Bankruptcy 101: It is 2006, Stay Informed | Consumer Information

The BasicsI know most of you know about bankruptcy, for those of you that do not, here are some basics. Generally, filing bankruptcy allows people who are having financial difficulties to wipe out their debts, which can provide them with a fresh financial start. There are several events that can take place to force people to take the path of filing for bankruptcy. Some events may include divorce, unemployment, lawsuits, foreclosures and credit card debt.Bankruptcy serves two main purposes. It gives creditors a fair share of the money that debtors can afford to pay back and it gives debtors a fresh start. There are two ways in which bankruptcy can provide for payments to creditors and discharge for debtors: Chapter 7 and Chapter 13.Chapter 7Under this chapter, all unsecured debts are wiped out. These debts include credit card bills, medical and legal fees, utility bills and deficiency balances. Debtors can lose certain properties which the courts can sell and pay the proceeds to the creditors. There are some debts that cannot be discharged through this process. These debts include alimony, child support, some student loans, most taxes and debts resulting from fraud, larceny, debts and fines.Chapter 13This chapter is designed for people with regular income that want to pay their debts but are unable to do so. The purpose of this chapter is to help people, under court supervision, to work out a repayment plan with their creditors in which the creditors are repaid under a prolonged period of time.

Credit Card SolicitationsAccording to an article recently published in The New York Times by Timothy Egan, there is a woman who is a nurse and a single mother of two. She filed for bankruptcy before the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 because of her bad use of credit cards after her cancer surgery. As soon as she filed, she began to get two to three pre-approved credit cards in the mail daily. Now ask yourself, why would banking institutions and credit card companies want to attract consumers that have trouble paying off their debts? Bankers say it gives them a perfect opportunity to rebuild their credit. On the other hand, it also keeps consumers in a repetitive downward spiral of debt. Banks already know the risks of soliciting recently bankrupt consumers with a clean slate. That is why they offer them extremely high interest rates and even require a cash deposit on the card. This is why these consumers are an attractive market for credit lenders.According to an article published in The Washington Post by Caroline E. Mayer, there is a yet-to-be-released survey of 356 debtors who filed Chapter 7 bankruptcy in 2001, 96 percent reported that they received offers for credit cards, car loans, mortgages and other credit the year after their debts were discharged. Half of the 96 percent received at least ten solicitations a month.New RequirementsAs of October 17, 2005, the new law also known as the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 makes it much more difficult for consumers to file for bankruptcy. This new law mandates enrolling in a credit counseling session before bankruptcy can be filed. People also have to complete a financial management seminar before bankruptcy is complete. The curriculum that consumers should be learning at these seminars is budget development, money management, using credit wisely and consumer information. Most of these classes will have a fee. Another critical change is “means testing.” According to an article written by David A. Skeel Jr. on, the means test is an effort to force more debtors to choose Chapter 13. Currently, roughly 70 percent choose Chapter 7. Any person with debt who is capable of repaying either $10,000 or 25 percent of what they owe to ordinary creditors, whichever is less, would be prohibited from filing Chapter 7. If a debtor has the means to repay a significant portion of his or her obligations within the next five years, the reasoning goes, he or she should be required to do so. The main effect of the means test is to raise the cost and bureaucracy of bankruptcy.

In addition, a few credit counseling agencies want to go above the requirements for credit counseling. “We want to go the extra step by offering free educational seminars, a financial literacy program and ongoing educational materials,” says Jason Athas, Manager of Special Programs at Debt Management Credit Counseling Corp (DMCC). “We want our clients and potential clients to understand their mistakes and learn how to stay out of debt in the future.” You can find out more information of the benefits DMCC offers at experts advise against filing for bankruptcy and recommend finding alternative ways to pay off debt. Consumers should try paying off their debts through a repayment program before choosing bankruptcy. These types of programs will teach the consumer the need to reduce expenses and save money.Copyright 2006 Debt Management Credit Counseling Corp.

The FTC Provides Resources To Help Consumers Get Out Of Debt | Consumer Information

The average credit card debt per household is currently at $14,750, and the US currently is under $2.4 trillion consumer debt. Therefore it’s not surprising that are tens of thousands of individuals that are in hot water with their credit card debt, but don’t fret there is some help on the way.If you’re one of those individuals or live in a household that is drowning in credit card debt and getting harassed by debt collectors there is a place of turn. The Federal Trade Commission (FTC), is a government organization that wants to help by offering some common sense advice to help consumers get out from under their burden of debt. If you go to the FTC website you will find a bunch of great articles in regards to debt. Just check out the FTC website and you can get the information on debt management and debt relief services. They also offer videos, and workshops via webcasts that will offer education in regards to getting out of debt and will hopefully spread financial literacy throughout the American consumer.

Helping YourselfThe FTC can provide the fundamentals and provide you with some valuable advice, check out the FTC website and go to the Consumer Protection and then the Consumer Information section for a variety of articles and content.There is some content available on the FTC website that covers the subject of developing a realistic budget. The first step is to analyze your monthly income, and how much you have to allot for expenses. Items that fall underneath the category of expenses are things like mortgage (or rent), health insurance, car insurance and credit card payments. Another thing you should scrutinize is the amount of debt that you are currently holding currently, and once you can examine your expenses, your debt, and your income you can start building a reasonable budget and should be able to uncover problem areas. Possibly some expenses that you can cut back on, or some non-essential expenses that could be holding you back. Another thing you should look into is software programs that can turn you budgeting into something a little more manageable.

Debt SolutionsIf you feel that your debt is unmanageable you might want to seek professional help for your problems. There is some great credit counseling organizations that can assist you get out of debt. These organizations can provide assistance but all credit counseling agencies are not created equally, make sure you do your due diligence and choose the best consumer credit counseling agency.