Monday, June 19, 2006

A new wrinkle with the federal bankruptcy law

A less emphasized element of the new Federal bankruptcy law requires all people filing for bankruptcy to enroll in credit counseling programs at their own expense. This could be seen as adding insult to injury for those median and above income earners who have already lost access to Chapter 7 bankruptcy under the new law. Not only will they have to repay a good portion of their debt after bankruptcy, but they will also have to pay for pre-bankruptcy credit counseling.

Many have criticized this counseling requirement, pointing out that it such counseling comes too late to do any good. People who are ready to file bankruptcy are too far along in the process to benefit from advice and assistance from credit counselors.

Now a new problem has arisen - the credit counseling agencies themselves are unable to keep with the sheer volume of new clients forced to seek their services. Furthermore, most of these agencies are non-profit and have been forced to reduce their fees for these customers. After all, anyone ready to file for bankruptcy tends to have little spare cash hanging around.

So this has lead to a budget crisis at some agencies, which have already been suffering from cutbacks in support from credit card companies. Not a pretty picture. Here is a link to an article on this subject in the Columbus dispatch. An interesting read.

Link to related story

Sunday, June 18, 2006

The new bankruptcy law and the middle class

The new Federal bankruptcy law enacted last fall was predicted to have a major impact on people with credit card debt. The biggest losers were projected to be uninsured or under-insured middle class Americans who racked up major charges for medical bills, and many of whom would now be unable to seek the protection of Chapter 7 bankruptcy and the "clean slate" it provides.

Instead this group would be forced into Chapter 13, where they would face years of large payments. The jury is still out on how this change will ultimately affect people's ability to bargain with creditors. Anecdotal evidence seems to suggest people are still able to negotiate repayments involving repayment of as little as 25-50% of the PRINCIPAL on their accounts.

The one thing that seems certain is that you should investigate settlement options well before they get to the point of bankruptcy. Earlier (pre-bankruptcy) debt settlement still benefits the consumer and the creditor. The consumer gets a reduced repayment amount and is able to proceed with rebuilding his or her credit much sooner, and the creditor gets to recoup part of the debt owed while saving on court and legal costs. It's a win-win situation

In the beginning...

This blog is dedicated to helping people get out of debt and start to lead prosperous lives. Check back regularly for news, debt relief strategies, and commentary on the growing crisis of consumer debt.

For lots more information on methods of achieving credit card debt reduction, head to:

Guide to Credit Card Debt Reduction