The New Bankruptcy Law -- How Will It Affect Debt Negotiation?

In April 2005, Congress made sweeping changes in U.S.
bankruptcy law that will go into effect on October 17, 2005.
It's called the "Bankruptcy Abuse Prevention and Consumer
Protection Act of 2005," and it means big trouble for Americans
struggling with debt problems.

What effect will the new bankruptcy law have on the practice of
Debt Settlement (also called Debt Negotiation)? Will creditors
still be willing to negotiate with consumers seeking to avoid
bankruptcy? Will lump-sum settlements for 30%, 40%, 50% still
be possible now that this tough new law has been passed?

The short answer is "YES." It will be "business as usual" in
the collection industry. People that choose to file bankruptcy
will definitely be affected for the worse, as I'll outline
below, but those who choose to privately negotiate their way
out of debt will notice very little difference. Creditors will
still negotiate. Deals will still be made. And nothing much
will change in the world of collections. In fact, a viable
alternative to bankruptcy will be needed more than ever.

The credit card banks lobbied with millions of dollars to get
this law passed. They've been working at it for about a decade.
Now they are celebrating. These are the folks who think the
bankruptcy system has been abused by wealthy individuals, who
have defrauded creditors when they could have repaid their
debts.

The facts tell a different story:

1. During the period from 1995 to 2004, bankruptcy filings
doubled, while in that same period, credit card industry
profits TRIPLED.

2. Credit card companies have not been held accountable 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 people 60 or older, 85% of bankruptcies are caused by
medical bills or job loss.

4. A divorced woman is 300% more likely to file bankruptcy than
a married woman.

5. African-American and Hispanic homeowners are 500% more
likely to file bankruptcy than white, non-Hispanic homeowners.

6. Approximately 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 income of bankruptcy filers is $25,000. (So much
for the "rich" abusing the system.)

The new law was a GIFT to the credit card banks, pure and
simple. Some estimates show that it will add another $5 billion
to the industry's bottom line. In other words, the bill is about
profits and not much else.

Since my whole approach is about avoiding bankruptcy, I won't
go into a detailed analysis of the provisions of the new law.
But just to summarize, the net effect is that many (if not
most) people seeking relief under Chapter 7 bankruptcy will be
forced to file under the Chapter 13 version instead. In plain
English, that means that most filers will be forced to pay back
a portion of the debt 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 determining your monthly
budget. In other words, your actual living expense are thrown
out the window in favor of the IRS standards (and we all know
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 will only allow the $1,045,
period.

In short, people attempting to file bankruptcy after October
17, 2005 are in for an extremely rude awakening! Goodbye cell
phones, cable TV, high-speed Internet access, movies, meals
with the family, and anything else beyond the minimum allowable
expenses as determined by the IRS and the courts.

So what makes me so certain that the banks will be as eager as
ever to settle with consumers for 50 cents on the dollar or
less? Simple. Two words: Stealth Bankruptcy.

Hundreds of thousands of Americans are going to discover the
new reality of this tough law, and they are going to forgo the
court system of filing bankruptcy in lieu of what I call
"stealth bankruptcy." A stealth bankruptcy is when you move
(with no forwarding address), change your phone number, and
drop off the radar screen to live on an all-cash, no-credit
basis. Many people 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 people than ever will
take this approach.

Besides the problem of stealth bankruptcy, there are other good
reasons the banks will settle as they always have. Consider
these points:

A. The creditor doesn't know whether or not you'll still
qualify for Chapter 7 or Chapter 13 bankruptcy. They still face
the risk that you will qualify for Chapter 7 and end up
discharging your debt in full, which means they get NOTHING.

B. Even if you file Chapter 13 under the new guidelines, the
creditor will still only receive 30-50% of the debt on average
(much less in some cases).

C. Under Chapter 13, it will still take the creditors 3-5 YEARS
to recover that 30-50%.

D. A lump-sum of 30-50% TODAY is far better than the same
amount collected over 3-5 years.

Of course, I certainly expect debt collectors to use the new
law to harass and intimidate people who don't know 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 will bully and threaten as always,
but at the end of the day, they will still accept reasonable
settlements. After October 17, 2005, it will still be "business
as usual" in the world of debt collections.


About The Author: Charles J. Phelan has been helping consumers
become debt-free without bankruptcy since 1997. A former
executive in the debt settlement industry, he teaches the
do-it-yourself method of debt negotiation. Audio-CD material
plus expert personal coaching helps consumers achieve
professional results at a fraction of the cost.
http://www.zipdebt.com

Reduce College Debt with Scholarships

Reduce College Debt with Scholarships
by Dale Clifton, the Scholarship Doctor

Six Scholarship judges were sitting around an oval
table. Forms were piled into 50 boxes. Each one
had the name of a state. I looked at the boxes and
wondered why some of them were overflowing and
others had just a few. This was the first round of
judging. By the time the contest was over almost
16,000 applications would be examined. Some of the
comments were really critical, "Why did this
person bother to send in an application? It's so
sloppy." "This person put the wrong address on
the envelope, even though the correct one is at
the top of the application." One had a cassette
tape inside. We played it and it was a country
song. The applicant was a good musician.

That was twelve years ago, and many people still
do not know or realize that College Scholarship
Planning could reduce or totally eliminate college
financial debt.

One of the first questions I am always asked is,
"When should we start looking?" Then some answer
their own question with, "I bet we're too late
already huh?" The ideal time is to start is the
8th grade to freshman year. Good planning starts
early, but scholarships are posted monthly, and if
you start planning early, you have a chance to
win, big. Many win the very first time. If you are
a junior or senior in high school, go for it. But
remember, your chances to win increase with every
completed application.

You should start College Scholarship Planning even
if there is a chance your child may decide not to
go to college. But if the decision is yes, you
will have everything in place. And the planning
experience is more than filling out a few
applications.

Another common concern is assuming your family
income is too high to win scholarships. Fact: 80%
of all scholarships are need based and income
related, but 20% are not. This means millions of
dollars are still available. It makes good solid
financial sense to make an effort to win
scholarship money regardless of income.

Always remember, the college scholarship effort is
truly a family affair.

©2005 The Scholarship Doctor, Dale Clifton - All
Rights Reserved - Dale is an educational consultant
and expert at helping families win college
scholarships. To learn more about planning to win scholarships, visit
http://ScholarshipDoctor.com

Debt Free Living - 5 Tips To Get Out Of Debt

A few times I wonder what sort of credit system moved the global economy 200 years ago. If the intention of getting into a business is meant to 'help' fulfill the needs and wants of someone, I don't see how credit card salesmen can drove more people into debt and backruptcy. Clearly most people fail to have a good understanding of the increasingly sophisticated (and complicated) terms and conditions behind the card they apply for, how it benefits the bank more than the applicant and what the ubiquitous card is best used for.
The 'cashlessness' of the advanced world surely works its illusions into the minds of those caught up in the disease of consumerism, who found it too easy to buy anything anywhere with a flash of the card without realizing the interest incurred to the bank everytime a purchase is made. Before you get the math right, you must get personal spending principles and habits right first, and only then you will attain self-awareness and a conservative mindset that lights up a red warning in your head just when you are about to make a purchasing decision.
Here are 5 tips for you to get a headstart:
1) It's not how much money you make (or spend); it's how you can keep. I didn't say this. Robert Kiyosaki said it. Far too often poor people never carry happiness within themselves and depend on external sources for their own happiness, so they either buy to impress others or get a certain 'nice' indulgent feeling for having new things. Mathematically speaking, if that new thing does not serve a purpose or even a significant function, it is a wasted loss.
2) Forget credit; get debit. A debit card is quite similar to your ATM card in that it deducts directly from your account on purchase and can be used worldwide. The credit card enables you to BORROW money from your bank to fulfill a particularly expensive purchase provided you pay back the loan PLUS the interest incurred in the form of monthly bills. Based on track record, if you have always fulfilled your credit obligations, your credit ratings will get better, leading to better protection and concessions. But unless you typically deal with large transactions and understand your spendings cycle, you are better off making your life simpler just knowing exactly where YOUR money--not the bank's--goes if not into your account.
3) Be conscious of your financial balance. Do a monthly plan-and-review for your savings and expenditure. Those items that you have to buy with your card...how necessary and regular is it? Why is it an investment to you and to other people like your family? What else can be cut down? Sometimes you must realize your financial decisions do impact your immediate loved ones and this is a significant consideration to take care of.
4) Use your card only for emergencies. I don't know how many times I've been reminded by my elders but don't get rebellious for the sake of it.
5) If you are facing a tighter budget, you did better confront the problem sooner than later. Discuss with your immediate loved ones and financial advisor where the finer problems lie and they are sure to help, not to aggravate your situation, because if it doesn't affect you, it will affect them and your relationships.
The debt problem is not one on a personal scale but a prevalent one worldwide. It is a sickness infecting people who grow too worried witnessing the exorbitant increase in the cost of living everywhere they go, whether it's in the New York or Kuala Lumpur, so they keep on borrowing in order to 'stick their neck out'. Wrong thinking: it becomes a vicious cycle that feeds on itself, pushing you closer to losing it all than ever before.
Come one day, you finally wake up from your debt problem when the bank or creditors start knocking on your door, and you don't want that to happen. Stop being influenced by what goes on around you but to take good stock of your financial attitude and well-being. You have a choice not to get involved with your bank 'deeper' than you need. It's time to be happy living within your means. Be grateful for what you have now and work the most out of your current resources, then you will find better use for your pair of scissors than to cut up credit cards.

Justin Koh is a freelance writer whose articles have appeared in most major ezines. You can find the latest news and articles at: http://www.debtcenter.info