Comments on: A Leading Cause of Bankruptcy: Missing Early Warning Signs http://www.debtreductionservices.org/blog/leading-cause-of-bankruptcy/ Learn to Live Debt Free! 1-877-OUT-DEBT (688-3328) Wed, 28 Dec 2011 18:47:00 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: Todd Christensen http://www.debtreductionservices.org/blog/leading-cause-of-bankruptcy/comment-page-1/#comment-484 Todd Christensen Fri, 01 Jul 2011 21:53:31 +0000 http://www.debtreductionservices.org/blog/?p=432#comment-484 Joe, the numbers quoted above can be a bit misleading. In 2005, there was a major revision to the federal Bankruptcy Code, thanks to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BACPA). It mandated several additional requirements for individuals filing for bankruptcy, including an income means test, a required counseling session with an approved credit counseling agency, and a two-hour debtor education course. Knowing this was coming, many individuals (and their attorneys) rushed to file bankruptcy cases ahead of BACPA's effective date in October 2005. The result was that filings for October 2005 were nearly 5 times the number filed a year earlier. The drop off after October 2005 was so dramatic that 2006 saw just one quarter of the filings of 2005. That said, there was nowhere for filings to go but up. And up they went. Between 2006 and 2010, filings appeared to skyrocket, when in fact, they were just "recovering" from the shock of BACPA. Filings now are nearing levels similar to those from 2004 and 2005, but not quite. Take into account the massive recession we've been dealing with, and current bankruptcy filings almost seem reasonable compared to those from 2004 and 2005. Still, as credit counselors, we are very concerned about the drop off in the industry. It is true that fewer households are seeking credit counseling assistance before filing for bankruptcy. Just as significant, though, is the trend toward debt settlement. More and more consumers feel comfortable negotiating down (or hiring a debt settlement company to do so for them) the principle of their credit card debts. I still feel that, overwhelmingly, consumers want to meet their financial obligations, including paying their debts as agreed. However, there is a significant percentage of society who feel fully justified in trying to get out of a large portion of their debts, blaming the credit card companies for charging exorbitant interest rates and excessive penalty fees. To what extent credit card companies are guilty of such accusations is open for debate, but personal responsibility has often been overlooked when it comes to the financial troubles some people have let themselves get into. Our own surveys of people going through bankruptcy since early 2010 indicate that over one-quarter of them are doing so, not because of job loss (50%) or medical expenses (17%), but rather due to poor money management behaviors and overspending. While I could go on and on in response to your question (which I’ve already done), in essence Congress did attempt in 2005 to make bankruptcy less likely to be abused. Job loss and rising medical costs, combined with continued lack of financial education, continue to lead bankruptcy filings upwards. We just wish more consumers would seek credit counseling help earlier, when we could still help them, rather than waiting till it's too late for any other option but bankruptcy. Joe, the numbers quoted above can be a bit misleading. In 2005, there was a major revision to the federal Bankruptcy Code, thanks to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BACPA). It mandated several additional requirements for individuals filing for bankruptcy, including an income means test, a required counseling session with an approved credit counseling agency, and a two-hour debtor education course. Knowing this was coming, many individuals (and their attorneys) rushed to file bankruptcy cases ahead of BACPA’s effective date in October 2005. The result was that filings for October 2005 were nearly 5 times the number filed a year earlier. The drop off after October 2005 was so dramatic that 2006 saw just one quarter of the filings of 2005.

That said, there was nowhere for filings to go but up. And up they went. Between 2006 and 2010, filings appeared to skyrocket, when in fact, they were just “recovering” from the shock of BACPA. Filings now are nearing levels similar to those from 2004 and 2005, but not quite. Take into account the massive recession we’ve been dealing with, and current bankruptcy filings almost seem reasonable compared to those from 2004 and 2005.

Still, as credit counselors, we are very concerned about the drop off in the industry. It is true that fewer households are seeking credit counseling assistance before filing for bankruptcy. Just as significant, though, is the trend toward debt settlement. More and more consumers feel comfortable negotiating down (or hiring a debt settlement company to do so for them) the principle of their credit card debts.

I still feel that, overwhelmingly, consumers want to meet their financial obligations, including paying their debts as agreed. However, there is a significant percentage of society who feel fully justified in trying to get out of a large portion of their debts, blaming the credit card companies for charging exorbitant interest rates and excessive penalty fees. To what extent credit card companies are guilty of such accusations is open for debate, but personal responsibility has often been overlooked when it comes to the financial troubles some people have let themselves get into. Our own surveys of people going through bankruptcy since early 2010 indicate that over one-quarter of them are doing so, not because of job loss (50%) or medical expenses (17%), but rather due to poor money management behaviors and overspending.

While I could go on and on in response to your question (which I’ve already done), in essence Congress did attempt in 2005 to make bankruptcy less likely to be abused. Job loss and rising medical costs, combined with continued lack of financial education, continue to lead bankruptcy filings upwards. We just wish more consumers would seek credit counseling help earlier, when we could still help them, rather than waiting till it’s too late for any other option but bankruptcy.

]]> By: Joe Leto http://www.debtreductionservices.org/blog/leading-cause-of-bankruptcy/comment-page-1/#comment-479 Joe Leto Thu, 16 Jun 2011 20:19:52 +0000 http://www.debtreductionservices.org/blog/?p=432#comment-479 So I do not totally understand this. Rather than seeking to deal with their financial issues, more people are just deciding to declare bankruptcy? Can't the government make it more difficult to file for bankruptcy so that people would have to work back towards financial stability? So I do not totally understand this. Rather than seeking to deal with their financial issues, more people are just deciding to declare bankruptcy? Can’t the government make it more difficult to file for bankruptcy so that people would have to work back towards financial stability?

]]> By: Credit Counselor http://www.debtreductionservices.org/blog/leading-cause-of-bankruptcy/comment-page-1/#comment-427 Credit Counselor Wed, 06 Apr 2011 18:26:40 +0000 http://www.debtreductionservices.org/blog/?p=432#comment-427 I work at a credit counseling agency and these are definitely the same warning signs that I've seen in most cases of consumers that have sought out our help. Great information here Rick, thanks for posting! I work at a credit counseling agency and these are definitely the same warning signs that I’ve seen in most cases of consumers that have sought out our help.

Great information here Rick, thanks for posting!

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