According to a recent study many Americans who should file for bankruptcy don't for one simple reason: It's too hard. Before 2005, filing Chapter 7 bankruptcy was the only reprieve most Americans who were in excessive personal debt could utilize. Under Chapter 7 one could effectively erase all of their consumer debts by liquidating their assets and proving they did not have the means to pay off what they accrued. Major debts, such as car notes, remained; the rest were wiped clean. Of course there were penalties. For example, the filing remained on your credit history for 10 years -- but filers were no longer faced with a mountain of debt that they couldn't afford.
Sounds relatively sweet, huh? The credit card companies felt the same way. In 2005 the Bankruptcy Abuse Prevention and Consumer Protection Act was passed which introduced new standards, such as means testing, credit counseling and higher filing fees, to the bankruptcy process. The result was that fewer people were able or willing to file for bankruptcy. Instead of facing the arduous process of trying to file for Chapter 7, more individuals have opted to live a debt-laden life. But this new trend has created a different set of problems for both those in financial crisis and creditors.
If making even the minimum payments on your loans is getting to be too much for you, it's time to go directly to your creditors and try and negotiate. You can negotiate for a lower minimum, lower interest rate or different payment terms. Trust us: Your creditors want to get paid -- they may not like having to reduce your payments (and they may even put a nasty mark on your credit report), but you stand a good chance of getting at least one or two of your creditors to make a reduction. Just remember to be polite and non-confrontational when you call ... and tell them what you CAN pay every month. If the rep you're talking to isn't a help, ask to speak to her supervisor.
If Youre in Deep Debt Trouble ...
USA Today reports:
Instead, concern exists about a growing number of Americans who need bankruptcy protection but cannot get any benefit from it or simply cannot afford to file. As their financial problems worsen, that hurts everyone because it can hinder the economic turnaround...
Many debtors have no choice but to delay filing for bankruptcy. Some wait until they receive a tax refund, and others cash out their retirement savings to pay for a lawyer. But postponing filing is not good for debtors. It's similar to delaying going to the doctor, because you'll just end up with more problems, says Lawless, professor of law at University of Illinois.
Despite the high cost and complications, filing for bankruptcy might not only help you to cope -- it might also speed our economic recovery. If you are in truly dire circumstances regarding debt, don't be ashamed to consider Chapter 7 bankruptcy. Here are three things you should know if you're considering filing:
- You can -- and should -- file if your salary has decreased significantly. Many professionals have been laid off and are unable to find employment that is comparable to their previous earnings. Maintaining the same standard of living is impossible. If you can't afford to cover your bills, delaying the process of filing only prolongs the inevitable and puts you deeper in debt.
- Your fee application can be waived. The application fee for filing Chapter 7 bankruptcy is $300 – and that doesn't include the lawyer's costs. While you will have to hustle to find an attorney who will handle the process for free, the court-filing fee can be waived due to hardship.
- Your student loan payments can be reduced. Student loans issued by the government cannot be written off, but they can be modified. You must prove undue hardship, which means you are facing tough financial times and simply cannot pay, but the court can decrease your payments.
For more information and to weigh your bankruptcy options more carefully, please visit the USA Today special section on bankruptcy.
A trained life coach, S. Tia Brown has spent the last 10 years following her passion for journalism as an editor, writer and TV correspondent. Brown has worked for CNN, E!, MSNBC, the New York Daily News, Essence and Black Enterprise. Most recently she served as senior editor for In Touch Weekly magazine. Check out her advice column Do Better, Be Better at www.tiabrown.com.