The Bankruptcy Abuse and Consumer Protection Act, signed into law last April, will take effect this month and bring with it some of the most sweeping changes in debt law in history. As the new requirements are much more strict, expensive, and time consuming than the old ones, consumers with problem debt are rushing to file now. But many others are wondering if their debt problems are serious enough to warrant the rather drastic decision to file for bankruptcy.
Here are a few things that may help you reach a decision:
- You have two or more major credit cards with outstanding balances – Credit cards work best when used for convenience, such as when you don’t have cash with you or when it just isn’t convenient to pay cash. They work less well when you use them as a funding source, as they represent a fairly expensive way to borrow money. If you have more than two major credit cards with outstanding balances that are high enough that you cannot pay any one of them off right now, you may have a problem.
- You make minimum payments only on your credit cards – The minimum payment doesn’t even put a dent in your balance, and until recently, the minimum wouldn’t even cover the interest accrued during the month. If you are only making minimum payments on your credit cards because you cannot afford to send more, then you may be in over your head.
- You are paying one credit card bill with another credit card – Taking a cash advance on a credit card is really expensive. The interest rate is usually higher than for purchases and the cash advance often includes an additional fee. If you are taking a cash advance from one card at 20% interest to make a payment on another at 20% interest, you are probably in trouble.
This list is by no means definitive or complete. Nor should it be construed as legal advice. But if you see yourself doing one or more of the things listed above regularly, it may suggest that your financial problems are quite serious. Now would be a good time to consult with either a financial advisor or a bankruptcy attorney. Financial problems only get worse when left unattended, so don’t wait.