Recently on our bankruptcy forum a user asked, “I filed bankruptcy several months ago. I have heard horror stories about how some filers have their Chapter 7 bankruptcy cases dismissed. I am desperate and cannot have that happen. Can you tell me what I need to do to ensure that I do not face a Chapter 7 bankruptcy dismissal?”
In our society today, credit scores can often be critical. Besides determining a borrower’s risk, they may be used to set insurance rates, obtain rental property, and even to sort out job candidates. There has even cropped up a number of different industry advice groups who make a good living telling the average consumer how to handle credit and stay out of debt, and when you do go into debt, how to raise your credit scores back up, so you can go into debt again.
Over the past two years, the IRS has been auditing 63 credit counseling agencies, representing more than half of the revenue in the industry. To date, the audits of 41 organizations, representing more than 40 percent of the revenue in the industry, have been completed. All of the completed audits have resulted in revocation, proposed revocation or other termination of tax-exempt status. [Source: IRS.gov] For these reasons, you may want to be very careful in who you listen to regarding your credit counseling. Today’s importance of being credit worthy is significant if you plan to own a house, rent a place to live, have insurance or find a job, but you are going to need to be careful in picking what you learn and who you learn from about credit.
One basic thing you need to know about credit is that in In 1980, the federal government passed a special law which allowed national banks to ignore state usury limits and peg the rate of interest at a certain number of points above the federal reserve discount rate. In addition, specially chartered organizations like small loan companies and installment plan sellers have their own rules. Congress made some changes to the laws in 2010 but did not significantly change the usury problem of the old law. Instead, it now requires the banks to give you a 45 day notice when they change your interest rate. That still means that the laws in most states do not have enough teeth to regulate credit card debt. As a result in many cases, about the only way a person can relieve exorbitant debt from various banking institutions is through filing bankruptcy.
A good example of the small change in the law would be if you owed $30,000 in credit card debt before the new law went into effect this past summer, and your card company raised your APR above 24%, the maximum allowed by the old laws. This phenomenon happened to many Americans. If you had been making the minimum payments, normally around 2%, the interest would have caused the principal to grow very rapidly at those usury rates. Under the new law, before they can change the interest on any of the new cards you obtain, they have to give you a 45 day notice. Maxing out your credit cards is also hard on your credit report and drastically lowers your score. When you pay the minimum under those circumstances, you can pay the $600 a month for the rest of your life and the principal on the card loans will only grow.
Being credit worthy is important but credit card abuse is one of the worse causes for bankruptcy, so it might be wise to learn to balance out the worth of credit against the amount you owe. Maybe like so many other Americans, you have felt you have had to use your credit in order to make ends meet and until times get better. Maybe you are paying only the minimum payments in the form of interest on those cards. If this is case, you might be in financial trouble to the point of being bankrupt. As a general rule of thumb, you are legally financially bankrupt if your current sustainable income will not pay all of your living expenses, pay interest on outstanding loans, and reduce some of your principal on those loans while paying on them for five years. If you are bankrupt, common sense indicates you will need a bankruptcy lawyer in order to properly understand how complex bankruptcy laws may apply in your situation. If you determine you are in need of relief from the stress associated with debt, contact us today. We will help you find a bankruptcy attorney in your area that will help you with any questions you may have on bankruptcy law.
The new bankruptcy laws established under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) are not new, but have been in place for four years. The BAPCPA laws require all debtors who are considering filing for either Chapter 7 or Chapter 13 personal bankruptcy receive either “individual or group briefing” from a non-profit credit counseling center within one hundred and eighty days prior to filing for personal bankruptcy. In addition to credit counseling, the new BAPCPA legislation also requires debtors to complete an “instructional course on financial management”.
The goal of the BAPCPA legislation was for individuals to complete a credit counseling course to help them develop a picture or overall view of all of their personal expenses and income prior to filing for personal bankruptcy. After the completion of the credit counseling course, the goal of the legislation was that more consumers would understand their financial situation and have a clearer understanding of all of their financial alternatives for reducing or eliminating their personal debt.
Unfortunately, critics of consumer debt counseling have argued that the credit counseling courses have become nothing more than an obstacle to filing for personal bankruptcy because many people who receive credit counseling are already so desperate for help that filing for personal bankruptcy may be their only option. Others argue that the plans may be unrealistic, unworkable or simply an attempt by certain credit agencies to reduce personal bankruptcy filings.
Proponents of credit counseling services argue, however, that taking a good credit counseling course will help individuals take charge of their financial future by helping them understand their financial situation, put a plan in place to save for future expenses and help them or their families re-establish positive credit with out having to file for personal bankruptcy.
If you are considering filing for personal bankruptcy, including Chapter 7 or Chapter 13 bankruptcy, you will need to take a credit counseling course. For questions about filing personal bankruptcy you need to talk to a local bankruptcy attorney, you can contact a Bankruptcy lawyer near you who can outline the types of bankruptcy you may qualify for as well as the requirements for filing for personal bankruptcy. Most Bankruptcy Lawyers will offer a free evaluation of your financial situation.
What does a Credit Counseling Service do?
1. Most credit counseling services will outline your current financial situation and work with you to develop a personal budget. The budget will outline your expenses and income and help you establish a monthly payment plan to repay your creditors.
2. A credit counseling service may also be able to work with you to negotiate lower interest rates and potentially lower principal debt with all of your current creditors. There may be monthly service fees for managing the debt. It is important to understand all counseling service fees and if you are responsible for paying certain personal debts on your own.
***It is important to understand what the credit counseling service is doing for you and how their services differ from debt consolidation services.***