People often rely on credit cards to pay their bills when their incomes stagnate or drop. To prevent debtors from defaulting or filing bankruptcy, banks have come up with “balance liquidation plans (BLPs),” which are specialized repayment plans for debtors who are no longer able to make the monthly payments. They require the debtor to terminate their credit accounts to prevent additional charges from accumulating on the balances.
The reason BLPs work is that the bank caps the interest rate based on its calculation of the maximum the debtor can pay without defaulting. Usually they range between zero and 12 percent. Without the interest rate reduction, the debt would probably balloon forever. Another benefit they give debtors is their status on credit reports. The credit accounts are listed as “closed” rather than delinquent due to the lower monthly payments. BLPs’ payment periods vary based on the outstanding amount owed, but they can last as long as five years.
There are drawbacks to BLPs, however. One, many debtors owe money on multiple credit cards, which makes arranging numerous BLPs a hassle. Banks’ terms will differ, and some might not offer BLPs. As a result, many people are probably better off consolidating their credit card debt into one account and then paying it off.
Two, BLPs often take more time and money than they are worth. Debtors who have a small debt problem are better off consolidating and paying it down, and people who have high amounts of debt are probably going to lose their income sources before they successfully pay down the BLP anyway. If a default is likely then there’s no reason to delay a Chapter 7 bankruptcy with a BLP. The benefits of having the “closed account” on a credit report aren’t very high given that a Chapter 7 bankruptcy stays on the report for only 10 years. It’s not that much longer than a BLP, and the bank gets nothing.
Thus, there are times when a balance liquidation plan is worthwhile, such as those who have small credit card debts or who have just lost an income stream, but for the most part, filing a Chapter 7 bankruptcy is a better tool at clearing credit card debt.
For answers to more questions about credit card debt, bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney near me Bruce Weiner for a free initial consultation.
