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On October 17, 2005 President Bush’s sweeping bankruptcy reform law goes into effect forever changing the rules of debt collection in this natiion. Consumer advocates and the public appear to be completely unaware of the total and complete victory of the creditors under the new legislation. This article opens the door to the Trogan Horse so that consumers can prepare themselves for the worse.

The most important aspect of the bankruptcy code was the “automatic stay” provision. This allowed consumers to file for bankruptcy at anytime during the creditor’s collection process putting an immediate stop to all contact and collection activities from the creditor. The new law requires that a debtor receive credit counseling from an approved non-profit credit counseling agency for 180 days prior to filing Chapter 7 or Chapter 13 bankruptcy.

While this may sound benevolent, a much closer look at the practical effect of this provision reveals the crafty peeling of the debtor’s rights. The 180 day requirement is to provide the credit counseling agency the opportunity to work out payment plans with creditors. However, during this same period of time the creditor is not restrained from collection efforts. For example, Margaret is a homeowner in Jacksonville, Florida and is six months behind on her mortgage. As a rule, credit counseling agencies only work with credit card companies and have little or no training with dealing with mortgage companies.

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Get Your Credit Score At No Charge

Financial literacy is the means of empowering consumers to make informed financial decisions through exposure to accurate and timely information. In no other area is the void of accurate information more evident that in the area of foreclosure.

The national foreclosure rate is at the highest level since the Great Depression. Families fall behind on the mortgage payments because of illness, job layoffs, business failure, divorce and marital problems, and bad money management decisions. Foreclosure and the loss of the home is the usual result. Foreclosure is financially and psychologically devastating to the stability of the household.

This article provides information to expose homeowners to the financial principles of loss mitigation. Loss mitigation is essential to asset protection because it provides the borrower with information necessary to make good decisions. Learning the programs or “tools” available as an alternative to foreclosure is the key to preserving home ownership.

For example, If I told you that the mortgage servicing industry reports average loss of $20,000 to $30,000 per foreclosure, then you may be inclined to believe that foreclosure is not an efficient and cost effective means of collections for the lender. According to Vic Draper, President of Universal Default Services, “33% of all mortgage defaults that go to REO never made contact with the borrower!” The lender does not want your home and will work out a financial alternative if you speak their language.

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Get Your Credit Score At No Charge

You are in a position of needing to consider bankruptcy based on your current financial situation. Hopefully you have learned some lessons along the way in getting to this point, like about how do strike deals, when to get statements in writing from partners or customers, how to plan more carefully for the needs of your company so that you do not grow too fast. Whatever the reason, you got to this point and are now considering filing for bankruptcy.

You need to be fully aware that filing bankruptcy should be your absolute LAST course of action, and only taken after you have thoroughly exhausted all other alternatives. There are probably more excellent reasons to NOT file bankruptcy than there are good ones. While bankruptcy may be your only viable option, you need to ensure that you have exhausted all other viable options first.

Be aware that filing bankruptcy is going to be a huge red flag on your credit report for the next 7 to 10 years. There is nothing you can do about it, and that red flag is going to cause you to be turned down for loans and financing, or if you do get approved, the interest rate that the lender will quote you because he is “taking a chance” on you is going to be astronomically high. That means that it is going to take you longer and will also cost you more to get back on your feet, so consider your options carefully.

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