Bankruptcy Reader

Money management is a skill that needs to be constantly practiced to be perfected. Since it doesn’t come easy for grown ups like us, it’s safe to assume that it will be even more difficult for a child to understand the importance of using money correctly. One of the first things you need to do is teach your child to handle an allowance. You have to help them monitor how they spend the money so they know if they are spending over their limits.

Once they are a little older, open a bank account for them. Insist that they put away a little money regularly. Initially, it may be difficult to convince them, but once they see their money growing in the bank, they will be more amenable to the idea. Lastly, teach your child to research on anything they wish to buy before they put their money into it. This will teach them to be careful with their money and will help to make them smart consumers.

Bad financial planning combined with an unexpected emergency — this is just the right recipe for a person to swirl down the debt abyss. Here’s the story of Jackal Lean — it may sound distinctly familiar… it just may be your story! Nytimes.com reports:

Like so many others I know, I used credit cards to bridge that expanse (often quite broad) between what I made (on average, for many years, less than two grand per month) and what I needed (to cover child care, food, rent, utilities, gas). I also used credit cards to cheer myself up.

Read more: Hooray for Bankruptcy!

I’ve had quite a few people asking me about the UK method of dealing with bankruptcy. Yes folks, there are some things that these Brits can do… quite well! One of those things is how they deal with personal bankruptcy. In the US, heavily indebted consumers are left to their fate — it’s something like “you’ve brought it on yourself. Now suffer!” The British Government seems to empathize with its breed of debt-riddled consumers.

Let’s take a look at how the system works out here before we cross the Atlantic. Here you have the option of filing for bankruptcy or enrolling for a debt management program offered by credit counseling agencies. And look at the irony: many times, the payments for the debt management programs can actually be higher than simply making minimum contractual payments in the first place.

Now for how UK deals with its bankruptcy problem which is almost as bad as it is out here. In the UK, while bankruptcy is an option, indebted consumers can also seek to enter into a legally binding contract with their creditors (mostly unsecured creditors) called an Individual Voluntary Arrangement (IVA). After calculating the amount that the debtor can realistically pay every month, the IVA is scheduled. Typically, an IVA constitutes a 5-year monthly repayment proposal. In a typical proposal, you would have to offer a minimum of 25% of the debt outstanding to be repaid over a 5-year period.

Creditors prefer the IVA since they will receive some payment as opposed to bankruptcy where unsecured creditors will often receive zero or close to it. And the best part? In an IVA system, creditors are not allowed to contact the debtor at throughout the duration of the IVA and the fact that in most cases an large element of the debt will be ‘written off’ in 5 years time leaving the individual completely debt free.

While some run up their credit cards on consumer products, others are hit with a medical emergency — whatever the cause, the end result is the same — a severe debt that could lead to bankruptcy. There are several options for reducing and eliminating debt, however you will not eliminate your debt overnight. Bestsyndication.com reports:

On a recent Oprah Winfrey series of shows called The Debt Diet, experts agreed the best approach is to make more and spend less. Don’t get me wrong, I am not saying this is an easy thing to do. Part time jobs or a sideline business were the most common methods given for making extra money. Cutting expenses is just as hard.

Read more: How to Get out of Debt - Debt Consolidation and Ideas - Avoid Bankruptcy and Reduce Payments Using Credit Counseling Agencies

Now I have the answers to the confusing question that has been niggling me for some time. Here are some of the recently revealed facts:

• Americans have never before been so deep in debt as they are now.
• Bankruptcy lawyers are claiming that they are seeing an increase in the number of people who want to file for bankruptcy. But they also state that the law is too strict and many people are finding it difficult to file.
• And this is the most interesting fact that was revealed recently — that the number of filings has dropped to 20-year lows.

Now, anybody in his or her right sense has the right to be as confused as I was. So now, here comes a piece of news, which could complete the jigsaw puzzle. It seems that though six months have passed since laws were passed making it harder to declare bankruptcy and yet there’s still confusion over who can file. Cfn13.com reports:

Bankruptcy lawyers say some bill collectors may be inadvertently telling debtors if they missed October’s deadline under the old laws - then it’s too late to file - which is incorrect.

Read more: Bankruptcy Confusion

Guess what, the latest reports doing the rounds is that bankruptcy filings have fallen way below normal. That’s what figures say but some bankruptcy lawyers seem to be telling another tale altogether. They claim to be seeing more people filing for bankruptcy than ever before! First-quarter bankruptcy petitions are supposed to have dropped nationwide to the lowest level in 20 years. This is supposed to be thanks to the much-stricter law that requires consumers to complete credit counseling before being eligible for bankruptcy.

In Greater Sacramento, which seems to be following the same pattern as the nation, bankruptcy filings dropped 76 percent in the first quarter and Chapter 7 liquidations fell 80 percent. And, believe it or not, bankruptcy lawyers seem to be feeling the pinch. By some estimates, as many as three out of every 10 bankruptcy lawyers in this area are shifting to other practice areas or leaving the field.

A recent survey by the National Foundation for Credit Counseling (NFCC) found that the biggest reason consumers face bankruptcy is poor money management. And the new bankruptcy law which insists on credit counseling sessions before filing for bankruptcy, has seen filings drop phenomenally since it was introduced. Lsj.com reports:

Nationally, debtors who received prefiling counseling had average debts of $40,673 and an average income of just $31,255, according to a survey by the National Foundation for Credit Counseling, the umbrella organization for Consumer Credit Counseling Services.

Read more: Is bankruptcy reform working? Here’s the difference between the two options

As of now, most Americans have only two choices - file for bankruptcy or enroll onto a creditor controlled debt management plan. In the UK, while bankruptcy is an option, many consumers can also seek to enter into a legally binding contract with their creditors called an Individual Voluntary Arrangement (IVA), which is supposed to be a ‘better than bankruptcy’ commercial proposal put forward by an individual to their unsecured creditors. Livearticles.com reports:

Typically IVAs constitute a 5-year monthly repayment proposal based on the realistic affordability of the individual. A typical proposal would be offering a minimum of 25% of the debt outstanding to be repaid over a 5-year period.

Read more: Can The USA Learn From The UK When It Comes To Bankruptcy

There seem to be conflicting reports coming from the bankruptcy sector. While some lawyers say that they are seeing more people filing for bankruptcy than ever before, actual figures seem to speak another language altogether. First-quarter bankruptcy petitions are supposed to have dropped nationwide to the lowest level in 20 years. This is supposed to be thanks to the much-stricter law that requires consumers to complete credit counseling before being eligible for bankruptcy.

In Greater Sacramento, which seems to be following the same pattern as the nation, bankruptcy filings dropped 76 percent in the first quarter and Chapter 7 liquidations fell 80 percent. And, believe it or not, bankruptcy lawyers seem to be feeling the pinch. By some estimates, as many as three out of every 10 bankruptcy lawyers in this area are shifting to other practice areas or leaving the field. Sacramento.bizjournals.com reports:

“Congress hoped the new law would reduce the number of new consumer bankruptcies and the latest figures reflect that intention, though there are still many families under financial stress,” Samuel J. Gerdano, executive director of the American Bankruptcy Institute in Alexandria, Va., said in a statement.

Read more: New law slows bankruptcy filings by 71 percent