Credit Card Rules and the CARD Act

Personal finances can be challenging, especially if you’re dealing with medical bills, student loans, or credit card debt. Federal laws like the CARD Act and the Bankruptcy Code protect borrowers and help them recover from financial hardship, but they can be confusing to navigate.

In this article, we’ll demystify these laws and your rights under them. We’ll also answer commonly asked questions about the legal protections available to you.

What Is the CARD Act?

Congress passed the CARD Act into law in 2009 amidst widespread concerns about unfair and deceptive practices by credit card issuers that manage your accounts.

The law is intended to protect you from confusing terms and unfair fees by requiring companies to be clearer about fees/charges and ensuring credit card users have more time to pay their bills. To that end, the CARD Act addresses concerns in several key areas. These include:

• Rate increases: Credit card issuers must give cardholders 45 days’ notice before raising interest rates
• Minimum payments: Monthly credit card statements must show the time required to pay off your balance making only minimum payments
• Due dates: Credit card bills must be sent at least 21 days prior to the due date
• Late fees: Issuers can’t charge late fees if the payment is made on time, even if the due date is on a holiday/weekend
• Cash advances: Issuers must provide clear disclosure of cash advance fees and interest rates, which tend to be much higher than regular purchases

The CARD Act also requires that credit card issuers apply any payment you make over the minimum payment to the portion of your balance with the highest interest rate first. This helps you pay down the most expensive debt first, saving you money in the long run.

Even with these heightened protections, many people struggle to pay their credit card bills.

What To Do if You Can’t Pay Your Debts

If you’re not caught up on credit card payments or other financial obligations, debt collectors may call you or send letters demanding payment. When your debt seems unmanageable, you might want to consider credit counseling or bankruptcy.

Credit Counseling

You may have noticed that your credit card statements include a phone number to access federally approved credit counseling agencies. This is another mandate from the CARD Act.

One of these agencies may be able to help you:

• Create a budget
• Negotiate lower interest rates with credit card companies
• Propose repayment plans with lower monthly payments

This can sometimes present an alternative to bankruptcy, especially if your debt isn’t too severe. Federal law requires completion of at least one credit counseling session before you can file for bankruptcy.

Bankruptcy

For some, bankruptcy presents an attractive option for debt relief. It offers legal protection from creditors and a structured way to eliminate or repay your debts. While it can offer you a fresh start, you’ll want to be fully informed about the pros and cons.

Bankruptcy can impact your credit score significantly. It will also stay on your credit report for seven to 10 years. It’s not a decision to take lightly. Consider consulting with a bankruptcy lawyer before taking action.

Understanding Bankruptcy

Bankruptcy is a legal pathway to debt relief when you can’t pay what you owe. It’s handled in bankruptcy court under federal bankruptcy laws. Although some state-specific exemptions and procedures may apply, the Bankruptcy Code provides the legal framework for bankruptcy filings.

There are two main types of personal bankruptcy. Let’s take a look at both of them.

Chapter 7 Bankruptcy

Also called liquidation, Chapter 7 bankruptcy helps people eliminate most of their unsecured debt. This is money you owe without any collateral backing it, meaning there’s no specific asset like a car or house that the lender can take if you don’t pay. Credit card debt and medical bills are two examples of unsecured debt.

Before filing Chapter 7, you must first pass a means test showing you don’t earn enough to pay your debts. After you’ve filed, the bankruptcy court issues an automatic stay that stops debt collection activity like wage garnishment and foreclosure. It also appoints a trustee to oversee the process.

In most Chapter 7 bankruptcies, the trustee will gather and sell certain assets of yours to pay your creditors. Exemption laws at the state and federal level protect your necessary assets so you can keep the things you need to live and work. Non-exempt assets you may need to sell to pay your creditors could include:

• Vacation homes
• Art collections
• Investments (not in retirement accounts)
• Valuable jewelry

The trustee then distributes the proceeds from the sale of your non-exempt assets to pay your creditors according to a priority system.

The entire process usually takes four to six months, after which most people get a bankruptcy discharge. This means they no longer owe the unsecured debts. Certain debts, like student loans and child support, are typically not dischargeable.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy, also known as reorganization, is the other type of personal bankruptcy. It allows people with regular income to keep their assets while paying back debts over three to five years. Unlike Chapter 7, where some debts are simply wiped away, Chapter 13 focuses on reorganization and repayment.

Once you file your Chapter 13 petition, the bankruptcy court issues an automatic stay that stops debt collection activity like wage garnishment and foreclosure. It also appoints a trustee to oversee your bankruptcy case.

In a Chapter 13 bankruptcy, you’ll propose a repayment plan based on your income and expenses. This typically includes your secured debt, like mortgages or car loans, as well as unsecured debt. Once approved, you’ll make monthly payments to your court-appointed trustee, who then pays your creditors.

Chapter 13 is often used to stop foreclosure or repossession. It’s also helpful if you owe child support, spousal support/alimony, or student loans, which aren’t dischargeable in Chapter 7 cases.

While you might not have expected to find yourself in this position, it’s neither uncommon nor a life sentence. It might  be easy, but you may be able to gradually rebuild your credit over time by making on-time monthly payments and avoiding late payment fees.

Legal Guidance

The course of action that’s best for you will very much depend on your specific circumstances. To fully understand the legal tools available to you, speak with an experienced attorney. You can share the details of your situation with them confidentially so that they can help you evaluate your options.

FindLaw’s directory of consumer protection attorneys and bankruptcy attorneys can connect you with local experts. Just click on your state, then city, to view ratings and background information for qualified legal advisors in your area.

Having the help of someone who can protect your interests at this consequential time can make a huge difference in your road to financial recovery. A legal expert can make the process go much more smoothly.