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Limiting Consumer Credit to Avoid Chapter 7 Bankruptcy

Posted on in Chapter 7 Bankruptcy

Consumer credit has a colorful past. The ability to say “charge it” was not always in the U.S. consumer's vocabulary. Consumer credit or being able to purchase goods and services without cash on hand had its humble beginnings in the late 19th century.

Since most of the population resided in rural areas, the use of credit was established by local shopkeepers who extended credit to fellow neighbors based solely on reputation alone. This exchange would soon decrease with the industrialization of the country as larger companies pushed the local retailer into the background thus eliminating the extension of credit to the local consumer through reputation alone.

Not until the 1920s did manufacturer's began extending credit to the average American consumer. General Motors forged first with the installment credit model in 1919 with other manufacturer's soon following suit. Credit experienced a rebirth. In 1949, Diners Club arrived on the scene as the first consumer credit card with bank backed credit cards issued for widespread usage in the 1960s.

Has it been to our advantage? Perhaps not, according to a recent survey by Bankrate.

Statistically, only 51 percent of all Americans hold enough in their rainy day fund to satisfy the amount of personal credit card debt. This is the lowest percentage since Bankrate began tracking the numbers in 2011.

Could this lead to personal bankruptcy? According to Financial Feed, a participant in the Amazon Services LLC Associates Program, the answer is a resounding yes. Credit cards can be deceptive. Consumes tend to believe that any purchase is possible, often forgetting the high cost of interest rates.

As more consumers find themselves burdened with extreme credit card debt, the best plan for avoiding Chapter 7 bankruptcy begins with a personal inventory and establishing your own personal limits. If you are currently solvent implementing these simple practices just may keep you out of bankruptcy court.

Step 1 – Your Credit History

  • Request a copy of your credit history
  • Compile a list of all debt, smallest to largest

Step 2 – Fiscal Responsibility

  • Ensure payment of your basic living expenses
  • Save a percentage of the remaining balance to pay down debt

Step 3 – Repeat Step 2

  • Stick to your budget
  • Repeat Step 2

For those saddled with extreme credit card debt, sometimes Chapter 7 bankruptcy may be the only recourse. Credit card companies understand they are not going to recoup the entire credit card balance, therefore they may opt for a settlement or repayment of the debt for only pennies on the dollar. If you unable to satisfy even a credit company settlement offer, it is time to contact an experienced bankruptcy attorney.

Experience matters. If you have questions and are considering Chapter 7 bankruptcy, the experienced legal team of Newland & Newland, LLP has the answers. For over 20 years, partners Steve and Gary Newland have been assisting residents in Cook, Lake, McHenry, DuPage and Will counties through difficult times. Contact us for a free phone consultation to discuss how you can begin rewriting your credit history today.

 

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