anonymuse
05-31-2006, 08:01 PM
One in 60 U.S. households bankrupt
http://www.shns.com/shns/g_index2.cfm?action=detail&pk=WALLETWATCH-05-24-06
By MARY DEIBEL
Scripps Howard News Service
24-MAY-06
Seven months after a tough new bankruptcy law took effect, Americans have a better picture of those among us who are filing for bankruptcy while undergoing mandatory counseling, paying off creditors and putting their financial house in order:
_ The typical debtor seeking bankruptcy protection has an average income of $31,255 and average debts of $40,673, or about twice the debt of clients seeking voluntary credit counseling, the National Foundation for Credit Counseling reports.
_ Forty-four percent have incomes of less than $20,000 a year, and 31 percent say the source of their financial distress is "illness or injury," according to an Institute for Financial Literacy survey.
_ Eighty percent lack the financial wherewithal to repay their creditors even a little of what they owe under the new law's "means test" in which people who make half their state's median income must make installment repayments to creditors, the National Association of Consumer Bankruptcy Attorneys reports.
"Where are the deadbeats?" veteran Gulfport, Miss., bankruptcy lawyer and association executive director Brad Botes asks rhetorically of the reasons Congress gave for passing the new Bankruptcy Abuse Prevention and Consumer Protection Act.
Last year saw a record 2.04 million filings as consumers rushed to file before the new law made it tougher to seek bankruptcy protection.
That's 1 in every 60 U.S. households, the American Bankruptcy Institute reports, and means it's likely "someone in your family, a neighbor down the block or a co-worker in your office is in bankruptcy court," institute executive director Sam Gerdano says.
Filings slowed the first quarter of 2006 to a 20-year low, but the signs are there for a renewed upsurge in personal bankruptcies with more than 1 million by year-end.
Rising interest rates, higher credit-card minimum payments and the high proportion of adjustable mortgage rates all put consumers at risk should financial disaster strike through death, divorce, illness or job loss _ the four events Harvard Law School's Elizabeth Warren identifies as bankruptcy's likeliest causes.
The upshot: the Maryland-based National Foundation for Credit Counseling, worries that soaring demand for credit counseling _ mandatory and voluntary _ will provoke a "counseling funding gap" that results in less personalized service for bankruptcy debtors as well as regular clients trying to avoid bankruptcy.
Foundation member agencies account for two-thirds of the counseling groups to win bankruptcy-counseling approval from the Justice Department's Executive Office of the U.S. Trustee. About 150 agencies have been approved for pre-filing counseling and 250 for post-filing financial education, with more than 750 walk-in locations around the nation, acting trustees director Cliff White recently told Congress.
Pre-filing counseling sessions, which typically last 90 minutes, and two-hour financial-education sessions before debtors leave bankruptcy are available by phone, Internet or face to face.
Meantime, the Internal Revenue Service this month revoked the tax-exempt status of 41 credit counselors it's investigated the last two years on grounds they were motivated by money and didn't deliver the help that debt-ridden consumers need.
"These organizations have not been operating for the public good and don't deserve tax-exempt status," IRS Commissioner Mark Everson said in announcing the crackdown. "They have poisoned an entire sector of the charitable community."
The IRS didn't identify the 41 firms, which account for more than 40 percent of the industry's $1 billion in yearly revenues. However, 34 companies that have lost their tax-exempt status are posted on the agency's www.irs.gov Web site, and more will be added as challenged firms exhaust their administrative appeals or lose in court.
"We welcome the scrutiny," says spokesman Nick Jacobs of the National Foundation for Credit Counseling. "There are bad actors out there casting a shadow over the entire industry and giving good counseling a bad name."
Asked how consumers can find an ethical credit counselor, whether the counseling is voluntary or mandated by the new bankruptcy law, Everson suggests:
_ Don't respond to a credit counselor who calls you. Get referrals from people you trust, then go comparison shopping. Check with your local Better Business Bureau, state attorney general's office and consumer affairs agency for consumer complaints.
_ Check the IRS www.irs.gov site. IRS Publication 78, updated periodically, lists credit or debt-counseling agencies whose tax-exempt status has been revoked. So far the list includes 34 companies operating in dozens of states.
_ Look for credit counselors who tailor their advice to your situation, including your salary, loans, savings and the like, instead of offering one-size-fits-all pre-packaged debt plans. "There's nothing wrong with a debt-management plan, but it needs to be part of a broader set of counseling," Everson said.
_ Get clear about fees and other overhead your credit counselor charges. Don't assume the money you pay a counselor will go to pay down your debts, and make sure you're not signing off on a debt-consolidation plan that puts you in bankruptcy involuntarily and doesn't pay your bills.
(Contact Mary Deibel at DeibelM(at)shns.com)
http://www.shns.com/shns/g_index2.cfm?action=detail&pk=WALLETWATCH-05-24-06
By MARY DEIBEL
Scripps Howard News Service
24-MAY-06
Seven months after a tough new bankruptcy law took effect, Americans have a better picture of those among us who are filing for bankruptcy while undergoing mandatory counseling, paying off creditors and putting their financial house in order:
_ The typical debtor seeking bankruptcy protection has an average income of $31,255 and average debts of $40,673, or about twice the debt of clients seeking voluntary credit counseling, the National Foundation for Credit Counseling reports.
_ Forty-four percent have incomes of less than $20,000 a year, and 31 percent say the source of their financial distress is "illness or injury," according to an Institute for Financial Literacy survey.
_ Eighty percent lack the financial wherewithal to repay their creditors even a little of what they owe under the new law's "means test" in which people who make half their state's median income must make installment repayments to creditors, the National Association of Consumer Bankruptcy Attorneys reports.
"Where are the deadbeats?" veteran Gulfport, Miss., bankruptcy lawyer and association executive director Brad Botes asks rhetorically of the reasons Congress gave for passing the new Bankruptcy Abuse Prevention and Consumer Protection Act.
Last year saw a record 2.04 million filings as consumers rushed to file before the new law made it tougher to seek bankruptcy protection.
That's 1 in every 60 U.S. households, the American Bankruptcy Institute reports, and means it's likely "someone in your family, a neighbor down the block or a co-worker in your office is in bankruptcy court," institute executive director Sam Gerdano says.
Filings slowed the first quarter of 2006 to a 20-year low, but the signs are there for a renewed upsurge in personal bankruptcies with more than 1 million by year-end.
Rising interest rates, higher credit-card minimum payments and the high proportion of adjustable mortgage rates all put consumers at risk should financial disaster strike through death, divorce, illness or job loss _ the four events Harvard Law School's Elizabeth Warren identifies as bankruptcy's likeliest causes.
The upshot: the Maryland-based National Foundation for Credit Counseling, worries that soaring demand for credit counseling _ mandatory and voluntary _ will provoke a "counseling funding gap" that results in less personalized service for bankruptcy debtors as well as regular clients trying to avoid bankruptcy.
Foundation member agencies account for two-thirds of the counseling groups to win bankruptcy-counseling approval from the Justice Department's Executive Office of the U.S. Trustee. About 150 agencies have been approved for pre-filing counseling and 250 for post-filing financial education, with more than 750 walk-in locations around the nation, acting trustees director Cliff White recently told Congress.
Pre-filing counseling sessions, which typically last 90 minutes, and two-hour financial-education sessions before debtors leave bankruptcy are available by phone, Internet or face to face.
Meantime, the Internal Revenue Service this month revoked the tax-exempt status of 41 credit counselors it's investigated the last two years on grounds they were motivated by money and didn't deliver the help that debt-ridden consumers need.
"These organizations have not been operating for the public good and don't deserve tax-exempt status," IRS Commissioner Mark Everson said in announcing the crackdown. "They have poisoned an entire sector of the charitable community."
The IRS didn't identify the 41 firms, which account for more than 40 percent of the industry's $1 billion in yearly revenues. However, 34 companies that have lost their tax-exempt status are posted on the agency's www.irs.gov Web site, and more will be added as challenged firms exhaust their administrative appeals or lose in court.
"We welcome the scrutiny," says spokesman Nick Jacobs of the National Foundation for Credit Counseling. "There are bad actors out there casting a shadow over the entire industry and giving good counseling a bad name."
Asked how consumers can find an ethical credit counselor, whether the counseling is voluntary or mandated by the new bankruptcy law, Everson suggests:
_ Don't respond to a credit counselor who calls you. Get referrals from people you trust, then go comparison shopping. Check with your local Better Business Bureau, state attorney general's office and consumer affairs agency for consumer complaints.
_ Check the IRS www.irs.gov site. IRS Publication 78, updated periodically, lists credit or debt-counseling agencies whose tax-exempt status has been revoked. So far the list includes 34 companies operating in dozens of states.
_ Look for credit counselors who tailor their advice to your situation, including your salary, loans, savings and the like, instead of offering one-size-fits-all pre-packaged debt plans. "There's nothing wrong with a debt-management plan, but it needs to be part of a broader set of counseling," Everson said.
_ Get clear about fees and other overhead your credit counselor charges. Don't assume the money you pay a counselor will go to pay down your debts, and make sure you're not signing off on a debt-consolidation plan that puts you in bankruptcy involuntarily and doesn't pay your bills.
(Contact Mary Deibel at DeibelM(at)shns.com)