Bankruptcy Reform Takes Hold - What is Left for Consumers?

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-- Consumer Debt Expert Outlines Pros and Cons of Remaining Debt Alternatives --

San Mateo, Calif. With sweeping bankruptcy reform laws combining with increasingly high costs of living, many Americans who are reeling from financial turmoil face will no longer qualify for elimination of debt through Chapter 7 bankruptcy protection. However, Bradford Stroh, Founder of Bills.com, 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 is not 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: Possibly lower monthly payments. 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 Internal Revenue Service has already revoked the tax-exempt status of every one of the 41 credit-counseling agencies on which it has completed an audit during a three-year-old crackdown on the industry. "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.

Based in San Mateo, Calif., Bills.com is a free one-stop online portal where consumers can educate themselves about complex personal finance issues and save money by choosing the best-value products from a network of qualified service providers. Since 2002, Bills.com's partner company, Freedom Financial Network, has provided consumer debt resolution services, serving more than 7,500 customers nationwide and managing more than $250 million in consumer debt. The company's co-founders and CEOs, Andrew Housser and Brad Stroh, were recently named Northern California finalists in Ernst and Young's 2006 Entrepreneur of the Year Awards.

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