Rick Munster Profile Picture
Staff Writer at Debt Reduction Services

The Association of Consumer Credit Counseling Agencies (AICCCA) released some information concerning the recent increase in non-business bankruptcy filings.

The press release discusses the fact that filings have increased by more than double since 2006 to 2009 and that the numbers of consumers seeking assistance from Credit Counseling services have dropped from 20-25 percent down to only 7 to 8 percent.

The press release, which can be found at www.aiccca.org, warns that if you are experiencing more than two of the following warning signs, seek help now:

  • Carrying credit card balances in excess of 10 percent of your annual income.
  • No money or an inadequate amount put aside in savings. An emergency savings cushion of three to six months of living expenses is crucial to staying in good financial health.
  • Using credit to purchase basic essentials. If you buy gas, groceries, prescription medicines or other essentials with your credit cards without a plan to repay in 90 days or less, chances are you are living beyond your means.
  • Can only afford to pay minimum payments. To pay down as much of your debt as soon as possible requires substantially more than the minimum monthly payment amount due.
  • Would be in immediate financial crisis with any disruption in income.

If you have any questions, would like to discuss your financial challenges, or are just looking for advice, please call us at your convenience. As always, we are here to help and look forward to hearing from you.

1-877-OUT-DEBT (688-3328)

www.debtreductionservices.org

  1. Todd Christensen

    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.

  2. Joe Leto

    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?

  3. Credit Counselor

    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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