Obama Debt Forgiveness – New Laws Could Save Consumers 50% to 60% on Current Debt Balances

Debt collectors usually experience great business when people are having a difficult time paying their bills, since they rely on making making through the never ending ring of the telephone. However, in the recession we are now in, one that could be the worst in decades, the unimaginable is going on: people that usually go after the money are now losing some themselves.

After credit card companies have aided in making the tremendous consumer debt what it is today, they are now coming to understand that many Americans are having an extremely difficult time paying their bills when due, while the economy gets worse.

This has made lenders and the collectors they employ frantic to get every cent they can, before the situation becomes even worse, and they will do this even if it means they have to lose money themselves. More and more, they are allowing payments to be stretched to unimaginable lengths, and they are taking dimes, or even pennies on the dollar, and considering it paid off.

These predatory lenders are not just being helpful. All they are really doing, is attempting to cover their own behinds. Credit card companies and banks are getting prepared for a huge amount of defaults on credit cards, and they are fighting with each other to get their money first. They also consider the fact that the faster people can get their debts paid off, the sooner they will be able to begin borrowing money again.

Although many banks are cutting credit lines, hiking up card fees, and just wary on lending in general, others are actually allowing their customers a little room to move. For example, Bank of America has said that they have waived late fees, dramatically lowered interest rate charges, and for some, they have even reduced loan balances for greater than 700,000 people that held their credit cards in 2008.

Since a greater number of people are getting more in debt, cards like Chase and American Express are doing the same thing for many of their customers. All of the major credit card lenders are telling their collection agents to allow for greater leeway in helping customers that are in dire straits.

People who usually make their money based on the total amount of money they recover, have said people that have had problems and have had to obtain payment extensions, have at least doubled over the past few months. There have also been situations where people who borrowed money, and were about to go over the edge, were given deals that allowed them to pay only 30 to 80% of the money they owed.

This situation is the opposite from a few years ago, when most of the time, consumers fought and lost against credit card companies. In the current situation, as debts continue to soar into the stratosphere, the lenders are the ones that are crying uncle.

$395 billion in bad loans, are what credit card lenders expect to have to write off in the proceeding five years, as reported by the Nilson Report, which is an industry newsletter. This is comparable to the approximate $275 billion that has accrued over the past five years in credit card debt. It is getting more difficult to collect debts such as these. Many times if this happened in the past, lots of consumers would use their home’s equity to have a way to pay off credit card loans, or they may have used retirement money, used a debt consolidation loan, or simply asked a friend or family member for help. With the state of the economy being what it is today, consumer have no recourse.

Since they are terrified that people that pay their bills on time may stop, the lenders do not want to say that they are accepting less than the total payment due. Whereas the gigantic loan modification programs that are going on, take thousands of mortgages at the same time, the way credit card customers are being helped is still on a case by case scenario.

Now, lots of debt collectors are letting many borrowers that are behind, take a year to pay off their debts, instead of the standard six months. There are also many lenders that are getting in touch with borrowers as soon as possible, so they do not have to write off the account. Even others are talking to customers they fear might soon get behind in their payments. Much like when credit card companies were trying to be the very first card people used, they are now in the situation where they are attempting to get paid before any others.

The banking industry is now beginning to lobby regulators, so that it is more beneficial to lenders to extend payment terms or forgive indebtedness, since it is projected that millions of additional consumers will be defaulting on their credit cards in the next few months. There was a credit card loan modification recently that was not accepted.

Through this rejected plan, lenders would have been able to forgive around 40% of the total owed them by borrowers over the next five years. The accounting rules that are in place now, say that lenders have to report the loss right after default, but the new plan would have let lenders wait until the part of the debt had been repaid to report it. By doing this, they would be able to write off less later down the road. Borrower would have also been able to defer any tax payments that were owed on the debt that had been forgiven.

In 2005, major changes passed to bankruptcy legislation, and the industry ferociously lobbied, and this seemed to have harmed card debt collections. The mean debt that was discharged in Chapter 7 bankruptcy has grown three times the amount since 2004, according to credit card industry data. In a Chapter 13 bankruptcy, secured lenders such as auto finance companies often shove out lenders that are not secured, like credit card companies, and this has went on and assisted in the card lender’s willingness to settle.

Although settling on a deal will avoid credit card cancellation or possible bankruptcy, it will also make the borrower’s credit score dip very low for as many as seven years, and this will make it extremely hard and costly to get any new loans. This will make the person’s average credit score drop 70 to 130 points, where the strongest borrower have one of 700 or greater.

Through the use of credit card debt settlement companies, debts can be combined into one single payment, and make credit card companies decrease the interest payments and other fees, and also many times the actual principal will be reduced as well. By doing this, the credit card holder can then take off as much 60% off the amount that they owe in debt.