New Bankruptcy Law Makes Counseling Mandatory

The average household in America now has nearly $10,000 in
credit card debt One in three families have a home equity loan
in addition to their first mortgage Americans are saving at a
lower rate than ever before As a society, we are spenders,
rather than savers, and sometimes that spending gets us into
trouble Fortunately, there are a number of services available
to the financially troubled, including advisors who can assist
and educate consumers about managing money
Credit counseling has been available for years, and thousands of
consumers have benefited from the service A distinctly
different service from debt consolidation, credit counseling
educates those with problem debt about the many aspects of money
management Our school system is inadequate when it comes to
teaching our children about such matters as balancing
checkbooks, paying bills on time and in full and managing bank
accounts
By educating consumers about these topics and others, those in
the credit counseling industry hope to minimize problem debt
Anyone who is in a financial bind and thinks they may benefit
from this valuable service should hurry A number of different
factors are converging in a way that the industry could soon be
overwhelmed with more clients than it can adequately assist
The recently passed Bankruptcy Abuse and Consumer Protection
Act, designed to eliminate abuse of Federal bankruptcy law,
requires anyone filing for personal bankruptcy to undergo credit
counseling beforehand There are some problems with this,
including the fact that personal bankruptcy filings are often
business failures, but this alone will increase the phone calls
to counseling services By requiring this service as a condition
of debt relief, Congress is hoping to minimize the number of
repeat filers after the law takes effect in October 2005
Another law, passed in 2003, requires credit card companies to
establish repayment schedules that permit paying off balances in
a reasonable amount of time It has taken some time for the
industry to make the necessary adjustments, but as of this
spring, many consumers have seen their minimum credit card
payments double
For a household with the average card debt of $10,000, this
increases the minimum monthly payment to $400 per month, a
figure that many cannot afford This hike in the minimum payment
may force more consumers into bankruptcy
Adding to the mix is the large number of consumers who have
high-risk mortgages, including the fairly new interest-only
variety, which does not require any payment on the loan
principal for up to five years Should interest rates increase,
home prices fall, or should both happen at once, tens of
thousands of homeowners could default on their loans As many
markets have housing prices that are already on the brink of
unaffordability, this scenario seems likely to occur soon
This is a critical time for those in the business of providing
advice to the financially challenged A rare combination of
factors could push many more consumers towards counseling than
the industry can adequately handle Any one with problem debt
who might benefit from such help is advised to seek it quickly

Tags | business, checkbooks, consolidation, counseling, credit, federal, filings, mortgage, protection, schedules, spenders, valuable