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All Just simply about DivorceThe New Bankruptcy Law -- How Wish It Affect Financial obligation Negotiation?
by:
Charles Phelan
In Apr 2005, Congress ready-made sweeping changes in U.S. bankruptcy law that wish go into effect on Gregorian calendar month 17, 2005. It's called the "Bankruptcy Abuse Interference
and User
Protection Act of 2005," and it means big trouble for Americans troubled
with financial obligation problems.
What effect wish the new bankruptcy law have on the practice of Financial obligation Settlement (also called Financial obligation Negotiation)? Wish creditors still be willing to hash out with consumers seeking to avoid bankruptcy? Wish lump-sum settlements for 30À40À50 till be possible now that this tough new law has been passed?
The short answer is "YES." It wish be "business as usual" in the collection industry. Folk that choose to file bankruptcy wish emphatically be affected for the worse, as I'll outline below, but those who choose to in private hash out their way out of financial obligation wish notice really little difference. Creditors wish still negotiate. Deals wish still be made. And nothing more wish change in the earth of collections. In fact, a viable alternative to bankruptcy wish be required more than ever.
The credit card banks lobbied with millions of dollars to get this law passed. They've been working at it for simply about a decade. Now they are celebrating. These are the peoples who think the bankruptcy system has been abused by loaded individuals, who have defrauded creditors once
they could have repaid their debts.
The facts tell a several story:
1. During the period from 1995 to 2004, bankruptcy filings doubled, spell in that same period, credit card industry profits TRIPLED.
2. Credit card companies have not been control responsible
for their targeting of "easy credit" to individuals who could not afford such loans, which in turn has contributed to the wave of bankruptcies over the past decade.
3. For folk 60 or older, 85f bankruptcies are caused by medical bills or job loss.
4. A unmarried woman is 300ore likely to file bankruptcy than a wedded woman.
5. African-American and Hispanic homeowners are 500ore likely to file bankruptcy than white, non-Hispanic homeowners.
6. Close to half of all bankruptcies are filed because of medical expenses due to lack of health insurance, or lack of adequate coverage leading to uncovered expenses.
7. The median financial gain
of bankruptcy filers is $25,000. (So more for the "rich" abusing the system.)
The new law was a GIFT to the credit card banks, pure and simple. Several estimates show that it wish add another $5 billion to the industry's bottom line. In else words, the bill is simply about profits and not more else.
Since my whole approach is simply about avoiding bankruptcy, I won't go into a elaborated
analysis of the provisions of the new law. But simply to summarize, the net effect is that many an (if not most) folk seeking relief under Chapter 7 bankruptcy wish be forced to file under the Chapter 13 version instead. In plain English, that means that most filers wish be forced to pay back a portion of the financial obligation over a 5-year schedule set by the court.
One of the worst aspects of the new bill is the use of IRS "allowable" expense schedules for decisive your monthly budget. In else words, your actual living expense are thrown out the window in favor of the IRS standards (and we all cognize how generous the IRS can be!). So if your actual rent is $1,300 per month, and the IRS says it should be $1,045 for your county and state, that's TOUGH! The court wish only allow the $1,045, period.
In short, folk attempting to file bankruptcy after Gregorian calendar month 17, 2005 are in for an extremely rude awakening! Arrivederci cell phones, cable TV, high-speed Net
access, movies, meals with the family, and thing
else on the far side
the minimum allowable expenses as determined by the IRS and the courts.
So what does me so certain that the banks wish be as eager as ever to settle with consumers for 50 cents on the dollar or less? Simple. Two words: Concealment Bankruptcy.
Hundreds of thousands of Americans are going to learn the new reality of this tough law, and they are going to forgo the court system of filing bankruptcy in office of what I call "stealth bankruptcy." A concealment bankruptcy is once
you come (with no forwarding address), change your phone number, and drop off the measuring instrument screen to live on an all-cash, no-credit basis. Many an folk already choose this path rather than deal with the invasion of privacy that comes with formal bankruptcy. After the new law goes into effect, more folk than ever wish take this approach.
Besides the problem of concealment bankruptcy, there are else nice reasons the banks wish settle as they always have. Consider these points:
A. The individual doesn't cognize whether or not you'll still qualify for Chapter 7 or Chapter 13 bankruptcy. They still face the risk that you wish qualify for Chapter 7 and end up discharging your financial obligation in full, which means they get NOTHING.
B. Even as if you file Chapter 13 under the new guidelines, the individual wish still only obtain 30-50f the financial obligation on average (much less in several cases).
C. Under Chapter 13, it wish still take the creditors 3-5 YEARS to recover that 30-50í
D. A lump-sum of 30-50
ODAY is far better than the same figure collected over 3-5 years.
Of course, I for sure expect financial obligation collectors to use the new law to harass and intimidate folk who don’t cognize and understand their rights. You can expect them to say things like, "You can’t file bankruptcy under the new law, so you’d better pay up today!" They wish bully and threaten as always, but at the end of the day, they wish still accept reasonable settlements. After Gregorian calendar month 17, 2005, it wish still be "business as usual" in the earth of financial obligation collections.
Just simply about the author:
Charles J. Phelan has been small indefinite amount consumers become debt-free without bankruptcy since 1997. A former executive in the financial obligation settlement industry, he teaches the do-it-yourself know-how
of financial obligation negotiation. Audio-CD material plus expert personal work
helps consumers bring home the bacon professional results at a fraction of the cost. http://www.zipdebt.com
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