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Interest, Late Fees Tripled The Card Companies' Bill

Sunday, March 20, 2005; Page F11

Scott Sullivan spent the morning of St. Patrick's Day at a bankruptcy hearing in downtown Alexandria, making a case to a federally appointed trustee for why he should be allowed to wipe out $20,542.04 in credit card debt under Chapter 7 of the federal bankruptcy code.

Once he subtracts rent, food, car payments, insurance premiums , taxes and other necessary expenses from his monthly income of $4,338, he has only $180 left, the 45-year-old Springfield resident told the trustee.

Scott Sullivan's employer filed for bankruptcy himself and didn't reimburse Sullivan for thousands in business expenses. (Jessica Tefft -- The Washington Post)

_____In Focus: Bankruptcy_____
Bankruptcy's Next Chapter (The Washington Post, Mar 20, 2005)
Keeping Some Hiding Places (The Washington Post, Mar 20, 2005)
_____3 Faces of Bankruptcy_____
Penalties and Refusals Almost Everywhere He Turned (The Washington Post, Mar 20, 2005)
Ulcers and Credit Piled Up Debt (The Washington Post, Mar 20, 2005)
_____Color of Money_____
Mandatory Counseling, A Good Idea in Theory: Michelle Singletary says the bankruptcy counseling provision in the bankruptcy bill "is there as a roadblock. It's a setup, lobbied for by banks and credit card companies, to steer people away from bankruptcy to debt repayment plans."

Sullivan's lawyer, Lawrence J. Anderson, said his client's request is likely to be granted, and within months his bankruptcy will be completed. If so, Sullivan will continue to repay his $18,000 car loan for his Pontiac, but his other debts will be cleared, giving him, he says, "a fresh start."

Already he's breathing easier, Sullivan said. Once a debtor files for bankruptcy court protection, harassment by creditors must stop. Now, he can answer the phone without screening calls for the first time in over a year, he said.

Under the proposed new bankruptcy law, Sullivan might face a different future. His 2004 income of nearly $52,000 puts him well above an estimated $40,000 median income in Virginia for a single person.

Unless a means test that is also part of the proposed law qualified him to file under Chapter 7, he would be required to file under Chapter 13, which requires more repayment of debt. He'd have to pay the $180 in disposable income he has left over each month to credit card companies for the next five years, paying $10,800 all told by the end, or half what the companies say he still owes them.

How would he feel about that? "I'd be destroyed," he said.

Consumer groups and many bankruptcy trustees say approximately two-thirds of consumers now in Chapter 13 fail, mostly because, like Sullivan, they live paycheck to paycheck with little ability to survive a downturn such as a cut in pay or a sudden medical expense. Putting more debtors into Chapter 13 is simply asking for more failures, they say.

Sullivan said he's angry thinking about what the new legislation would do to people in his shoes. For 3 1/2 years, he said, he paid several hundred dollars a month to credit card companies on about $7,000 in debt. But because of penalty interest rates of nearly 30 percent and fees for being late and going over credit lines, his balances didn't decline. Instead they have nearly tripled the amount he originally owed.

Sullivan said most of the initial charges, about $6,000, were for business expenses that his former employer, a medical equipment supplier, was supposed to reimburse. Instead, the supplier went out of business and filed for bankruptcy himself.

Sullivan struggled to repay the debt, even going to two different credit-counseling firms that promised to help him dig out, he said. "But they just ripped me off. Those balances didn't decline at all."

Six months ago, he stopped paying anything except payments on his car, which he said he needs for transportation. Now, with a job with a nationally known company programming temperature and security systems in commercial buildings, and with a fiancee, he wants a stop to what he says was a never-ending cycle of making payments only to find he was "dug in deeper."

-- Kathleen Day

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