Highlights (Click for More):
The government has no specific programs to grant consumers bailout from credit card debt. However, there are a variety of other ways in which the government can provide relief, from recently passed legislation to regulate credit card companies and protect cardholders, to granting bankruptcy filings which can partially or fully forgive credit card debt, to publicly funded credit counseling agencies which can provide you with debt management plans and indirectly through consolidation loans.
Read on to learn more about each type of credit card debt relief government program.
Legislation to Help with Credit Card Debt
Recently, the government has passed legislation designed to make the likelihood of getting into, eventual consequences, and handling of credit card debt easier for consumers. There are three major components of this legislation, which regulates credit card companies and protects cardholders:
- Earlier Bill Notices: As of August of 2009, credit card companies are legally obligated to notify cardholders of changes to their credit card contract 45 days prior to making the change. This legislation protects the cardholder from the credit card company changing the terms of contract without sufficient prior notice and allows the cardholder more of a choice in the rate at which he or she wants to repay the debt. It’s important to note that you, as the cardholder, also now have the right to refuse a proposed change in your contract. Keep in mind that if you do refuse the change, then you have a maximum of five years to pay off your debt at the originally contracted rate.
- Restricted Interest Rates: As of February 2010, unless a cardholder has failed to make a single payment within a full 60 day period, the credit card company does not have the right to raise the interest rate on the cardholder’s credit balance. This legislation is designed to protect cardholders from suddenly seeing that their interest rate has been increased while they are struggling to make consistent payments. This is an improvement over past situations where credit card companies raised interest rates in the middle of repayment plans, leaving cardholders to adjust to new and higher payments.
- Greater Notification to Consumers: The April 2009 legislation also obligates credit card companies to send a statement in the mail to a cardholder three weeks before their payment is due. This three week period is designed to give advance notice to the cardholder of the impending payment, and it is also intended to allow the cardholder a two-week paycheck period during which he or she can hopefully obtain the money necessary to make the payment. The extra week this three week period allows, an improvement over the prior laws under which credit card companies only had to mail statements two weeks before they were due, aims to prevent late payments as well.
Debt Relief Programs Approved by the Government
Though it’s not ideal, if you are in an absolutely desperate debt situation and can see no feasible way out, your best bet is to petition your local branch of the United States Bankruptcy Court and file for bankruptcy. If the Court reviews your records and finds your debt to be eligible, you may be granted partial or full relief. If you are facing credit card debt, this is the closest to a credit card debt relief government program. There are two personal types of bankruptcy you can file with the Bankruptcy Court: Chapter 7 and Chapter 11 Bankruptcy.
- Chapter 7: You may be eligible to file for Chapter 7 bankruptcy if your income is less than the median yearly income level for a person or family in your state. Filing Chapter 7 bankruptcy will erase most of your debt history; however, you should be aware that your credit score will be damaged for 10 years after your filing.
- Chapter 13: You may be eligible to file for Chapter 13 bankruptcy. One thing to be aware of with filing Chapter 13 bankruptcy is that your credit score will be damaged for seven years after the date on which you filed.
Debt Settlement as an Alternative to Bankruptcy
Filing for Chapter 7 or Chapter 13 Bankruptcy can plague you with a set of challenges, such as lawsuits, monetary judgments, or garnished wages which you may want to avoid, not to mention the long term impact on your credit score which it may incur. If you want to avoid bankruptcy, debt settlement is a viable and recommended alternative by the Federal Trade Commission. Under debt settlement, a debtor can receive a lump sum agreement or installment through which he or she will pay off debt at a reduced, fractional rate of the total account balance, perhaps at around half, or more or less depending on the debtor’s situation. Though debtors can hire a firm to help with creating a debt settlement plan, the FTC warns against for-profit firms as they are often out to scam debtors. Debtors can create their own self-managed debt settlement plan or look into free credit counseling agencies.
Seek Help from a Government Funded Credit Counseling Agency
The U.S. Department of Housing and Urban Development certifies credit counseling agencies, which are close to qualifying as a credit card debt relief government program and can create a debt management plan for the debtor. The way credit counseling agencies work is that, after a free initial session, the debtor pays the agency a monthly fee. The agency then works out a reduced payment plan with the credit card company. In exchange, the credit card company will often agree to end any lawsuits or collection plans as long as the debtor is on the plan.
Government Debt Consolidation Loans
Another way in which a credit card debt relief government program can indirectly help you is through government debt consolidation loans. There are a variety of government debt consolidation loans available, depending on what type of debt you are in, whether it is student or mortgage.