Credit cards can feed a spending addiction. (Photo Credit: CC BY/Andres Rueda/Flickr)

Once you enter the world of credit cards, it becomes tantalizingly easy to buy today what you can’t afford tomorrow. Swiping magic plastic seems painless, but few things are as damaging to your credit score and financial future as unchecked credit card use. Here are some ideas for how to break the cycle of credit card dependency.

Track your credit card spending

Even if it means writing down every cent you put on your credit card, having documentation of your spending is essential. If your credit card bills are too many and too high due to over-spending, seeing hard evidence can be just the “scared straight” encounter you need. Use a pen and paper or a personal accounting program like Quicken.

Understand marketing messages

As wonderful as credit card companies make it seem, using a credit card won’t spirit you away to a blissful realm of contentment. Be aware that credit card companies aren’t in the business of making you feel better, no matter how many rewards programs or ephemeral references to peace and tranquility are hinted at in brochures and commercials. On the contrary, credit card companies are in the business of creating consumer debt.

Decide to change

Avoiding credit card debt is a logical choice, considering how fast compound interest multiplies. You must approach breaking the credit card cycle of addiction with both your heart and mind. It requires full commitment.

Minimize damage through consolidation

If you have the option to execute a balance transfer at a low APR, take advantage and save yourself cash until it is paid off. This is handy if you have multiple credit cards with smaller balances, too, as one card is generally easier to manage.

Pay in cash, cut the cards

A great way to avoid revolving debt altogether is to pay for everything in cash. If you are deep in the throes of credit card addiction, don’t even use a debit card. Cut up your cards, credit or debit. Once problem credit cards are paid off, keep them at zero balance rather than canceling them, unless again your credit card addiction is severe. If such is the case, cancel them all except for the card of longest standing, but only in the event that you’re applying for a mortgage, Yahoo! Finance advises. Put that one on ice and use it for emergencies only.

Save money for emergencies

If you don’t trust yourself to save that one card for emergencies, open a high-yield savings account that will allow automated deposits from your paycheck. Deposit a portion of your paycheck each pay period until you’ve saved 3 to 6 months of salary in the account.

Seek professional help

Battling credit card addiction alone can be debilitating. Various books can help you tackle addiction and its associated feelings of helplessness. Seek the help of a mental health professional if possible.

Sources

Credit Card Addiction Stories

Psychology Today

Yahoo! Finance

Living in a credit card nation

Compound interest adds up fast. Pay off your credit cards and high-interest loans first. (Photo Credit: CC BY/Dan Foy/Flickr)

When it comes to personal finance, few concepts are as important to understand as compound interest. Many consumer finance products use this form of interest. Knowing about compound interest can save you from a potential bankruptcy.

Compounding snowballs

The process of adding interest to principal is called compounding. Depending upon the type of personal loans, student loans, mortgages or other loans in question, interest is compounded on a regular schedule, be it daily, monthly, etc. Keep in mind that once compounding begins, interest itself earns more interest. This is a credit card company’s bread and butter, an easy way for a consumer to fall rapidly into debt. To understand the true cost of any credit card or loan, interest-related factors like how often the remaining balance is compounded and the annual percentage rate must be considered.

Compound interest should not be confused with simple interest. Simple interest is charged on principal balance only and doesn’t charge interest on accrued interest as compound interest does. Simple interest is quite rare in the field of consumer finance.

Doing the compound interest math

Here’s the math you need to know, using hypothetical numbers:

1. Divide interest charged by the amount you owe to produce the periodic interest rate. If you are dealing with personal loans in the amount of $3,500 and you’re paying $25 monthly in interest, divide $25 by $3,500 to get 0.0071428571428571.
2. Take the answer from the previous step and add 1. Now you have 1.0071428571428571.
3. Raise the result of Step 2 to the exponential power of the number of payments you make on the loan or credit card each year. If you pay monthly, you make 12 payments per year. Using the same figures, the result is 1.089163111.
4. Subtract one from the result in Step 3, which converts the compound annual interest rate to a decimal. Here, you have 0.089163111.
5. Multiply the personal loan compound annual interest rate you changed into a decimal number by 100 to create an easy-to-read percentage. Here, you’d take 0.089163111 and multiply by 100 to produce an annual compound interest rate of 8.92 percent.

Understand interest and avoid bankruptcy

Sources

Compound interest Wiki

eHow.com

Navigating the dog days of unemployment can be made easier if you're careful with your unemployment check. (Photo Credit: CC BY-SA/Robin Alexa/A.K.A. Binsk)

The process of pounding the pavement for work can cause perpetual frustration for the unemployed. The sometimes fruitless nature of a job search must not blind consumers to the fact that they’ll have to make that unemployment check stretch. To accomplish this, financially sound decisions are necessary.

Reaching backward for relief

The U.S. job market may be slowly improving, but that doesn’t mean the necessity to live frugally on unemployment benefits has gone out the window. Simply cutting out the Starbucks and buying less at the grocery store won’t do it, advises AOL Jobs. To begin with, personal finance expert Jean Chatzky suggests working backward. Once you’ve locked down the essential, fixed expenses, you can focus on what may have to go.

“I think the easiest way to budget is backward,” she says. “This is where my money is going now and then you can make changes.”

Know your expenses outside fixed costs

Austerity measures must be put to action when you have only an unemployment check to rely upon. This goes beyond savings, reminds Chatzky. It’s about taking an ax to those things that aren’t essential, fixed monthly costs in your budget. Rent, mortgage and car payments are inescapable, and they also don’t change from month to month. If public transportation is an option, however, it would be wise to consider the expense of maintaining a vehicle.

That leaves the non-essentials like cable TV and Internet. If you have 600 channels but feel like there’s nothing on most of the time, consider the TV bill carefully. Similarly, the Internet can be a time-waster, although it can also be an invaluable job search tool. If you must cut that one, consider using the Internet at your public library.

“The people that I’ve seen throughout this recession that have the biggest problems are the ones who continued to live as if there were two salaries coming into the family when there was really only one,” says Chatzky.

More revenue-generating, future-preserving ideas

The unemployed may have to consider some difficult questions in order to remain above water financially. Will you rent out that room above the garage, pull the kids out of private school or sell your prized guitar collection?

Taking money out of a retirement account like a 401(k) is an option some consider, although financial experts advise that the unemployed not touch that money unless it is a dire emergency. That nest egg was built for a reason, and the tax penalties can amount to 30 or 40 cents on the dollar for early withdrawal. In the worst case scenario where debt is absolutely smothering, filing for bankruptcy may be an option, although doing so is not as easy as it was a few years ago. Consult with a credit counselor.

Source

AOL Jobs

North Carolina Gov. Bev Perdue on unemployment benefits

Don't assume a debt collector is throwing you a life preserver. Demand they verify your debt first. (Photo Credit: CC BY-ND/Gibson Regester/Flickr)

If you’re drowning in debt and need major credit repair, don’t automatically assume that debt collectors have your best interests at heart. Their job is to get paid, and the truth is that sometimes, unscrupulous techniques are used that can be illegal. Before agreeing to a payment plan or even filing for bankruptcy, demand that the collector verify your debt in writing.

Debt validation: A bankruptcy scenario

Bankrate.com provides a useful example of a scenario in which someone should demand that a debt collector validate a debt. A couple has a home with a mortgage that is in both their names. One person is in collections with $30,000 in credit card debt solely in her name. She is considering filing for Chapter 13 bankruptcy, but the couple is concerned about losing the house in the deal.

While there are some potential complications that would require the consultation of a bankruptcy attorney (or two, if a second opinion is desired), Bankrate points out that filing for either Chapter 13 or Chapter 7 bankruptcy will generally not put a home at risk.

How to get aggressive with unscrupulous debt collectors

Get everything in writing when dealing with debt collectors. Don’t reveal bank account information when they push to set up automatic payments. Demand that the debt collector provide a fax number or address to which you can submit a request for debt validation. Simultaneously, dispute the debt in question.

By demanding debt verification, you’re demanding that the debt collector prove that you owe the money, that the collector has the legal right to collect and that the original company that held the account is clearly identified. By disputing the debt, you’re one step ahead in case the debt is erroneous or the collector does not have the information. Few things are as fruitless as giving money to a collection company that may not even own your account.

Know your legal rights

Under the Fair Debt Collection Practices Act, a consumer has the right to force a debt collector to validate a debt. Attorney Tom Martin of Price Law Group says that if debt collectors fail to comply, they cannot legally continue to harass a consumer for payment. If the collector continues, the consumer may even be entitled to monetary damages. But that’s not all:

“If a debt collector receives a dispute from a consumer, and the debt collector has been reporting the consumer’s account to the credit bureaus, the collector must also start reporting the account as disputed,” Martin reminds.

As a final note, the “get it in writing” directive must also apply to the consumer. If any debt payments are made, receipts and statements should be kept as proof in the event of a lawsuit.

Sources

Bankrate
Fair Debt Collection Practices Act
Lawyers.com: bankruptcy attorneys
U.S. Courts

What happens when you’re drowning in debt?

Some contend that if you borrow short term loans, you'll be bankrupt and homeless soon after. No such correlation exists. Image from Wikimedia Commons.

Small short term loans like payday loans don’t cause bankruptcy. It’s been asserted by some that short term loans do. However, there has not been confirmation for that. Usually, for people to file for bankruptcy, they need to have debts of more than a few hundred dollars. The number of short term loan borrowers that file for bankruptcy is insignificant.

Short term loans actually prevent bankruptcy

Critics of payday loan and short term loan lenders contend that people will get sucked into a spiral of debt and be bankrupt within months if they so much as cast their eyes at a payday loan store. If that were true, no one would borrow them. Not only that, but a wealth of evidence would point to it, like bankruptcy filings. Serious study of the cash advance industry indicated that the correlation between borrowing money from a lender and bankruptcy was incredibly thin. In fact, according to CBS, a 2009 study by the American Journal of Medicine, six out of every 10 bankruptcies were due to medical expenses.

Link is thin at best

One study found that there was a slight correlation between payday customers in Texas and bankruptcy filings, although the number of payday customers who filed for bankruptcy in the study was less than 2 percent of those studied. A study conducted after the bans on payday loans were enacted in Georgia and Oregon found that more filings for Chapter 7 bankruptcy were observed in areas where payday lending was banned.

Extraordinary claims need proof

Because most studies of the demand for short term loans have found that unexpected expenses were the most common reason for borrowing, it is not likely that payday loans have much, if any, effect on personal bankruptcy. You can read more in the Payday Loan Facts and Statistics Report on Personal Money Market.

Manage emergencies with a payday cash loan

No matter how carefully you manage your finances, you can’t always control emergencies and unexpected expenses. Whether you need cash until payday to fix a freezer that won’t freeze, a washer that won’t wash or a car that won’t start, a payday cash loan can solve the problem.

Avoid late fees with a payday cash loan

When you’re struggling to make ends meet, late fees and overdraft charges can be enormously frustrating. Ironically or not, the less money you have to work with, the more fees and charges you risk incurring. The more fees and charges you incur, the less money you have left over to pay your bills on time. A payday cash loan can help you avoid a vicious late-fee cycle. A quick payday loan often costs less than the late fee on just one major expense like your rent or mortgage.

Get out of debt quickly with a payday cash loan

When you need to borrow money, a payday cash loan is the best way to make sure you don’t run up a debt you can’t easily pay back. With a payday cash loan, you know exactly how much money you have in the bank, so there’s no risk of overspending. You also know right up front exactly how much the loan costs and when it will be paid back. Generally, a payday cash loan is paid in full in one automatic payment on your next payday. When needed, installment payday loans and installment loans for bad credit let you make smaller payments over a longer term.

It’s easy to apply for a payday cash loan

Applying for a payday cash loan is fast and hassle-free!

• Bad credit or bankruptcy not a problem
• Typically no credit checks for loans up to $1,500
• No faxing necessary
• No collateral required
• Fixed incomes may be acceptable
• Military applications may be acceptable
• Direct deposit to your bank account in as little as two hours, in most cases
• Secure online application protected with 128-bit encryption

Apply for a payday cash loan today | Start HERE!

For many low-income students, no-credit-check private student loans are a way to pay for college. (Photo Credit: Sitong Peng/Flickr/CC BY-ND)

A private student loan is, for many low-income students, a way to pay for college. Operated outside the federal student loan system, these private student loans are very easy to get but can be difficult to pay back. New legislation in Congress may make these private loans subject to bankruptcy protections. The real solution, though, might be a readjustment of the value of education.

The business of private student loans

Private student loans are a secondary way that many students borrow money. When figuring out how to pay for college, many students end up turning to loans. The first “line of loans” are the federally supported and now federally administered loans. The limit on these loans, however, often falls far below the cost of education. In order to make up the difference, up to 45 percent of students and parents take out private student loans. These private student loans are basically loans with no credit check – and students are taking them out at higher rates than ever before. These loans often have variable interest rates and are offered with very little, if any, consideration of the student’s ability to repay the loan.

The problem with private student loans

Private student loans provide financing to students for college expenses. Many private student loans are taken out by students attending for-profit colleges or ultra-expensive “top tier” private colleges. Unlike a casino loan, payday loan, credit card bill or even some mortgages, private student loans cannot be settled during bankruptcy proceedings. Instead, since 2005, these student loans are not eligible for bankruptcy protection. The only way to settle these loans, other than paying them in full, is proving “undue hardship,” which can be very difficult to fulfill the legal requirements of.

Judging the value of an education

The justification for many families and students that take out private student loans is that an education will always pay for itself. No matter what the cost of a degree, the belief has been that the degree would pay for itself with better employment opportunities. It is true that with more education, average salaries go up and unemployment and underemployement go down. The mathematics of whether a degree is “worth” the high cost, though, is thrown off by the increase in the cost of education. While median family income between 1982 and 2007 increased by 147 percent, tuition and fees increased 439 percent, according to the National Center for Public Policy and Higher Education. The Bureau of Labor Statistics found that in 2009, the average difference in weekly pay for a high school graduate and an associates’ degree is $135 a week.

The real question behind these private student loans with no credit check, for students, is whether they are getting in over their heads with education debt. With 25 percent of students borrowing more than $30,000 to get degrees and student loan default rates skyrocketing, it is a question that many students will have to consider much more closely.

Sources:

The News Record
New York Times
Bureau of Labor Statistics

Large firms filing bankruptcy

This is the largest bankruptcy filing of multibillion-dollar public companies in history, according to Bankruptcydata.com. According to Brian Hamilton, founder of Sageworks, “Corporate revenue is down in the United States and when topline revenue is down, there’s less money to spread through expenses.”

Because of the large number of financial crashes, bankruptcy courts are having a difficult time managing. Barbara Lynn, chair of the bankruptcy committee of the US, suggested Congress make changes in judgeships. She is requesting that Congress authorizes 13 permanent bankruptcy judges and 22 temporary judges to handle the overwhelming caseload.

How Americans are responding

Long-term lodging company Extended Stay Inc., Six Flags Amusement Inc. and GM Corp are just three of the huge corporations that are setting the stage for businesses and individuals. With struggles that are insurmountable being felt on the corporate level, many consumers are interpreting this as extending their individual struggles. Lynn Miller, analyst at Price Waterhouse, stated, “We are seeing people experimenting with more spending, but when large corporations fall, they immediately regress back to their thrifty ways…people want to test the waters, but the economic OK to do so just isn’t there yet.”

Consumer Anne Davies of Middleton, Pennsylvania said, “When GM went, we immediately reassessed our spending. Although we haven’t lost jobs or homes, we still felt that if it could happen to GM, it could happen to us…we started watching our mortgage loans, personal loans and finances that much more closely.” Davies’ sentiment is shared with the general American public, as they try to manage the recession’s aftermath.

Try to mitigate their losses

Many of the large corporations that are currently financially falling are trying to mitigate their losses. GM cut huge amounts of dealerships prior to filing bankruptcy. Six Flags amusement theme parks had heavy advertising in place, coupled with deep discounts, to bring in people, despite their huge debt. At the beginning of this year, Anne Cunningham, spokesperson for Six Flags, said, “We want to bring people in…our priority is to maintain our good name and customer service focus, regardless of where we end up in a few months.”

Many consumers are taking the same view, wanting to mitigate their losses as they watch the post-recessionary period play itself out. They are using strict budgeting and tactful decision-making to handle bills, debt, and savings. The bottom line is that no one knows exactly what state the economy will be in once the recession completely passes. With major crashes in the lending and housing industries, almost no one will walk away unaffected on some level.

Economic slowdown

Although some pundits were hopeful that the recession was bottoming out, the reality is that there are still large signs that the nation has a way to go before it’s in the clear. The consistent fall of billion-dollar corporations is a large sign that more aftershocks are going to be felt by the economy. Consumers have to take proactive steps to watch their personal loans, mortgage loans, savings and retirement accounts. No one knows when the recession’s aftermath will truly be over, and consumers need to be prepared.

Start your personal loan application HERE!

During tax season, many people look forward to refunds of money owed to them by the IRS. They anticipate using their refunds for investments, repayment of personal loans, vacations, or any number of other worthwhile things. For other people, however, tax season is a very stressful time of year. It’s a time to review finances, to account for money spent and income received for the entire year, and to figure out how much they owe to Uncle Sam.

Every year, a large number of these people fail to pay their taxes and they eventually find themselves owing a serious tax debt to the IRS. Many begin to avoid the agency, believing that their debt is too large to overcome and that they may lose all of their investments and savings when and if the IRS ever catches up with them. However, the IRS may actually be able to help a person owing a tax debt if that person is willing to communicate with the agency and explore avenues of repayment.

Installment plans are available for many

For someone who’s never been delinquent with the IRS before, an installment plan may be an option. Generally, this option is only made available to those who owe less than $25,000. However, even people who owe more $25,000 may request an installment plan. When the debt exceeds $25,000, the payment-plan approval process may be a bit more involved. For instance, the account may be assigned to a special revenue officer for the duration of the payment plan.

Offers in compromise work for some

Under some circumstances, the IRS may accept less than the total amount owed in full satisfaction of the debt. This sort of arrangement is called an offer in compromise, and it requires the taxpayer to make one lump-sum payment for the total amount agreed upon in order to satisfy the debt. The lump-sum payment may be a significant amount, but frequently it will be much less than the original amount owed.

Bankruptcy won’t make the IRS go away

Sometimes, people who are indebted to the IRS seek to avoid paying by filing for bankruptcy. However, a bankruptcy does not necessarily eliminate IRS debt. In some cases, a bankruptcy may result in the creation of a plan to pay the debt in installments over time, and it may prevent additional penalties and interest from accruing, but in most cases, IRS debt is not discharged in bankruptcy. A tax debtor should always get competent legal advice before filing bankruptcy.

IRS debt forgiveness is rare, but not impossible

In rare cases, the IRS may forgive tax debts when the amounts owed are the result of a tax return filed a certain number of years prior to filing for bankruptcy or if the taxes owed were assessed at least 240 days prior to the bankruptcy filing. A few other exceptions exist as well, such as when it is determined that an extreme hardship exists and the debt is not the result of the taxpayer attempting to evade tax laws. In some cases, a bankruptcy may make it easier to repay an IRS debt, but this is never a guarantee, and anyone owing a tax debt should obtain legal counsel before deciding whether to file a bankruptcy.

Communication is best way to resolve IRS debt

It is always best to pay taxes on time. Short of that, when an IRS debt is owed, making timely payments on an installment plan helps to avoid late penalties and other fees, and may also help a debtor to maintain a good credit standing. This is just as true for IRS debts as it is for credit-card and other debts. When a person falls behind on a tax debt, the absolute best way to resolve it is to communicate openly and clearly with the IRS to find out exactly what is owed and what repayment options are available. Communicating in this way can help people to gain control of their finances and eliminate tax debt along with enormous mental and emotional stress.

Good news for debtors: You really do have options

Borrowing money doesn’t mean consumers have to file bankruptcy when they get into trouble. Today’s market is changing. It’s not as easy as it once was to manage due to the recession, unemployment rates, job cut-backs, and overall market problems. The good news, however, is that hard financial times have opened the doors to more options for people in trouble. Many people who formerly would have automatically looked to bankruptcy have some options now. Here are a few that may help.

Refinance a home

For consumers who are having a hard time making ends meet, now is a great time to look into refinancing. Interest rates are at all-time lows now and that can save any family a considerable amount of money on a monthly basis. For consumers who have steady income and some equity in a home, refinancing can be a good way to reduce monthly expenses. In an Economy.com article, Martin Battleman said, “It’s the perfect time to talk to mortgage companies…in particular if you are a good paying customer. They don’t want to lose you and with interest rates so low, it could save anyone from financial disaster.”

Negotiate with creditors

The market downturn wasn’t good news for anyone—and that includes lendings. It’s always possible to at least call a lender and try to negotiate. If you have a good payment history, you’ll have extra negotiating power with the lender. Don’t wait to call until you’ve missed. Being proactive is a key to overcoming financial problems. As Battleman said, “The worst thing a customer can do is wait and lag behind in payments. Too many people freeze when they can’t pay their bills instead of act quickly. Talk to your lending company as soon as you know there might be a potential problem.”

Consolidate credit-card debt

Borrowing money can become overwhelming and the number of credit cards a person has can get out of control. For anyone with a large number of credit cards, consolidation may be a helpful option. Sometimes getting rid of cards isn’t necessarily the best, but transferring balances to lower-interest cards can reduce monthly payment amounts. Consumers can also strategically focus on paying off higher interest cards. Doing so can cut down on large interest payments and help stave off bankruptcy.

Renegotiate vehicle loans

Another good option is to talk to car lenders. A car payment is normally a large expense in a household. Sometimes you can renegotiate the payment amount on your current car loan. If not, you may be able to refinance with a new lender at a more favorable interest. Either way, playing hardball with car lenders can work in today’s market.

The new view on bankruptcy

Borrowing money has put many people in difficult financial positions. A huge number are looking to bankruptcy to help them out of their binds, but there are other options. In Battleman’s words, “Bankruptcy is the only solution for some people—yes. But not all people. Some can be proactive and find ways to avoid something that may hamper them for ten years.”

If you are thinking of borrowing money, apply here!

Try driving one of 'em big boys. (Photo: http://picasaweb.google.com/russell.seth)

Unemployment is nothing new these days. But with the holidays just around the corner, the last thing we want to talk about is unemployment. Employees of Arrow Trucking, however, are not as fortunate as many of us are. Just three days before Christmas, Arrow employees are forced to cope with what many of us have witnessed firsthand, and continue to dread: Unemployment.

Arrow Trucking – facing bankruptcy?

Arrow Trucking operates about 1,400 trucks throughout the United States, and has been in business for more than half a century. Rumor has it that the company has gone bankrupt, yet not one of their big-time executives has come out to neither confirm nor deny this claim.

According to a report published today by Tulsa World news, an unidentified inside administration worker said that about 200 employees were told by company executives to pack their belongings and go home Tuesday morning. Workers were seen carrying boxes out of the Arrow Trucking office in Tulsa, Oklahoma. “The building is clearing out,” said the anonymous insider. “We’ll know within 24 hours if it’s permanent.”

The Life of a Truck Driver

Truck driving can earn you a hefty pay day, but it’s definitely no easy job. Drivers are gone hours on end, often for days, traveling day and night, state to state, no matter the weather. If you think you’re tired because you managed to get one or two blisters from shoveling snow off your sidewalk, you might want to reevaluate your definition of “tired”. As a truck driver, you must be alert at all times. Though beaten and exhausted, they somehow manage to finish the job in a reasonable amount of time. Operating huge trucks through different weathers, steep mountains, narrow lanes, heavy traffic and blindspots is hard enough. And they don’t just get to put their feet up once they reach their destination. After hauling stuff all day, they move on to loading and unloading. Now that’s a tiresome job.

Arrow Trucking Drivers – Stranded

When you’re traveling place to place hauling goods all day, the last thing you want is to be stranded. Unfortunately, according to the report, some drivers of Arrow Trucking are now stranded and unable to get home. Ruben Bradley, an Arrow driver, said that he was told by a dispatcher Monday night to pick up his load for delivery in New Mexico. At a truck stop in Wichita Fall, Texas today, he says he has decided not to move until he is certain he can refuel after he delivers his load. “A driver was told they’re shutting the doors and to bring his truck to the nearest Freightliner dealer or Arrow terminal,” Bradley said. “He was told if you took it to the Freightliner dealer, they would see about getting us back home.”

There is no certainty yet of what the future beholds for Arrow Trucking. Many Arrow employees, however, who have not received their last pay day check, will have to find a way to make ends meet, and welcome the New Year with every ounce of spirit they can manage to haul out.

Payday loans have not put this woman on the street. This study indicates that there is in fact no clear correlation between using payday loans and facing financial calamity like bankruptcy. (Photo: flickr.com)

Human Ecology professors Ruth Berry and Karen Duncan of the University of Manitoba appear to have been ready to point the accusing finger at payday loans in Canada. Given supporting data, it appears they would have been happy to report that payday loans and bankruptcy were strongly connected in the Great White North. However, “The Importance of Payday Loans in Canadian Consumer Insolvency” does nothing of the sort because doing so would fly in the face of hard evidence. There is no clear correlation between bankruptcy and use of payday loans in Canada, according to the authors of this study. In fact, the overall financial well-being of payday loan customers appeared to be slightly more favorable than those surveyed who did not use payday loans.

Payday Loans in Urban Centers and Inner Cities

In much the same way that payday lending has grown across the American landscape, payday lenders have stepped in to serve people of the inner cities who have been abandoned by the traditional banking industry – all because there wasn’t enough money to be had. And yet the same banks are the ones who charge payday loan companies with exploiting the public. While it is true that interest rates (when annualized as APR) for payday loans are higher than some traditional bank loans, the ease and convenience of payday loans tends to trump the offerings of banks and credit unions who demand higher customer qualifications and force applicants through a maze of paperwork. Credit-constrained consumers who lack liquid assets continue to find payday loans infinitely useful.

Berry and Duncan Want to Find the Payday Loan-Insolvency Connection

In their quest for this grail, the authors obtain data from “the main industry players in the payday loan field in Canada,” namely National Money Mart Company, RentCash and Cash Money. They also reference the Canadian Payday Loan Association, which is the national industry association that represents at least 40 payday loan companies (including those mentioned above), and the Financial Consumer Agency of Canada through analysis of related studies.

Previous Studies Didn’t Find a Connection, Either

“Not much literature exists connecting the experience of payday loans with consumers filing for bankruptcy,” write the authors. Perhaps this is because there isn’t a real connection? One study they cite found that only one in 10 payday loan customers filed for bankruptcy following a payday loan. Other studies noted a similar percentage. Those respondents who were found to have multiple payday loans at the same time may have been more prone to bankruptcy, but this group was found to be a minority. Moderate usage – which represents the majority of payday loans – shows no clear correlation with bankruptcy filings. In fact, a study by Robert Mayer (“Payday Lending and Personal Bankruptcy,” 2004) showed that those who displayed such moderate use owed only 17 percent of net monthly income, which is hardly a bankruptcy-inducing situation.

More Findings that Break the Mold

• The authors’ data indicated that payday loan customers tended to hold less in the way of long-term loans that did those surveyed who did not use payday loans. Such loans were most often mortgage loans.
• Interestingly, those who filed for bankruptcy and had used payday loans carried “significantly less” short-term debt than those bankruptcy filers who had not filed for payday loans. Payday loan customers held a mean of $14,485 in debt for 2005 and $13,938 for 2006, while those who did not use payday loans showed a mean debt of $25,972 and $26,615 in those years.
• Insolvent consumers didn’t display any tendency toward being either male or female.
• Households surveyed who used payday loans tended to be smaller than those households who didn’t.

Data by City

Berry and Duncan analyzed data from a number of major Canadian cities. What they found tended to be consistent with what has been discussed thus far: that payday loans do not correlate directly to bankruptcy and that payday loan consumers tended to display greater financial well-being than those surveyed who had never used the short term loans. Here’s a sampling:

Vancouver: Bankruptcy households who used payday loans versus those who did not displayed a higher average income.

Calgary, Edmonton and Toronto: Payday loan users showed much less long-term debt.

Installment Loans: Yet Another Path to Avoiding Bankruptcy

Berry and Duncan freely admit that “bankrupts with payday loans are more likely to be employed and have higher incomes and lower debt-to-income ratios than other bankrupts.” This brings them to their burning question: “Do payday loans contribute to bankruptcy?” Numerous studies paint very different pictures regarding the average amount for payday loans. Since more of them point to relatively small figures, it seems unlikely that such amounts would contribute heavily to bankruptcy. And since many lenders offer installment loans as an option in the event that a consumer is unable to pay their payday loan on the maturity date, there is a built-in path leading away from default and bankruptcy.

There’s an Indictment in Here Somewhere

Despite the fact that they found that payday loan customers tended to be more financially healthy than those respondents who never used the product, Berry and Duncan continue to operate from the position that payday loans are some evil product that should be avoided at all costs. Such is not the case, truly. They fulfill a need that traditional banking has largely ignored. Oh, but if only “mainstream lenders provided more accessible services, and educational institutions and non-profit or government agencies gave more objective information about payday lenders in public service advertisements, perhaps these borrowers might attempt to access other lending options,” write the authors. They follow that statement with the false claim that payday lenders do not make their interest rates known to consumers. In America, payday loan companies are required by the Truth in Lending Act to make this information readily available to consumers.

Prescience and Payday Loan Law

If there were only a database in place that could record payday loan usage, then perhaps there would be fewer abuses. That’s what the authors suggest in their 2007 study, and it has come to pass in numerous U.S. states. “A model that might be considered for regulating the number of payday loans held by one individual is the Drug Program Information Database (DPIN) which connects Manitoba Health and all pharmacies in Manitoba to a central database,” they write in reference to a 2006 Manitoba Centre for Health Policy study. “This prevents duplication and double-doctoring by providing the dispensing pharmacy with real time information to show the patient’s drug profile and allows the pharmacist to deny filling a prescription, which is the same or similar to another recently prescribed.” This is quite similar to what we see with payday loan databases. Such inventions do tend to lean toward the nanny state frame of mind, but many lawmakers have insisted upon pushing it through.

Correlation Does Not Imply Causation

And in this case, the authors can’t even draw a correlation between payday loans and bankruptcy filings in Canada. Certainly, those who have filed for bankruptcy would be burdened by any additional debt (including payday loans), but that implies no correlation (let alone causation). “It is not possible to determine whether the loan is hastening the insolvent’s decision to file for bankruptcy,” write Berry and Duncan. I’d go further than that, based upon their findings. I’ll say what they appear unwilling to admit: that payday loans help more than they hurt when used moderately (as most are). Bankruptcy is frequently the result of a complex mixture of financial and social issues. Payday loans are no scapegoat.

Many people rely on nontraditional loans like payday loans, installment loans, and cash advances to make ends meet. Although there are some signs that the economy has reached its low and should be on an upswing shortly, many businesses are still in distress. The latest large corporation to feel the strain of the recession is the Six Flags amusement park company. The company recently filed for Chapter 11 bankruptcy protection, seeking to reorganize debt of $1.8 billion.

Business to continue as usual

According to Six Flags CEO Mark Shapiro, the bankruptcy filing won’t affect the operations of the company’s 20 theme parks located throughout the US, Mexico, and Canada. Although the company had a record year in 2008, bringing in over 25 million customers, its debt has become unmanageable. The debt is estimated to be near $2.4 billion, and the company can no longer sustain it.

Discounted prices may still break the average budget

Because of the recession many people have cut amusement parks and other entertainment out of the budget. Six Flags, like other theme parks, reduced its prices to gain customers, a tactic normally used on in slow seasons like early spring and late fall. Specials like $10 entry fees, discounts on food and drinks, and two-for-one fares are all being used at the parks. Sharpiro added, “We are trying to maintain the revenues we do have as we face a restructure of debt. Six Flags will extend all discounting possible to better serve customers who are feeling the recession’s limitation of their funds.”

Consumer response

Many consumers see the Six Flag bankruptcy as another indication that the recession is not yet over. They believe more financial blows are to come. Economist Gary Lindall of Citigroup stats, “When you see industry giants having serious financial issues, it’s an indicator that individual problems could potentially still occur…people are taking notice of billion-dollar corporations’ actions and acting accordingly with their personal finances.”
Consumers are bracing themselves for more financial strain when it comes to dealing with everyday bills and expenses. Many qualifying customers are using payday loans, cash advances and installment loans as normal budgetary aids, rather than solely for emergency purposes. Analyst Dale Prichard of Smartmoney.com stated, “It used to be that nontraditional loans were looked at as an unusual choice and used for out-of-the-ordinary expenses. Research is showing that many Americans are looking to these types of funding every month as a way to cover their regular bills.”

New ways to balance the budget

The popularity of nontraditional loans is expected to grow exponentially in coming years as hard-hit consumers recover from the recession. Although there are some signs of an end to the current wave of economic problems, there are still a lot of financial issues to settle. For example, many homeowners are in the midst of mortgage modification programs and have yet to actually get used to their mortgage payments again. Because of changes in the credit industry, some people have to manage their finances without the credit cards they once relied on. Changes like these are making people wary of the future.

In the end . . .

As big corporations continue to struggle through the after effects of the recession, people are left to manage their finances with additional and nontraditional methods. Payday loans, installment loans, and cash advances are working their way into the regular consumer agenda, rather than being solely emergency options.

President Obama's plans for the Consumer Financial Protection Agency could mean that debt relief is closer than ever for the downtrodden. (Photo: flickr.com)

The recession has forced America to face some of its most deep-seated systematic financial troubles. One thing that has become clear is that unscrupulous mortgage lenders and credit card agencies have dined for far too long upon consumers who largely didn’t understand that they could hold out for something better. Foreclosure and bankruptcy have amplified the burden on consumers, courts and the economy as a whole tenfold, which makes the question of how debt relief should be handled a more pressing issue that it has been in decades.

Cornell and George Washington Law School Economics lecturer and former professor Dr. Neil Buchanan ponders in a recent FindLaw column entitled “Should Federal Agencies or Courts Protect Consumers in Financial Markets?” which side of the regulatory coin America needs most. Existing regulatory agencies are being given more extensive duties by the Obama administration in order to help make America’s financial markets safe and sound. At the same time, new agencies like the newly minted Consumer Financial Protection Agency appears to be on its way to receiving unprecedented powers. In theory, it will have the power to police how mortgage lenders, banks, credit card companies, payday lenders or any other consumer finance company interacts with consumers. It is Buchanan’s opinion that allowing regulatory agencies to protect consumers is the best route, as relying solely upon the courts wouldn’t be enough of a deterrent to keep suspect lenders from indulging in bad behavior. The ideal system would have both in place as a regulatory enforcement clearing house.

But Isn’t This Big Government Clogging the Market?

Some will surely feel that way. What I have seen from state governments is an overzealousness to regulate payday lending, to the point where it is impossible for such legitimate businesses to operate in some states. Mortgage lenders and credit card company supporters would likely have similar complaints, although the path of destruction their industries have carved is rather hard to ignore. Buchanan begins his argument by considering the “courts only” option. If it were possible t regulating a market in need of deep repair like the mortgage industry through simple enforcement of the law, that would be ideal. However, Buchanan doesn’t see that as being enough. Sometimes the courts might work in favor of the consumer and debt relief, but not often enough. Extreme circumstances would be required to convince most judges to see cause to invalidate a contract. The “non-elite” consumers, as Buchanan calls those most in need of debt relief, would not receive the help they need.

There is precedent here, but it could be a one in a million kind of thing. Buchanan points to a New York Times story where a judge ruled that a homeowner’s mortgage debt could be completely discharged during bankruptcy. This loop in legal convention happened due to a technicality: the mortgage company couldn’t prove it had the legal right to collect payments on the homeowner’s mortgage due to the fact that their mortgage had been repackaged and resold so many times that the paper trail had been lost. The mortgage company claimed this was “standard procedure” now, but the judge wouldn’t accept such shenanigans. Since the judge wasn’t exactly sure who was due the money, he decided he couldn’t compel the consumer to make mortgage payments to any one party.

“Saved by a Technicality” Won’t Work for Everyone

Buchanan rightly points out that not all judges will be as determined to call mortgage lenders’ bluff in such situations. “Standard procedure” should hold in most cases, meaning that homeowners would still be legally obligated to follow the terms of their mortgage contract. And mortgage lenders have certainly learned something from that case and are making sure all paperwork is in order. Once again, the deck will be stacked against consumers.

Don’t Depend Upon Courts for Debt Relief

Courts enforce the law. When a consumer enters into any legal contract with a lender, the terms of that contract are in most case subject to enforcement by law. Buchanan considers the vast majority of consumers to be “grossly mismatched” against mortgage and credit card companies. Mandatory arbitration clauses, hidden interest spike triggers and means of computing interest are always written in the best interests of the creditor. Consumers often agree to such contracts because they feel they don’t have any other choice. New regulatory agencies may be able to curtail abusive practices that are currently considered legal, but until that time officially arrives, there is too little hope that the average consumer will be able to fight back through the court system.

Courts Have Been Friendlier to Finance Companies

Families can go to court to attempt to prove that they shouldn’t have to pay under the terms of less than legal contract. However, Buchanan believes most judges will stick to enforcing contract language. In turn, the lending companies themselves are effectively using the court system to compel consumers to pay, even if it is through wage garnishment.

What about “Equitable Doctrines” for Debt Relief?

Hoping that lenders lose their paperwork isn’t a good strategy. That’s where “equitable doctrines” come into play. These can create situations where courts might be willing to set aside otherwise valid contracts because they feel that it there were unconscionable circumstances that placed the consumer under duress or undue influence to sign. Buchanan draws our attention to the “doctrine of unconscionability” itself, claiming that it works in two ways. First, in terms of procedure, there is the scenario where a contract was formed under suspicious circumstances. Second, there is the scenario where the substance of a contract is deemed grossly unfair. If both conditions are met, a contract like a mortgage, credit card agreement, etc, will not be enforced.

Too Good to Be True?

Perhaps it is. It all looks great on paper, says Buchanan, but debt relief is hard to come by via equitable doctrines. Only the most extreme cases are considered by courts, and for most people, having trouble paying a mortgage or credit card they signed up for won’t be enough to sway a judge. This raises the question in Buchanan’s mind as to whether courts should be compelled by stronger legislation to accept equitable doctrine arguments based on things like unconscionability. But as with any other action fought through courts, the cost would likely be prohibitive. Moreover, lenders would still be favored because “losing a contracts case legally cannot result in a company paying punitive damages,” writes Buchanan. “If you lose a contracts case, you merely pay what you would have paid anyway; and if you win, you are ahead. Thus, from the standpoint of repeat players, there is no reason not to abuse your customers (except to maintain goodwill, which many of the companies at issue here have already forfeited).” Then there are plenty of consumers who simply will not have the stomach to sue or be willing to accept a lesser settlement.

Calling on the Government for Debt Relief

Traditionally, the government has remained behind the scenes while consumers have pursued their right to take debt relief matters before the court system. As Buchanan suggests, however, this route has not often proved itself to be effective for the average consumer. In situations where genuine signs of abusive practices and unconscionable contracts are involved, new government agencies could take up the baton and make financial regulation more consumer-friendly.

“An agency can be empowered by Congress to order changes in behavior, changing business practices broadly and generally in order to level the playing field on which financial institutions and their customers do business,” says Buchanan. There could even be scenarios where lenders themselves could support agency regulation over the courts. “Out of control lawsuits” that financial institutions claim burden them unnecessarily would certainly be something lenders would be willing to leave behind so that a regulating agency can rule on matters. “But that hypothetical,” Buchanan writes, “ignores the financial industry’s real agenda, which is to fight to maintain both weak legal rules (allowing them to win in court) and weak-to-nonexistent agency regulation.”

Congress, Act Now

New agencies are about to spring forth from the executive branch to regulate the financial abuse of consumers through deceptive practices. Congress is in a perfect position to arm these agencies with more consumer-friendly laws that will make reasonable debt relief easier to attain. It’s that kind of consumer protection that Neil Buchanan and most concerned consumers are in search of as America looks to emerge from the darkness of the recession into the light of a stronger domestic America.

She's found that silver lining amidst the dark clouds of the recession. It's a matter of effort and perspective. (Photo: picasaweb.google.com)

Millions of people around the world have fallen victim to the current recession. Business houses with international reputations have filed for bankruptcy and employees who were confident of their job security have been dismissed. While the experience of unemployment is common, the reactions of the unemployed vary widely. Unfortunately, many people allow their worlds to collapse around them once the job they have worked at for years has disappeared, and they add mental anguish to the financial sufferings that usually come with job loss. However, there are also those who lose their job and are able to take advantage of these unfortunate circumstances to make a new start in life. As with many other things in life, a great deal depends on whether you choose to view changes in circumstances as a personal disaster or a source of motivation. A search on Google for “starting a new business” turns up an incredible 70,000,000 hits, which surely indicates that despite the downturn, there is a healthy interest in new business opportunities.

Redundancy Can Lead to Something Much Better

Although the vast majority of people are upset when they are made redundant – unless they receive a generous early retirement package – some workers find a silver lining in the dark cloud of job loss. Redundancy sometimes furnishes an opportunity to make a welcome break with a “dead end” job and start enjoying life. For instance, employees who lost their positions working for large companies have found this event gave them the motivation to go ahead and set up their own businesses, and they have succeeded beyond expectations. Instead of having to fit into the schedule of somebody else’s business and being paid a fixed wage, they now find they can manage their own time and they feel their quality of life has consequently improved and their financial status advanced. Rather than allow the economic recession to wreck their lives they take advantage of it to realize their dreams. In some cases, unemployed people have also been able to transform a former hobby into a source of livelihood, or they have taken their professional skills and applied them in new fields such as teaching or consultancy. For example, www.gaebler.com describes how an applications consultant for a small software company took advantage of his redundancy to open his open business training other people to become consultants.

Environmental Side Benefits from Industrial Decline

Just as the recession has brought unforeseen benefits to some of the individuals affected, its impact on the life of nations has also revealed a positive side. A good example of how recession has led to an improvement in life quality comes from the North of England. This area is famous as the cradle of the Industrial Revolution, and it has suffered severely from a loss of jobs in traditional industries like textiles and coal mining over the last forty years. At the same time, the decline of industrial activity has been responsible for a dramatic improvement in the quality of the environment. The industrial sources of water and air pollution have been so dramatically reduced that fish have returned to rivers that have been biologically dead for over 150 years, and respiratory diseases have been much reduced by the cut in factory smoke emissions. The river Irwell in England is a classic example of a dead river that has returned to life as the polluting factories along its banks closed down. The people may now be poorer, but at the same time their environment is so much healthier.

If you are one of the many people who are experiencing an unexpected financial emergency, an installment loan maybe just the right thing for you.  Installment loans are a simple way to get cash on hand quickly.  What exactly is an installment loan?  It is a short term loan. When you take out an installment loan you will have a set payment plan until the balance is paid off.

Benefit of Installment Loans for Those with Bad Credit

With the economy the way it is now, most everyone will need an installment loan at some point. In fact, many people are already receiving installment loans, and a lot of these people have bad credit. But how can somebody with bad credit receive an installment loan?

Installment Loans with No Credit Checks

In most cases, we do not require a credit check in order to approve someone for an installment loan.  Usually, whether a person has good or bad credit, when they apply for a loan they are concerned about the affect it will have on their credit.  Since most lenders usually will not do a credit check, you will avoid another inquiry of your credit and the installment loan will not appear on your credit report.

Installment Loans and Bankruptcy

Inquiring about bankruptcy is something we usually do not do when considering someone for an installment loan.  We do not use it as a qualifying factor.  If you have had a recent bankruptcy, do not let it stop you from applying with us online today.

Installment Loans and Identity Theft

While doing anything online, people are rightfully concerned about identity theft.  Many places that offer installment loans require things like your social security card, driver’s license, and state ID which they may fax, scan or e-mail to other locations.  Often times, they may even require to see proof of residency through a piece of mail.

This is usually unnecessary and can be frustrating when these items are not on hand.  When you apply online with us today, you can avoid all of these problems.  We do not require seeing any of your personal identification information.  Always look for a phone number to call and make sure you talk to someone before you apply for an installment loan.  This assures that the site you are using is safe.

Our Quick Installment Loans

When you receive an installment loan from us, the money is usually deposited into your account in as little as two hours and the money is available for spending right away.  What a change that is from other loan companies that make you wait several days to use the money that you need right now.

The best part of applying for an installment loan with us today is that we ask the minimum questions to get you set up with an installment loan.  This makes it possible for most everyone to complete our installment loan application in less than five minutes.

For Installment Loans APPLY HERE

Old Country Buffet filed for Chapter 11 in January 2008, but emerged with reduced debt in April 2009.

People say recession sparks innovation, creativity, responsibility, and all other sorts of optimistic-sounding things. It also causes failure, collapse, bankruptcy and all other sorts of apocalyptic-sounding things.

It also causes complications, such as leaving franchise owners to figure out how to deal when their parent company goes bankrupt. Sometimes the parent company manages to get back on its feet, and sometimes it shuts down. Either way, the franchise owner is still responsible for his or her store, and left with the decision of what to do when selling a tarnished brand.

CNN Money published a list of franchises that went bankrupt since the recession became official. Some came back and some didn’t.

Mrs. Fields Famous

The Mrs. Fields Famous brand, based in Salt Lake City, Utah, is the parent to 1,200 Mrs Fields Cookies and TCBY stores. Last August, the company filed for Chapter 11.

Lucky for the franchises,  which continued to operate throughout the bankruptcy proceedings, only a couple of months later,the company was on the road to recovery. I don’t know if they  used private money lenders or what, but it  managed to restructure its $196 million in debt down to $50 million.

Cork and Olive

Small Florida parent company Cork and Olive wasn’t so lucky. Cork and Olive, which was made of eight company stores and nine franchises, filed for bankruptcy in June 2008.

The company stores shut down, but the franchises are still soldiering on. CNN Money reports that “the franchisees meet regularly to discuss how to keep their brand alive without the parent company.”

Bennigan’s

Texas-based family dining restaurant Bennigan’s filed for Chapter 7 bankruptcy — that’s right, the bad kind — in July 2008. All of the corporate locations were shut down. CNN Money says:

Its 138 franchisees were left in PR hell, struggling to convince patrons that they were still open for business.

However, private equity firm Atalaya Capital company acquired the brand in October and reopened the corporate stores quickly, many of which are now operated as franchises.

Bally Total Fitness

This gym just can’t seem to catch a break. The nationwide franchise, based in Chicago, has filed for bankruptcy more than once. CNN Money reports:

It was a déjà vu for the health club chain in December 2008 when it filed for Chapter 11, a mere 14 months after emerging from its first Chapter 11 filing in July 2007. Just weeks ago, Bally signed an agreement to emerge from bankruptcy by restructuring the $1.5 billion in debt it had accrued and by granting 94% of the company’s equity to lenders such as J.P. Morgan.

Fatburger

This one gets a little complicated. Two subsidiaries of Fatburger Corp, Fatburger Restaurants in California and Fatburger Restaurants in Nevada, filed for bankruptcy in April. However, parent company Fatburger Corp. did not file for bankruptcy. Confusing matters more, that parent company, Fatburger Corp., is based in California.

Furthermore, Fatburger Restaurants in California and Fatburger Restaurants in Nevada accounted for 72 percent of Fatburger Corp’s total revenue. So what now? Good question. CNN says “The company’s 90 franchise owners are waiting to see what happens next.”

Today the government announced unemployment figures for June that are much worse than expected. Employers cut 467,000 jobs and the unemployment rate rose to 9.5%, the worst since 1983. Unemployment is a lagging indicator, so even after the economy begins to improve, the jobless rate is likely to rise for some time.

With no end in sight to rising unemployment and with foreclosure rates continuing to accelerate, people are turning in droves to bankruptcy. You may find it humiliating even to consider bankruptcy, let alone join that crowd in the courthouse corridor, waiting for your name to be called. But with an economic tsunami rolling over your home, job, and health insurance, it just may be your best course of action.

The time comes when it makes sense to give up the good fight

Many people — honorable to the bitter end — struggle much longer than they should to rein in unmanageable debt. By the time they give up, they’ve lost valuable assets that would have been protected in bankruptcy, which defeats the “fresh start” purpose of the law. If you are a candidate for bankruptcy, the best time to file may be when you’re on the losing track but still have assets worth protecting.

It’s true that a bankruptcy filing remains on your credit record for up to ten years and makes it difficult to obtain competitive interest rates on loans. Most bankruptcy debtors, however, already have badly damaged credit records by the time they file.  When you are faced with insurmountable debt, a compromised credit rating can be a small price to pay for the fresh start that only bankruptcy can afford.

Before you decide to file, consult an experienced bankruptcy attorney

Bankruptcy is a significant and complicated legal proceeding. There is nothing to prevent you from representing yourself in bankruptcy court, but it is not wise to do so. When you represent yourself, you are held to the same standards of knowledge and practice as a licensed attorney. Knowing exactly how to navigate the intricacies of the Bankruptcy Code and several other bodies of statutory and common law is essential to an effective discharge of debts.

It costs nothing to get an initial consultation with an experienced bankruptcy attorney practicing in your jurisdiction.  It is vital that you receive competent legal advice before deciding whether bankruptcy is the right choice for you.

Looking at the numbers, bankruptcy may not be such a tough choice

An Associated Press analysis for the first quarter of 2009 revealed that U.S. bankruptcy filings were up an astounding 46% from March of 2008 to March of 2009. The jump is an even more dramatic 81% since March of 2007.  Some economists predict that the situation will become even worse.

A little over four years ago Congress enacted the Bankruptcy Abuse Prevention and Consumer Protection Act, also known as the 2005 Bankruptcy Amendment Act. Bankruptcy filings surged in the fall of 2005 to a record-shattering 2 million cases for the year as struggling consumers rushed to beat the implementation of the new law. In 2006, filings plummeted to 600,000. This year, bankruptcy filings are soaring again, and the predicted numbers for 2009 range between 1.5 and 1.6 million.

Elimination of debts in Chapter 7 may be an option even for higher incomes

The majority of bankruptcy debtors file under Chapter 7 which eliminates most (but not all) unsecured debts. When Congress enacted the 2005 Bankruptcy Amendment Act, it sought to restrict Chapter 7 filings by requiring debtors to pass a “means test” designed to weed out those who appear to have the ability to pay all or a portion of their debts under Chapter 13. Despite this hurdle, many people still qualify for Chapter 7 relief. Read Bankruptcy|What Should I Do?

The means test allows debtors to deduct certain expenses from their incomes. The greater the deductions, of course, the easier it is to qualify. Despite the congressional intent, the means test contains several variables that may enable people with higher incomes to qualify for Chapter 7. Debtors who own homes with mortgages may deduct the full amount of the mortgage. Having several children or dependants, multiple cars with loans or leases, high childcare and insurance expenses, and making large religious donations may also facilitate qualifying for Chapter 7.