Cost of Bankruptcy Has Risen Since 2005 Reform
Filing for Chapter 7 or 13 bankruptcy has gotten more expensive since changes in the nation’s bankruptcy laws took effect in 2005. A new study found that people who file bankruptcy face a 55 percent increase in costs since bankruptcy reform.
Bankruptcy Fees for Attorney and Other Services
The study–published in the American Bankruptcy Institute Law Review–was done by Lois R. Lupica, a New York bankruptcy attorney, and Thomson & Knight LLP, and examined data from consumer bankruptcy cases in six states. The costs to consumers was for fees and expenses related to an attorney, the trustee, filing, credit counseling and debtor education, and other professional fees. The median cost of filing Chapter 13 rose to $4,077 in 2007 and 2008; $2,930 in 2003 and 2004. The cost of filing for Chapter 7 rose to $1,399 from $900.
“Greater up-front costs may have hindered some consumers from filing bankruptcy, but there may be other factors at play,” Lupica said in a statement. “There was a large volume of negative publicity in the aftermath of the 2005 amendments, as well as heightened efforts by aggressive debt collection and consolidation firms.”
Other Debt Solutions
Besides the costs, there are other reasons that it makes sense to avoid filing bankruptcy and look for other possible debt solutions. A bankruptcy filing stays on your credit report for ten years. During that time expect to have difficulties qualifying for a mortgage, auto loan, credit cards, or other types of financing. A bankruptcy filing could also cost you a job. With so many unemployed workers competing for jobs, more employers have added credit checks to the job application process.
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Loading ...GAO Says Debt Settlement Firms Engage in Abusive Practices
Should you use a debt settlement program? Based on a recent Government Accountability Office (GAO) report you may be better off negotiating credit card debt on your own.
Fraudulent Practices
The GAO report found that “some debt settlement companies engage in fraudulent, deceptive, and abusive practices that pose a risk to consumers.” Among the questionable tactics is the practice of collecting fees from customers before actually settling their debt — and in some cases not settling it at all. Out of 20 companies the agency contacted, only one said it collects fees after successfully settling debt.
The GAO report also said that many debt settlement programs claimed exceptionally high rates of success, and in some cases 100% success rates. In actuality, less than 10% of people successfully complete debt settlement programs, according to the Federal Trade Commission.
Negotiate Your Own Debt Settlement
So what should you do if you have a lot of credit card debt and want to settle? First, don’t rely on someone else to contact your creditors. You can negotiate your own credit card debt and ask for a payment plan. Most creditors would rather work directly with you than have a third-party involved.
Second, continue making payments as long as you can. It’s better to pay even a small amount on a credit card debt rather than nothing at all. Send whatever you can to keep your account out of collections.
Debt Counseling Can Help
Finally, get free or low-cost debt counseling. A debt counseling program can help analyze spending habits to see where you can make changes. Find a credit counselor who spends as much time as needed reviewing your finances and really takes time to listen to your concerns. The program should also offer additional classes and resources on managing money.
(No Ratings Yet) Loading ...Tips for Avoiding Credit Counseling and Debt Consolidation Scams
You’re in trouble with credit card debt and need help fast. Beware of any debt help service that offers fast, immediate, or overnight relief. These claims aren’t legitimate; even filing bankruptcy takes months before your debts are discharged (liquidated) by the court.
Credit Counseling and Debt Consolidation: How they Work Together
Debtors who owe more than they can afford to repay may qualify for assistance from certified credit counseling programs that work with creditors to develop a repayment program at reduced cost. Although credit counseling programs typically do not reduce the amount of debt you owe, they can negotiate waivers and moratoriums on fees, and may also be able to reduce your interest rates. Once you accept the terms of your debt repayment plan, you make scheduled payments to your credit counseling agency and they distribute payments to your creditors after deducting their fee. This type of arrangement functions as both debt consolidation and a debt management plan because it includes a thorough review of your finances and helps you develop an affordable cash-based monthly budget.
These programs can take several years to complete, and require your cooperation and dedication to getting out of debt. You are required to close your existing credit card accounts, and it’s important to understand that credit counseling programs cannot guarantee when or if you’ll be able to qualify for new credit.
Debt Relief Quicksand: Avoid Getting in Deeper
Here are some tips to avoid debt help scams.
- Don’t pay anyone up front: Non-profit credit counseling services provide free consultations, and you don’t pay until you accept and agree to the terms of a debt consolidation/repayment plan in writing. Don’t pay anyone for lists of debt help services.
- Don’t respond to unsolicited offers of help: If your home is in foreclosure or you have tax liens, judgments, or other legal actions connected with your debts, you may receive solicitations for debt help. It’s important that you initiate any contact with debt help providers; this way you can avoid Internet scams and other shady dealings that could cost you and add to your debt.
- Interview several debt counselors: Before settling on a credit counseling and debt consolidation program, take time to check out several options. Compare costs and services provided. Ask questions, take notes, and find a counselor who’s friendly and helpful. Verify each agency’s standing with professional organizations such as the National Foundation for Credit Counseling.
Select a debt help provider based on individual needs and don’t forget to rely on your instinct. If something seems amiss, go with your feelings and find another option. Getting out of debt and improving your credit takes time, but it’s worth your time and effort.
(No Ratings Yet) Loading ...What Is a Tax Lien?
It’s tough to get out of paying money owed to the government. A tax lien gives the government the right to seize your property for upaid taxes.
Who Issues Tax Liens?
Tax liens can be issued by the government because of unpaid property taxes. The Internal Revenue Service (IRS) also issues tax liens because of unpaid income taxes. When the government actually seizes your property and sells it to pay your tax debt, that’s called a tax levy.
Paying Money Owed
An IRS tax lien may result in having your wages garnished. The government would take a portion of your income until the debt is paid. In some cases you could actually lose your home, car, boat, or other property.
Never ignore a notice from the government about a tax lien. You usually have a certain amount of time to file an appeal to have a tax lien removed. However, in many cases it is unlikely that an appeal is going to reverse a tax lien.
Help with Debt
The best course of action is to get debt help when dealing with a tax lien. The IRS may allow you to pay your tax debt through installments. You also may be able to make an offer in compromise, which is basically the government’s debt settlement program. A debt settlement plan would allow you to pay less that what is actually owed.
Having a tax lien filed against you is going to negatively impact your credit. Tax liens stay on credit reports for about seven years.
(1 votes, average: 5 out of 5) Loading ...Do-It-Yourself Debt Settlement
You’ve probably seen ads for companies offering to settle your debt. But most people don’t need to pay someone else to put together a debt settlement program. Here are five things to remember about negotiating a debt settlement.
- Not everyone qualifies for debt settlement. Most creditors won’t discuss debt settlement with people who aren’t in serious financial trouble. If you ran up credit card debt and earn enough money to pay it back, don’t expect to qualify for a debt settlement program with your creditors. Read the rest of this entry »
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Debt Help for the New Year
Many people make New Year’s resolutions to lose weight, exercise more, quit smoking, or get rid of other bad habits. The start of a new year is also a good time to put a debt reduction plan in place and attack it with gusto. Use the following tips to get the debt help you need.
Get Debt Counseling
If you’ve had trouble knocking out credit card debt on your own, perhaps debt counseling can help. A debt counselor can help put together a strategic plan to budget and manage your money better. Debt counseling also can make you more accountable for your behavior to reach debt reduction goals. Read the rest of this entry »
(No Ratings Yet) Loading ...Bankruptcy Has Repercussions for Years
Filing for bankruptcy should only be used as a last resort if you can’t dig your way out of debt. Don’t be fooled into thinking that a bankruptcy filing has little impact on your financial situation. Going this route is certain to affect your entire life for years to come.
Pushed into Bankruptcy
There are many reasons people resort to bankruptcy. Too much credit card debt, a job loss, divorce, or illness can push anyone into financial ruin. For example, a recent Families USA report said nearly two-thirds of bankruptcy filings are related to medical issues. Read the rest of this entry »
(No Ratings Yet) Loading ...Dangers of Debt Settlement
Debt settlement has helped some people wipe out or reduce credit card debt and other bills. A California man told MSN Money that he settled $281,000 of debt for $75,000. But debt settlement isn’t a magic solution and can cause even more financial woes in some situations.
Debt Settlement and Fraud
For every debt settlement program out there than can legitimately help you, there are others looking to rip you off. That’s partly because the debt settlement industry is mostly unregulated. Avoid debt settlement programs that require you to pay fees upfront. Often these firms take the money and are never seen or heard from again. Read the rest of this entry »
(No Ratings Yet) Loading ...Debt Settlement: Five Things to Consider
Debt settlement differs from debt management and credit counseling in that it involves negotiating a reduction of the actual debt balances. Credit counseling and debt management services frequently negotiate reduced fees and finance charges, but creditors are typically reluctant to reduce actual debt amounts.
As unemployment rates continue to rise, debt burdened consumers may be tempted to accept any promises made by unscrupulous debt settlement firms. Before seeking help through debt settlement, here are a few things to consider:
Understanding Debt Settlement
- Understand debt help options: Consumers may select from credit counseling and debt management, which offers financial counseling and budgeting advice along with negotiated repayment plans that may include reduced fees and interest rates. Debt settlement firms negotiate reduction of actual debt amounts. Creditors may not agree to this type of settlement. For consumers who have no resources and are at their wits’ end, bankruptcy may be the remaining option. Although filing bankruptcy provides legal protection, it appears on consumer credit reports for up to ten years, which can make getting credit, buying insurance, and qualifying for a mortgage loan difficult.
- How debt settlement works: Debt settlement companies typically base fees on a percentage of consumer debt plus their administrative fees, with fees being paid during the first few months of a program. It’s important to shop and compare debt settlement programs. Negotiators may contact creditors and attempt to negotiate debt settlement after consumers have ceased making payments and have deposited these funds into a savings account. This can cause credit problems, as creditors are reporting delinquent payments during the period when payments are not made. Creditors can also add unpaid interest to the debt amount, so not making payments can affect the amount of debt negotiated.
- Beware of Scams: As with any type of financial problems, scammers are taking advantage of consumers who cannot pay their bills. Check out debt settlement companies before agreeing to do business with them.
- Calculating Benefits / Savings: Debt settlement companies usually charge administrative fees as a percentage of a consumers’ debt amount. There may be additional fees; it’s important to consider the effect of high costs and fees with potential debt reduction. In some cases, it may not be worth the potential damage to consumer credit scores.
Reducing debt can help consumers become debt free faster than they would without debt help, but debt settlement doesn’t address the reasons for getting into debt. Consumers who have problems with compulsive spending or chronic financial mismanagement may wish to seek help from a certified credit counseling service.
(No Ratings Yet) Loading ...Debt Settlement or Debt Management?
The current economic climate has inspired an explosion of advertising offering debt management and debt settlement services to financially strapped consumers. If you want to resolve credit card debt, understanding your options can help in selecting a solution appropriate to your circumstances.
Got debt? Got a job? Try Debt Management
Debt management programs are debt repayment programs typically negotiated between a credit counseling representative and your creditors. Although credit card balances aren’t reduced, credit card companies may agree to waive late fees, over limit charges ,and reduce or eliminate interest for the duration of your repayment plan. Credit card companies require that you close your accounts and do not use any credit cards during your debt management program. You may be required to close your credit card accounts as a condition of your program. You’ll pay your debt management company an amount specified in your written agreement or contract. The company deducts its fee and sends the rest to your creditors. Credit card companies typically agree to report “paid as agreed” to credit bureaus during det management plans, but completing a debt management program doesn’t guarantee that you”ll qualify for new credit once you’ve completed debt management.
Debt Settlement May Assist Unemployed
If have no income, you may qualify for resolution of your debt through debt settlement. Debt settlement involves negotiating a reduction of the amount(s) you owe on credit card debt. Once a settlement amount is agreed upon, you’ll either make payments to credit card companies directly according to your agreement, or you’ll pay the debt settlement agent who negotiated the terms of your settlement. Before seeking debt help, there are a few things to bear in mind:
- Damaged credit: Debts settled for less than the amount owed are shown as negatives on your credit reports for up to seven years. Making minimum payments may be preferable to the consequences of having lower credit scores.
- Debt settlement can be expensive: Debt settlement companies charge for their services, and amounts forgiven by creditors may be viewed as income by the IRS. You can avoid paying fees by trying to negotiate debt settlement directly with your creditors. If this fails, and your remaining recourse is filing bankruptcy, it may be worthwhile to pay a debt settlement service.
- Avoid debt solutions scams: Before hiring a debt settlement or debt management company, ask for references and check with your local Better Business Bureau and or state Attorney General’s office. Get everything in writing, and don’t pay a third party until they’ve provided you with an itemized statement of services and costs.
Although solving debt problems may be your first priority, learning how to live on a cash based budget is essential is an essential aspect of debt management.
(No Ratings Yet) Loading ...- This blog covers a wide variety of debt consolidation and loan topics.
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Cost of Bankruptcy Has Risen Since 2005 Reform
Understanding consumer debt: The good, the necessary, and the ...
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Chris Rocks is the Regional Director of the National Credit Federation (NCF). NCF is a nationwide membership-based organization that assists consumers recovering from a financial difficulty and those who need a significant increase in their credit score.
Chris began his financial services career as a Financial Advisor helping young families with risk management and asset accumulation strategies. It was during that time that Chris realized that many of these young families also needed someone to guide their choices with regards to debt management.
He made the transition into the mortgage industry where he first worked as a loan originator and later the Vice President of a small mortgage company. As Chris came across clients who had suffered through financial challenges and saw the difficulty they had in re-entering our credit driven economy, he discovered there was a real opportunity to leverage his unique background and help others.
He can be contacted by visiting his personal site, GoodCreditLiving.com.
Francine L. Huff is the Publisher and Editorial Director of Super Savvy Publishing, LLC, which provides editorial and publishing services. She is a gifted author, freelance journalist, and motivational speaker who has entertained and motivated a variety of audiences through workshops, panels and keynote addresses. Francine is the author of The 25-Day Money Makeover for Women, which has inspired and motivated many readers to rein in poor financial habits, become good stewards over their money and work toward a debt-free life. She has appeared on a variety of TV and radio shows. Francine previously worked for the Wall Street Journal, where she was the spot news bureau chief, a news editor and a copy editor. She has interviewed a variety of financial professionals about financial issues and strives to present information about managing money in an easy-to-understand format that is accessible to people of all backgrounds and income levels.
Karen Lawson is a freelance writer with more than 15 years of experience working in mortgage banking and loan servicing. She holds BA and MA degrees in English from the University of Nevada, Reno.
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