No clue--sorry readers.
I think that what you have is people already up to their eyeballs in debt and when they get hit with a medical bill for $12k, it sends them over the edge.
That said -- I'm pretty sure a lot of credit card debt is being racked up on necessities, including prescriptions, groceries, heating oil etc.
Saying that it's just medical bills is probably just as wrong as calling them irresponsible spendthrifts. On the other hand, I have no doubt that medical bills are a significant factor.
Okay, let's try this again---
This article states that the role of credit card debt in bankruptcy is "truly a myth."
My problem, at least with how the data is presented here, is that it seems to me you need to know a person's comprehensive financial situation before you can take their word for it that medical bills broke the camel's back.
A person already maxed out (or beyond) on consumer debt is much less likely to be able to absorb a $12K or so (the average in the article) medical bill.
A person with little debt probably can---considering that the people in the first category may have around $12K in credit card debt alone anyway and they were carrying that somehow before the medical bill.
Also don't most medical billers have ways to pay by installment, etc.?
So what I don't get is how many people can carry about $12K in credit card debt and be okay, but they get a $12K medical bill, which they also can pay through an installment plan, and they file for bankruptcy. I could see huge medical bills ($50K +) putting an individual into bankruptcy, but these numbers are not that big compared to voluntary debt many individuals take on anyway. (Note the article specifically says these are mostly individuals with middle-class and upper incomes.)
You can hardly buy a car for $12K, but most people would think nothing of taking on car debt. Even if they have a bunch of other debt! They want a car, they get it.
But a $12K medical bill--file bankruptcy. ??
I guess what I'm saying is that it seems to me that it's not necessarily correct to conclude that "medical bills" caused a bankruptcy when it may be that the reason the medical bill "could not" be paid is that the individual was already too deeply in debt.
I just can't believe the tenor of the responses to this thread: it's all the fault of the card company WHO GAVE THEM THE MONEY IN THE FIRST PLACE?!
Reminds me of all those people in New Orleans complaining that their mortgage company demanded they start paying after 3 months' reprieve. These low income debtors had "sub standard" mortgages: i.e. they couldn't qualify for conventional mortgages. (Conventional mortgage companies, thru gov't insistence, allowed up to a year for people to avoid payments.) Sub-standard mortgage companies don't have the financial werewithal to delay payments. BUT THE POINT IS: those people wouldn't have HAD a mortgage (or their house) if not for the sub-standard market. They rolled the dice on a high interest loan and got burned.
Same with credit cards. If the companies were scrupulous in denying cards to people, how long before a class action suit arrives on their doorstep. As for the high rates, most everyone takes advantage of those 3%-for-six-months offers and, after six months, moves to an even lower offer of 0%. I did it last year when I needed an infusion of money into my business. I didn't pay a dime of interest on the $12,000 I borrowed for 8 months. (yes, I paid transfer fees of $150 which comes to under 2%). I took the time to analyze the many offers from different cards...and it was worth it. People who complain either haven't tended to their credit in the past or they don't take the time to shop all the offers.
I don't see that cr card companies have anything to apologize for. If you can't afford it, don't buy it. And, especially, don't rack up a balance on a high interest cr card. Better to face the music before the interest piles up. People make bad decisions when hit with a financial crisis. That isn't the fault of the company that lends them the money.
And it is a shame that those people didn't get the help they needed from the medical establishment in dealing with those bills.
Unfortunately for me I have found myself in a difficult situation for over a year. I took a $7@hr. job a Christmas just to stop the bleeding of my finances. Now I find myself needing major medical surgery...I called the hospital and they can discount the hospital portion by 30% or more depending on my finances(can earn up to 400% above poverty level too). I was smart and stashed away for a rainy day. I can cover this major expense, but if it were open heart surgery...there's no way I'd be able too.
I had carried catastrophic medical, but when I had to use it...they refused to pay it. I fought for over 6 months to get a $5,000 ER bill payed. I finally just gave up and paid the dang thing! Again, from the rainy day fund and cancelled the worthless catastrophic insurance plan.
Those filing bankruptcy didn't stash away for the rainy day whether it is medical bills, or repairs for the car, or replacing the refridgerator etc. Although at the rate I am going I may find myself tapped out on my rainy day fund too.
There are brighter horizons in store for 2006 for myself. Getting through this medical challange right now is just a bump in the road. Or as it was once said...You can take all my money etc. away from and in less than 5 years I'll have it all back again. Or something to that effect. That's the difference between us.
What is interesting is that this is apparently being watched closely by Wall Street. I was talking to a money guy a few weeks ago and he said, "America's bankrupt. They're maxed out on credit cards, mortgages and home equity loans. The party's over."
He said this when the market was moving close to 11,000, which I pointed out. All he said was, "Watch what happens."
Yeah, that's my point. The medical bills "send them over the edge"--why?
At all levels, shouldn't people be structuring their finances so that can roll with the punches at least a little?
Reminds me of a story that was trumpeted during Katrina. People in a certain neighborhood were going around to the businesses asking for loans in the amount of $30 and $40 so they could gas up their cars and evacuate.
The "problem," according to the story, was that the guvmint checks didn't come in until the end of the month, so the people had no money to buy one tank of gas.
Hello, I don't care if you "make" $250 a month on welfare or whatever. Considering that true emergencies occur very infrequently, even if you put a dollar a month under your mattress, after a while you'd have at least enough to buy some gas to get yourself and your family 50 miles out of town ahead of a killer hurricane.
Same goes for people at other economic levels. The higher the level, the more the need to plan for a rainy day.
I can guarantee that some of the people who file bankruptcy over $12K in medical bills would have thought nothing of going out and incurring at least $12K in consumer credit debt and it not becoming a bankruptcy situation.
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