'Many consumers, trapped in a whirlpool of debt, interest payments, and fees spiraling out of control, finally see the light of preemptive defaults and elect to walk away.
Like many who default, Ms. Birks first asked her credit card company to lower her 19 percent interest rate. No dice, Bank of America responded. After she tried to get the bank’s attention by skipping a payment, it immediately raised her rate to 25 percent. As Ms. Birks’ debt swelled, so did a sense of injustice mingled with helplessness.
Ms. Birks asked Bank of America about a settlement this spring. Since her account was up to date, she was told she didn’t qualify. She stopped paying, the bank started calling.
When Bank of America finally got her on the phone, it agreed for the first time to drastically reduce her interest rate. She did not take the deal, but considered it progress.
More than likely it is now too late. Instead of negotiating an interest rate reduction, Ms. Birks probably wants a balance adjustment as well. And this is what Bank of America and all the banks deserve. It's no wonder its default rate is up to a whopping 13.8%.
Debt Slave Act of 2005 Comes Back To Haunt Banks
The Debt Slave act of 2005, officially known as the "Bankruptcy Abuse Prevention and Consumer Protection Act of 2005" has come back to bite banks big time.
Banks asked for and got their dream list of everything they wanted in that bill, including a "means test" making it very hard for consumers to walk away from debt, at least in theory.
Of course theory is one thing and practice is another as Ms. Birks and those like her clearly show. Also note that with unemployment at 9.5% and rising, many can now easily pass even the most stringent of "means tests".
Last week I received an email update from Jon Maddux, CEO, of
You Walk Away
Hello Mish,
I hope all is well. I thought you might want an update. About 90% people who sign up for our service now days, are "A" paper good credit borrowers who can afford their mortgages, but they just don't think it makes sense to keep paying. The rest either already got a loan modification and didn't get a principal reduction or just really can't afford to own any longer. I wish you the best!
Kind regards,
Jon Maddux
CEO
Mish's Global Economic Trend Analysis: Preemptive Defaults
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