By Peter Orville, Binghamton Bankruptcy Lawyer – While Congress and the White House debate raising the debt ceiling of the nation, many of us just plain citizens wonder if we too should borrow more money to get through our hard times. The questions we need to ask are…can we borrow more?…and…should we borrow more?
Lending institutions drastically tightened the availability of credit during the recession, making it harder even for those of us with an excellent credit rating to borrow. Mortgages, home equity loans, car loans, new or increased limits on credit cards all but disappeared. As a result of this and the fact that more people were defaulting on their loans, overall credit card debt declined from $973 billion in 2008 to $790 billion last month. Many people who couldn’t get loans any other way resorted to dangerous payday loans.
Some bankruptcy lawyers are attributing the recent decrease in the number of bankruptcy filings to the fact that most people are no longer able to overextend themselves in debt. In reality, though, it is beginning to get easier to get credit again. This trend began after the bailout of the auto industry. New auto loans and lines of credit were responsible for many of the new auto sales. The New York Times reported that in 2010, over 850,000 vehicles were purchased by people with less than stellar credit scores – an increase of 60 percent over 2009.
And now the banks are loosening their credit requirements and are allowing subprime borrowers to again get credit cards. Equifax reports that the number of new credit card accounts increased by 35 percent this March over last March, and during that period there was a 62 percent increase in credit cards going to subprime borrowers.
So perhaps the answer to the first question: Can I raise MY debt ceiling is yes. The more important question is – Should I?
Any time you take on more credit you should be asking yourself – What is my ability to repay this (and my other) debt? Even if you have come through the recession so far relatively unscathed, the uncertain economy and job market means that nobody’s job is safe anymore. Recent college graduates are finding it very difficult to find jobs in their fields, yet they have often burdened themselves with massive student loans and credit card debt.
Bankruptcy still remains an option for people who get to a point where they cannot pay their debts. But there is great danger to rely on credit card purchases or cash advances to cover normal household operational expenses during tough economic times. If you are expanding your debt ceiling without having the ability to repay your debt, you may find that even in a bankruptcy your creditors challenge your ability to discharge your debts.
So tread lightly if you are considering raising your debt ceiling.