Hello, and welcome to Your Money 2.0. I’m Thomas Fox, Community Outreach Director
at Cambridge Credit Counseling. In 2005, the Bankruptcy Abuse Prevention and
Consumer Protection Act was enacted to curb perceived abuses of the bankruptcy system. At that time, many people were afraid that
the new legislation would limit their ability to seek bankruptcy relief, and 2 million Americans
rushed to file before the new law went into effect that fall. Afterward, it looked as though the volume
of filings would remain low for a while, but the recent downturn in the economy has filings
on the rise once again. Why do we think this might be the case? Let’s look at some statistics for a moment. 600,000 Americans filed for bankruptcy protection
in 2006, and in 2008 the number of filings rose to more than one million. In the first quarter of 2009, there was a
38% increase in filings compared to a year earlier, leading some bankruptcy experts to
believe that as many as 1.6 million Americans could seek bankruptcy relief in 2009. The numbers could surpass 2005’s if bankruptcy
judges are granted the authority to change the terms of the first mortgage to reflect
current market rates. There are a number of events that commonly
lead to bankruptcy, including a reduction in income or job loss, a divorce, or a personal
business failure; therefore, it should come as no surprise that filings are growing at
such a rapid pace. However, is it the right option for you? Experts agree that bankruptcy should be considered
as an absolute last resort, although some would recommend avoiding it altogether. The reality is that bankruptcy exists to help
you in difficult financial times. We would simply advise that you consider all
possible remedies. If you sense that your finances are becoming
a problem, your first call should probably be to a non-profit credit counseling service
to speak with a certified counselor. Ask for a comprehensive review of your situation
to help you determine the best course of action. You never know, they might be able to provide
you with some less painful alternatives. If you’re considering bankruptcy, you should
also consult with an attorney who specializes in this practice. The 2005 changes to the bankruptcy code require
attorneys representing bankruptcy filers to conduct a thorough investigation of their
clients’ finances, and they can be held personally liable for inaccuracies. As you might imagine, this has also caused
some attorneys to raise their fees. Don’t let this deter you. Bankruptcy can be a complicated process, and
having a guide working on your behalf is advised. While bankruptcy is a viable option to alleviate
the burdens of debt, it’s a measure that should be carefully considered, since it may
have a long-lasting effect on your life. Depending upon the chapter you file, the notation
will remain on your credit report, and may affect your credit score, for some time. Chapter 7, or liquidation, remains on your
credit report for 10 years and Chapter 13, or restructuring, will be reported for 7 years. Well, that’s it for this edition. We welcome your feedback and ask for your
thoughts and suggestions by e-mailing us at [email protected] Thank you for watching. Until next time, I’m Thomas Fox for Cambridge
Credit Counseling.