Bankruptcy & Foreclosures

The first week of a New Year fills many of us with a sense of a fresh start, a clean slate if you will. Unfortunately, now that 2008 is official, the tallies of 2007 are trickling into the limelight. According to the American Bankruptcy Institute, 2007 played host to a massive spike in American consumer bankruptcy filing.

Their report goes on to say that bankruptcy filing had increased a whopping 40% over the year prior (2006). Sadly, while this news was being made official, it was announced that oil prices had reached a record $100 per barrel.

Many economists fear that a turbulent onset to 2008 indicates falsely placed hope in early economic recovery. Apparently the instability that plagued 2007 has followed us into the new year. When news of the increased oil prices went public, stock prices naturally took a dive. Sadly this was the first day of trading for 2008. At the time of this posting’s writing, stocks are inching their way back up.

Economic recession is a reality that will affect many of us in the months to come. I will try to shift gears and to focus more exclusively on money-saving tips and practices that can pay-off as times get tough in the hopes that 2008 doesn’t follow the bankruptcy statistic trend of 2007.

Here’s the scenario: After years of paying your bills on time, you overlook a bill that ends up going into collection. By the time you realize the error, a negative entry has been logged onto your credit report. It happens even to the most organized of us.

The question I often encounter after these situations is: “How long will this blemish stay on my credit report?”

Here’s the bad news: A 30-day late payment will likely stain your credit for seven long years. As will defaulted student loan payments, foreclosures, or law suit filings.

Bankruptcy stays on for ten years and unpaid taxation leans stick with you for fifteen years!

What’s worse is that if these negative entries aren’t erroneous, there is very little a consumer can do to get them to go away. The best advice I can offer if this happens to you is to pay everything else on time so that the negative entry stands out as a single-mistake rather than a pattern of your payment practices.

Credit Counseling is big business in the Unites States and has been increasing in popularity each year over the past decade. Further prodding this statistic along is the fact that a recent federal law aiming to crack down on bankruptcy filing has pushed countless others into the counseling direction.

These new rules not only require extra steps before filing, but the consumer must first undergo credit counseling before seeking bankruptcy-court protection!

Naturally, finding out that bankruptcy is not an option without first attempting to get help sends many into a panic. The important thing to keep in mind is that the counseling may actually help get things in order and hence avoid the bankruptcy process entirely.

I’ve been spending a lot of time on the Federal Trade Commission’s fantastic site of late and fount some of their advice in selecting a credit counselor that’s right for you to be priceless.

Important Questions to Ask When Choosing a Credit Counselor

What services do you offer?
Look for an organization that offers a range of services, including budget counseling, savings and debt management classes, and counselors who are trained and certified in consumer credit, money and debt management, and budgeting. Counselors should discuss your entire financial situation with you, and help you develop a personalized plan to solve your money problems now and avoid others in the future. An initial counseling session typically lasts an hour, with an offer of follow-up sessions. Avoid organizations that push a debt management plan as your only option before they spend a significant amount of time analyzing your financial situation. Debt Management Plans (DMP’s) are not for everyone. You should sign up for a DMP only after a certified credit counselor has spent time thoroughly reviewing your financial situation, and has offered you customized advice on managing your money.

If you were on a DMP with an organization that closed down, ask any credit counselor that you are considering what they can do to help you retain the benefits of your DMP.

Are you licensed to offer your services in my state?
Many states require that an organization register or obtain a license before offering credit counseling, debt management plans, and similar services. Do not hire an organization that has not fulfilled the requirements for your state.

Do you offer free information?
Avoid organizations that charge for information about the nature of their services.

Will I have a formal written agreement or contract with you?
Don’t commit to participate in a Debt Management Plan over the telephone. Get all verbal promises in writing. Read all documents carefully before you sign them. If you are told you need to act immediately, consider finding another organization.

What are the qualifications of your counselors? Are they accredited or certified by an outside organization? If so, which one? If not, how are they trained?
Try to use an organization whose counselors are trained by an outside organization that is not affiliated with creditors.

Have other consumers been satisfied with the service that they received?
Once you’ve identified credit counseling organizations that suit your needs, check them out with your state Attorney General, local consumer protection agency, and Better Business Bureau. These organizations can tell you if consumers have filed complaints about them. The absence of complaints doesn’t guarantee legitimacy, but complaints from other consumers may alert you to problems.

What are your fees?
Are there set-up and/or monthly fees?
Get a detailed price quote in writing, and specifically ask whether all the fees are covered in the quote. If you’re concerned that you cannot afford to pay your fees, ask if the organization waives or reduces fees when providing counseling to consumers in your circumstances. If an organization won’t help you because you can’t afford to pay, look elsewhere for help.

How are your employees paid?
Are the employees or the organization paid more if I sign up for certain services, pay a fee, or make a contribution to your organization?
Employees who are counseling you to purchase certain services may receive a commission if you choose to sign up for those services. Many credit counseling organizations receive additional compensation from creditors if you enroll in a DMP. If the organization will not disclose what compensation it receives from creditors, or how employees are compensated, go elsewhere for help.

What do you do to keep personal information about your clients (for example, name, address, phone number, and financial information) confidential and secure?
Credit counseling organizations handle your most sensitive financial information. The organization should have safeguards in place to protect the privacy of this information and prevent misuse.

Asking the right questions can make all the difference in a situation as sensitive as mandatory counseling can be. Like always, I advise heading to the FTC’s site here.