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Universal Default Provisions Cause Defaults

By Cathy Moran

In the space of 24 hours this week, I saw two clients with substantial credit card debt who had been servicing that debt faithfully and at a substantial sacrifice , hanging on to the slippery financial slope, when a single irregularity in payments to one creditor sent their interest rates from 4-9% to 30%. For each client, that was the triggering event: they made an appointment with a bankruptcy lawyer.

An objective look at the impact of using universal default as a “reason” to increase the interest rate on a card that is being paid according to terms suggests this is horrible policy. In the cases of my clients, the card issuers turned a performing account being paid by someone who could probably never have paid off the balance in full, and thus would be paying interest forever into a bankruptcy write off. Good going guys.

As the heat in Congress increases on credit card issuers, some claim to have abandoned the practice of universal default. Consumer Action’s latest study of credit cards says it isn’t so.

In a macabre way, I guess in my line of work, I should applaud universal default: it instantly brought home to my client base that credit cards are rigged against the consumer and that pretending that you can pay them off is self deception. Anyway, I have two new bankruptcy clients.

Cathy Moran

Bankruptcy in Brief

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About Cathy Moran

I'm a veteran bankruptcy lawyer and consumer advocate in California's Silicon Valley. I write, teach, and speak in the hopes of expanding understanding of how bankruptcy can make life better in a family's future.

Bankruptcy Basics

About The Soapbox

You’ve arrived at the Bankruptcy Soapbox, a resource of bankruptcy information and consumer law.

Soapbox is a companion site to Bankruptcy in Brief, where I try to be largely explanatory and even handed (Note I said “try”).

Here, I allow myself to tell stories and express strong opinions. We dig deeper into how to consider bankruptcy and navigate a bankruptcy case.

Moran Law Group
Bankruptcy specialists for individuals and small businesses in the San Francisco Bay Area

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