This plan to *help* consumers is really a way for the banks to avoid taking a 100% loss if the consumer files for bankruptcy.
From the article, only those deeply in debt are eligible, and the maximum forgiven is 40%, and that is reserved for those “nearing a personal bankruptcy filing”.
Most credit card contracts have a default rate (eg 30%). So after a year of non-payment, your debt is now much higher, you’re about to throw in the towel, when your friendly bank allows you to avoid bankruptcy by forgiving up to 40% of your debt (roughly your penalty interest) and allowing you to pay of the “reduced”, yet original loan principal, over the next X years. In addition you can forestall the income tax you owe on the forgiven debt until you payoff the bank (then you get to make payments to the IRS), and the bank can wait to book its losses – everyone wins!
A consumer drowning in debt should just file bankruptcy and get it over with. 100% debt “forgiveness” and no income tax. Ruined credit and a lesson learned. The banks should take it on the chin for such poor business practices.
