Chapter 7 - Solutions for a Financial Crisis » Chapter 7 Bankruptcy

February is finally here, and this could be a big month in the world of credit cards. With the bulk of the Credit Card Act provisions officially kicking in later this month, there will be lots of press about what these new laws mean for the future of credit.

One thing is certain: The new laws will change how we interact with credit. They already have. As early as last fall, people began reporting on interest rate changes, new annual fees and changes in reward points.

But the new laws may also change who has access to credit. For years, young adults on college campuses were specifically targeted with starter credit cards. Just barely an adult, by the age of 18 or 19, some students had access to thousands of dollars in credit.

On the Huffington Post, Jerry R. Welch takes a look at what he calls the “plastic gap.” This is his term for a group of people who may see their access to credit cards dry up, and could face a lack of services in the wake.

His example? Online purchasing. A credit or debit card required for almost any online purchase. Don’t have one? Sorry.

The people most likely to be left out are the underbanked – those people without access to banks or checking accounts – and the under-21 crowd.

College students may only have modest or irregular income. But, as Welch says, even if they are capable of making timely payments they may be unable to obtain traditional credit cards.

Welch sees this need being filled with prepaid credit cards. These cards, like Green Dot, are available to anyone, regardless of credit history, and function just like traditional credit cards. Consumers pay for the cash on these cards up front, and some may be regularly reloaded, allowing consumers to keep the same card number for extended periods. From his blog:

Even before the recession, general purpose reloadable prepaid cards were already used by many of the more than 73 million unbanked and under banked consumers in this country as a low-cost alternative to a traditional bank account. Dwindling credit card limits have led millions more to use reloadable prepaid cards as consumers continue to scramble for alternatives. The new credit restrictions on young people will help significantly increase the number of those who make prepaid their No. 1 option to fill the burgeoning “plastic gap.” In 2008, transactions on reloadable prepaid cards totaled more than $4 billion, and forecasts show that number will increase to $12 billion in 2010.

That’s a big increase in usage and demand, but prepaid credit cards aren’t a perfect solution. For starters, to get on you will need to pay up front, often times more than you are willing to spend. Like traditional credit cards, prepaid cards typically have fees, including activation and monthly usage fees. In some cases, the fees to get a card turned on and usable are more than the card can carry.

In many ways, you may want to treat these prepaid credit cards just like you do a regular credit card. Before signing on, do your homework. Read the fine print and get all the details about potential fees you might encounter. If the price is right, these could be a nice alternative for people without access to traditional credit.

However, your use of these cards may not be reflected in your credit report. So while they may not directly affect your efforts to rebuild your credit after filing chapter 7 bankruptcy, they may help you develop responsible spending habits.

It’s all about finding affordable products that work for you. There are lots of new options out there, and they will each require you to mind the details.