Bankruptcy Reform Takes Effect Next Week – What’s Left for Consumers?
Consumer debt expert outlines pros, cons of remaining debt alternatives.
San Mateo, CA (PRWEB) October 12, 2005
Next week, on Oct. 17, new bankruptcy reform laws will go into effect, and many Americans who are reeling from financial turmoil face another shock: They will no longer qualify for elimination of debt through Chapter 7 bankruptcy protection. However, Bradford Stroh, founder and co-CEO of Freedom Financial Network, LLC, reminds consumers that choices do exist to eradicate debt.
“We’ve heard reports of consumers rushing to file bankruptcy, only to be faced with lengthy waits, high legal fees and some firms taking advantage of their desperation,” says Stroh. “Bankruptcy isn’t right for everyone, especially with the new means test for Chapter 7 protection. Fortunately, other options are available to help consumers get their financial health and well-being back on track.”
1. Chapter 13 bankruptcy – Even with bankruptcy reform in place, Chapter 13 filings – which require consumers to repay debt on a repayment plan – will still be available to those whom the state determines, through its means test, have enough income to pay back at least some of their debt.
Pro: May reduce debt and stop collection calls. Con: The publicly available bankruptcy judgment remains on a consumer’s long-term credit report for 10 years. Repayment terms generally are less favorable than those found with debt resolution (see # 4).
2. Credit counseling – Most credit counseling agencies receive funding from creditors and, in constructing “debt management plans” for consumers, reduce only interest rates, not principal owed.
Pro: Lower monthly payments – possibly. Con: Up to five years of making payments, and minimum payments may not significantly decrease. Enrollment in credit counseling also shows up as a negative on a consumer’s credit report.
The new bankruptcy laws demand that consumers seeking bankruptcy protection obtain credit counseling from an approved agency within six months prior to filing for bankruptcy. However, the Federal Trade Commission and Internal Revenue Service have begun a potentially wide crackdown on the credit counseling industry, shutting down firms engaging in unlawful trade practices or abusing non-profit status. “Time will tell whether enough legitimate credit counseling agencies remain to allow consumers in some areas to declare bankruptcy,” Stroh says.
3. Creditor negotiation – Consumers who cannot make even minimum payments on bills can try calling creditors and asking for temporary hardship status. Some creditors may work out payment plans.
Pro: Can provide longer payment terms. Con: Individual consumers may find it difficult to negotiate effectively with large creditors.
4. Debt resolution – Debt resolution firms negotiate with creditors on the consumer’s behalf to lower principal amounts due. Consumers then pay the debt resolution firm a percentage of savings obtained. Debt resolution can obtain significantly better repayment terms than achieved with Chapter 13 – and with no bankruptcy judgment – especially for those facing financial problems because of a catastrophic event or medical problems.
Pro: Savings can often reach up to half the full amount owed. It’s the fastest way out of debt without Chapter 7 bankruptcy; consumers can be out of debt completely within three years. Con: It can impair your credit score.
Freedom Financial Network, LLC (www. freedomfinancialnetwork. com) provides consumer debt resolution services through its Freedom Debt Relief, Freedom Foreclosure Relief and Freedom Tax Relief divisions. The company works for the consumer, negotiating with creditors to lower principal balances due that routinely result in savings of half the amount owed. Based in San Mateo, Calif., Freedom Financial Network serves more than 3,000 clients nationwide and manages more than $100 million in consumer debt, offering an alternative to bankruptcy, credit counseling, and debt consolidation.
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